UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended: August 31, 2022

 

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

 

For the transition period from ___ to _______

 

Commission File No. 001-38402

 

 

(Exact name of registrant as specified in its charter)

 

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

 

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

 

(954) 888-9779

(Registrant’s telephone number, including area code)

 

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

 

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

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

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

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

As of October 24, 2022 the registrant had 118,445,979 shares of its common stock, par value $0.00001 per share, outstanding.

 

 

 

 

 

 

NEXTPLAY TECHNOLOGIES, INC.,

formerly MONAKER GROUP, INC.

FORM 10-Q

For the Quarter Ended August 31, 2022

 

TABLE OF CONTENTS

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ii
   
WHERE YOU CAN FIND OTHER INFORMATION vi
   
PART I – FINANCIAL INFORMATION 1
   
Item 1. Financial Statements 1
Condensed Consolidated balance sheets (UNAUDITED) 1
Condensed Consolidated Statements of Operations, net and comprehensive loss (UNAUDITED) 2
Condensed Consolidated Statements of Stockholders’ Equity (UNAUDITED) 3
Condensed Consolidated Statements of Cash Flows (UNAUDITED) 5
Notes to the condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56
Item 3. Quantitative and Qualitative Disclosures About Market Risk 66
Item 4. Controls and Procedures. 66
   
PART II – OTHER INFORMATION 67
   
Item 1. Legal Proceedings 67
Item 1A. Risk Factors 67
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 68
Item 3. Defaults Upon Senior Securities 68
Item 4. Mine Safety Disclosures 68
Item 5. Other Information 68
Item 6. Exhibits 69

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (“Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of NextPlay Technologies, Inc., formerly Monaker Group, Inc. (the “Company”), that are based on current expectations, estimates, forecasts, and projections about the industries in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. In particular, as discussed in greater detail below, our financial condition and results could be materially adversely affected by the continued impacts and disruptions caused by the novel coronavirus (“COVID-19”) global pandemic and governmental responses thereto. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements included in this Report. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under the section entitled “Risk Factors”, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K for the year ended February 28, 2022, as filed with the SEC on June 21, 2022 (under the heading “Risk Factors” and in other parts of that report) and in the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2022, as filed with the SEC on July 14, 2022 (under the heading “Risk Factors”). The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason, except as otherwise required by law.

 

The following discussion is based upon our unaudited Condensed Consolidated Financial Statements included elsewhere in this Report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, derivative liabilities and related disclosure of contingencies. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates, including those related to the fair value of investments, the carrying amounts of intangible assets, depreciation and amortization, deferred income taxes, purchase price allocation in connection with business combinations and allowance for credit losses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the SEC, including in our most recent Annual Report on Form 10-K. All references to years relate to the Company’s fiscal year ended February 28 or 29 (during leap years) of the particular year.

 

ii

 

 

Summary Risk Factors

 

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

 

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

 

iii

 

 

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

 

iv

 

 

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

 

v

 

 

WHERE YOU CAN FIND OTHER INFORMATION

 

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

 

vi

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

NextPlay Technologies, Inc.

Condensed Consolidated Balance Sheets

 

    August 31,
2022
    February 28,
2022
 
    (Unaudited)     (Audited)  
Assets            
Current assets            
Cash and cash equivalents   $ 2,715,432     $ 4,282,110  
Short term investments     305,271       304,509  
Loans receivable, net     21,293,909       16,556,288  
Loans receivable - related parties, net     705,000       725,000  
Unbilled receivables     6,016       2,179  
Other receivables     414,534       339,233  
Other receivables, related parties    
-
      155,425  
Prepaid expenses and other current assets     1,176,556       826,419  
Advance for investments     1,977,213       3,227,117  
Investments in unconsolidated affiliates: Short-term     5,555       8,722  
Assets held for sale - current     30,691,032       7,332,994  
Total current assets   $ 59,290,518     $ 33,759,996  
Non-current assets                
Investments in unconsolidated affiliates: Long-term     6,258       6,258  
Convertible notes receivable, related party, net     4,594,214       4,594,214  
Intangible assets, net     16,501,705       9,883,789  
Goodwill     19,740,037       27,949,554  
Computers, furniture and equipment, net     347,570       366,499  
Operating lease right-of-use assets     553,467       1,894,654  
Security deposits     435,606       177,972  
Assets held for sale - non current    
-
      21,120,557  
Total non-current assets   $ 42,178,857     $ 65,993,497  
Total assets   $ 101,469,375     $ 99,753,493  
                 
Liabilities and stockholders’ equity                
Current liabilities                
Line of credit and notes payable, net   $ 5,233,449     $ 4,463,471  
Accounts payable and accrued expenses     8,324,379       4,288,575  
Accounts payable and accrued expenses - related parties     60,310       433,814  
Other current liabilities     129,208       127,779  
Current portion of operating lease liability     190,652       218,181  
Other current liabilities - customer demand deposits payable     25,761,216       7,497,465  
Notes payable - related party     686,078       765,040  
Liabilities held for sale - current     12,152,032       9,708,053  
Total current liabilities   $ 52,537,324     $ 27,502,378  
                 
Non-current liabilities                
Note payable long term, related parties    
-
      966,314  
Operating lease liability, net of current portion     383,908       1,543,627  
Other long-term liability     10,657       6,087  
Liabilities held for sale - non current    
-
      1,873,889  
Total non-current liabilities   $ 394,565     $ 4,389,917  
Total liabilities   $ 52,931,889     $ 31,892,295  
Commitments and Contingencies    
 
     
 
 
                 
Stockholders’ equity                
Series A Preferred stock, $0.01 par value; 3,000,000 authorized; 0 and 0 shares issued and outstanding at August 31, 2022 and February 28, 2022, respectively    
-
     
-
 
Series B Preferred stock, $0.00001 par value; 10,000,000 authorized; 0 and 0 shares issued and outstanding at August 31, 2022 and February 28, 2022, respectively    
-
     
-
 
Series C Preferred stock, $0.00001 par value; 3,828,500 authorized; 0 and 0 shares issued and outstanding at August 31, 2022 and February 28, 2022, respectively    
-
     
-
 
Series D Preferred stock, $0.00001 par value; 6,100,000 authorized; 0 and 0 shares issued and outstanding at August 31, 2022 and February 28, 2022, respectively    
-
     
-
 
Common stock, $0.00001 par value; 500,000,000 shares authorized; 112,701,795 and 108,360,020 shares outstanding at August 31, 2022 and February 28, 2022, respectively     1,127       1,084  
Treasury stock     (771,453 )     (771,453 )
Additional paid-in-capital     97,734,010       104,393,361  
Accumulated other comprehensive income     (1,224,656 )     (218,703 )
Accumulated deficit     (54,013,291 )     (39,173,079 )
Stockholders’ equity attributable to parent   $ 41,725,737     $ 64,231,210  
Non-Controlling Interest in consolidated subsidiaries     1,204,757       182,805  
Non-Controlling Interest in held for sale     5,606,992       3,447,183  
Total stockholders’ equity     48,537,486       67,861,198  
Total liabilities and stockholders’ equity   $ 101,469,375     $ 99,753,493  

 

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

 

1

 

 

NextPlay Technologies, Inc.

Condensed Consolidated Statements of Operations, Net and Comprehensive Loss

(Unaudited)

 

    For the six
months ended
    For the three
months ended
 
    August 31,
2022
    August 31,
2021
    August 31,
2022
    August 31,
2021
 
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Revenue                        
Interest and financial services     922,948       293,357       456,397       293,357  
Total revenue     922,948       293,357       456,397       293,357  
                                 
Cost of Revenue                                
Interest and financial services     668,024       87,339       565,057       87,339  
Total Cost of Revenue     668,024       87,339       565,057       87,339  
Gross Profit     254,924       206,018       (108,660 )     206,018  
                                 
Operating Expenses                                
General and administrative     6,683,273       1,736,211       4,380,218       1,598,302  
Salaries and benefits     2,888,183       1,555,499       1,458,739       1,377,373  
Technology and development     521,323       122,765       241,717       66,971  
Stock-based compensation     623,426       215,233       190,785       215,233  
Selling and promotions expense     49,640       162,702       21,098       135,564  
Depreciation and amortization     790,567       684,165       393,797       549,407  
Total operating expenses     11,556,412       4,476,575       6,686,354       3,942,850  
Operating Loss     (11,301,488 )     (4,270,557 )     (6,795,014 )     (3,736,832 )
Other Income/ (Expense)                                
Valuation loss, net     (3,167 )     (4,622,936 )     1,367       (4,622,936 )
Interest income (expense)     (385,774 )     1,207       (220,749 )     42,165  
Realized loss on sale of marketable securities     -       (59,586 )     -       (59,586 )
Foreign exchange loss    
-
      -       -       1,289  
Other income/(expense)     (57,735 )     47,515       (130,028 )     44,654  
Total other income/(expense)     (446,676 )     (4,633,800 )     (349,410 )     (4,594,414 )
Net loss before tax from continuing operations     (11,748,164 )     (8,904,357 )     (7,144,424 )     (8,331,246 )
Estimated corporate taxes    
-
      (3,382 )     -       (3,382 )
Net Loss after tax from continuing operations:     (11,748,164 )     (8,907,739 )     (7,144,424 )     (8,334,628 )
Net Loss after tax from discontinued operations:     (5,497,091 )     (1,078,414 )     (4,688,845 )     (1,078,414 )
Net Loss after tax from continuing operations:     (11,748,164 )     (8,907,739 )     (7,144,424 )     (8,334,628 )
Share of loss from non-controlling interest     190,217       480,477       45,327       303,129  
Net loss from continuing operations attributable to parent     (11,557,947 )     (8,427,262 )     (7,099,097 )     (8,031,499 )
Net Loss after tax from discontinued operation:     (5,497,091 )     (1,078,414 )     (4,688,845 )     (1,078,414 )
Share of loss from non-controlling interest     2,214,826       295,912       2,633,112       295,912  
Net loss from discontinued operation attributable to parent     (3,282,265 )     (782,502 )     (2,055,733 )     (782,502 )
Net loss attributable to parent     (14,840,212 )     (9,209,764 )     (9,154,830 )     (8,814,001 )
                                 
Other Comprehensive (loss) income                                
Foreign currency translation gain (loss) from continuing operations     (497,925 )     122,071       (296,391 )     144,738  
Foreign currency translation loss from discontinued operations     (1,083,361 )     (262,567 )     (336,780 )     (262,567 )
Total other comprehensive loss     (1,581,286 )     (140,496 )     (633,171 )     (117,829 )
Comprehensive Loss     (18,826,541 )     (10,126,649 )     (12,466,440 )     (9,530,871 )
Currency translation allocated to:                                
Equity holders of the Company     (1,005,953 )     (11,838 )     (477,837 )     10,829  
Non-controlling interests of the subsidiaries     (575,333 )     (128,658 )     (155,334 )     (128,658 )
Total foreign currency translation     (1,581,286 )     (140,496 )     (633,171 )     (117,829 )
                                 
Total comprehensive loss attributable to:                                
Equity holders of the Company     (15,846,164 )     (9,350,260 )     (9,632,666 )     (8,931,830 )
Non-controlling interests of the subsidiaries     (2,980,377 )     (776,389 )     (2,833,774 )     (599,041 )
Total comprehensive loss     (18,826,541 )     (10,126,649 )     (12,466,440 )     (9,530,871 )
                                 
Weighted average number of common shares outstanding                                
Basic     110,956,664       87,837,223       113,553,299       88,607,026  
Diluted     110,956,664       87,837,223       113,553,299       88,607,026  
                                 
Basic net (loss) per share from continuing operations:     (0.10 )     (0.09 )     (0.06 )     (0.09 )
Basic net (loss) per share from discontinued operations:     (0.03 )     (0.01 )     (0.02 )     (0.01 )
Total basic net (loss) per share     (0.13 )     (0.10 )     (0.08 )     (0.10 )
                                 
Diluted net (loss) per share from continuing operations:     (0.10 )     (0.09 )     (0.06 )     (0.09 )
Diluted net (loss) per share from discontinued operations:     (0.03 )     (0.01 )     (0.02 )     (0.01 )
Total diluted net (loss) per share     (0.13 )     (0.10 )     (0.08 )     (0.10 )

 

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

2

 

 

NextPlay Technologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

 

For the three months ended August 31, 2022

 

    Common
Stock
Shares
    Common
Stock
Amount
    Treasury
Stock
    Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
income
    Total
stockholders’
equity
    Non-controlling
interest
    Stockholders’
equity
 
Balances, May 31, 2022     111,736,081       1,118       (771,453 )     104,414,539       (44,858,461 )     (746,819 )     58,038,924       5,105,231       63,144,155  
Net loss for the period          
     
     
      (9,154,830 )    
      (9,154,830 )     (2,678,439 )     (11,833,269 )
Fair value adjustment from finalization of purchase price allocations          
     
      (6,923,296 )    
     
      (6,923,296 )     4,540,291       (2,383,005 )
Shares issued for compensation     489,199       5      
      129,671      
     
      129,676      
      129,676  
Shares issued for consulting services     256,577       2      
      61,114      
     
      61,116      
      61,116  
Shares issued for assets acquisition     219,938       2      
      51,982      
     
      51,984      
      51,984  
Foreign currency translation adjustment     -      
     
     
     
      (477,837 )     (477,837 )     (155,334 )     (633,171 )
Balances, August 31, 2022     112,701,795       1,127       (771,453 )     97,734,010       (54,013,291 )     (1,224,656 )     41,725,737       6,811,749       48,537,486  

 

For the six months ended August 31, 2022

 

    Common
Stock
Share
    Common
stock
value
    Treasury
Stock
    Additional
Paid in
Capital
    Accumulated
deficit
    Accumulated
other
comprehensive
income
    Total
Shareholders’
equity
    Minority
interest
   

Total

Shareholders’
equity

 
Balances, February 28, 2022     108,360,020       1,084       (771,453 )     104,393,361       (39,173,079 )     (218,703 )     64,231,210       3,629,988       67,861,198  
Net loss for the period     -      
-
     
-
     
-
      (14,840,212 )    
-
      (14,840,212 )     (2,405,043 )     (17,245,255 )
Fair value adjustment from finalization of purchase price allocations     -      
-
     
-
      (6,923,296 )    
-
     
-
      (6,923,296 )     4,540,291       (2,383,005 )
Shares issued for compensation     698,593       7      
-
      256,314      
-
     
-
      256,321      
-
      256,321  
Shares issued for consulting services     506,577       5      
-
      367,112      
-
     
-
      367,117      
-
      367,117  
Shares issued for assets acquisition     3,136,605       31      
-
      1,262,365      
-
     
-
      1,262,396      
-
      1,262,396  
Increase in ownership of subsidiary - HotPlay     -      
-
     
-
      (1,621,846 )    
-
     
-
      (1,621,846 )     1,621,846      
-
 
Foreign currency translation adjustment     -      
-
     
-
     
-
     
-
      (1,005,953 )     (1,005,953 )     (575,333 )     (1,581,286 )
Balances, August 31, 2022     112,701,795       1,127       (771,453 )     97,734,010       (54,013,291 )     (1,224,656 )     41,725,737       6,811,749       48,537,486  

 

3

 

 

NextPlay Technologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

 

For the three months ended August 31, 2021

 

    Preferred B
Shares
    Preferred B
Amount
    Preferred C
Shares
    Preferred C
Amount
    Common Stock
Shares
    Common
Stock
Amount
    Treasury
Stock
    Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
income
    Total
shareholders’
equity
   

Minority
interest

   

Total

Shareholders’
equity
 
Balances, May 31, 2021                             62,400,000     $ 624           $ 11,599,357     $ (1,596,072 )   $ (12,446 )   $ 9,991,463     $ (567,625 )   $ 9,423,838  
Reduction of share capital                             (10,400,000 )     (104 )           (2,999,896 )                 (3,000,000 )           (3,000,000 )
Reverse acquisition recapitalization     10,000,000       100       3,828,500       38       23,854,203       238             62,813,297                   62,813,535       5,401,901       68,215,436  
Conversion of preferred shares     (10,000,000 )     (100 )     (3,828,500 )     (38 )     11,246,200       112             (112 )                              
Shares issued for consulting and bonus                             333,000       3             621,747                   621,750             621,750  
Shares issued for debt payment                             335,000       3             669,997                   670,000               670,000  
Shares issued for business combination                             1,925,581       19             4,813,933                   4,813,952             4,813,952  
Share repurchase                                         (771,456 )                       (771,456 )           (771,456 )
Foreign currency translation adjustment                                                          

10,829

    10,829    

(128,658)

      (117,829 )
Net loss for the period                                                     (8,814,001 )           (8,814,001 )     (599,041 )     (9,413,042 )
Balances, August 31, 2021                             89,693,984       895       (771,456 )     77,518,323       (10,410,073 )      (1,617 )     66,336,072       4,106,577       70,442,649  

 

For the six months ended August 31, 2021

 

    Preferred B
Shares
    Preferred B
Amount
    Preferred C
Shares
    Preferred C
Amount
    Common Stock
Shares
    Common
Stock
Amount
    Treasury
Stock
    Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
income
    Total
shareholders’
equity
    Minority
interest
   

Total

Shareholders’
equity
 
Balances, February 28, 2021                             62,400,000     $ 624           $ 11,599,357     $ (1,200,309 )   $ 10,221     $ 10,409,893     $ (390,277 )   $ 10,019,616  
Reduction of share capital                             (10,400,000 )     (104 )           (2,999,896 )                 (3,000,000 )           (3,000,000 )
Reverse acquisition recapitalization     10,000,000       100       3,828,500       38       23,854,203       238             62,813,297                   62,813,535       5,401,901       68,215,436  
Conversion of preferred shares     (10,000,000 )     (100 )     (3,828,500 )     (38 )     11,246,200       112             (112 )                              
Shares issued for consulting and bonus                             333,000       3             621,747                   621,750             621,750  
Shares issued for debt payment                             335,000       3             669,997                   670,000               670,000  
Shares issued for business combination                             1,925,581       19             4,813,933                   4,813,952             4,813,952  
Share repurchase                                         (771,456 )                       (771,456 )           (771,456 )
Foreign currency translation adjustment                                                           (11,838 )     (11,838 )    

(128,658

)     (140,496 )
Net loss for the period                                                     (9,209,764 )           (9,209,764 )     (776,389 )    

(9,986,153

)
Balances, August 31, 2021                             89,693,984       895       (771,456 )     77,518,323       (10,410,073 )      (1,617 )    

66,336,072

     

4,106,577

      70,442,649  

 

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

 

4

 

 

NextPlay Technologies, Inc.  

Condensed Consolidated Statements of Cash Flows 

(Unaudited)

 

    For the Six Months Ended  
    August 31,     August 31,  
    2022     2021  
Cash flows from operating activities:            
Net loss from operations   $ (14,840,212 )     (9,209,764 )
                 
Adjustments to reconcile net income to net cash used in operating activities:                
Depreciation and amortization     790,567       1,526,740  
Valuation loss, net     3,167       1,555,979  
Stock based compensation     623,426       621,750  
Gain on Sale of assets     -       (26 )
Share of non-controlling interest     (2,405,043 )     (776,389 )
(Gain)/Loss on currency translation     (1,581,286 )     (140,496 )
Impairment loss     -       3,126,543  
Provision from employee benefits     5,459       -  
                 
Changes in operating assets and liabilities:                
Amounts due from related parties     155,425       14,479  
Amounts due to related party     (2,496 )     73,188  
Accounts receivable     (145,565     4,749,175  
Other receivable     (70,853 )     -  
Unbilled receivable     1,359,570       (4,760,457 )
Loans receivable     (4,717,621 )     (1,572,298 )
Prepaid expenses and other current assets     (684,036 )     666,161  
Security deposits     (257,634 )     (86,610)  
Operating lease liabilities     289,642       25,300  
Accounts payable & accrued expenses     4,599,154       591,614 )
Deferred revenue - related party     (743,728     (69,374 )
Other current liabilities     (810,910     (105,284 )
Other Liabilities - Customer Deposits     18,263,751       -  
Cash used in operating activities   $ (169,223 )     (3,769,769 )
                 
Cash flows from investing activities:                
Short term investment     (762 )     235,658  
Investment in unconsolidated affiliate     -       113,644  
Additions of intangible assets - related party     (86,063 )     (755,639 )
Additions of intangible assets     (4,715,297 )     (684,041 )
Purchase of computer, furniture, and equipment - related party     -       (117,385 )
Purchase of computer, furniture, and equipment     (94,975 )     (23,690 )
Proceeds from disposal of computer, furniture, and equipment     75,621       1,460  
Effects of a business combination of NextBank     -       4,200,006  
Effects of a business combination of NextPlay (Monaker)     -       9,323,686  
Cash (used in) provided by investing activities   $ (4,821,476 )     12,293,699  
                 
Cash flows from financing activities:                
Proceeds from convertible notes payable – related party     1,362,478       700,000  
Repayment of notes payable - related party     (1,045,276 )     (213,155 )
Treasury stock transaction     -       (771,456 )
Proceeds from promissory notes     1,066,228       1,564,149  
Payments on promissory notes     (296,250 )     (1,303,613 )
Cash provided by (used in) financing activities   $ 1,087,180       (24,075 )
                 
Cash and Cash Equivalents                
                 
Net change during the period     (3,903,519 )     8,499,855  
                 
Balance, beginning of period – continuing operations     4,282,110       444,920  
Balance, beginning of period – discontinued operations     2,336,841       -  
Balance, beginning of period     6,618,951       444,920  
                 
Balance, end of period from continued operations   $ 2,715,432       8,944,775  
                 
Supplemental disclosures of cash flow information                
Cash paid for interest   $ 365,865       43,174  
                 
NON-CASH TRANSACTIONS                
Settle (a) Convertible note receivable and (b) note payable due to closing share exchange transaction     -       12,000,000  
Settle (a) Convertible note receivable and (b) share capital increase due to closing share exchange transaction     -       3,000,000  
Share issuances for asset acquisition – Fighter Base and Token IQ     1,262,397       -  
Share issuances for consulting and compensation     623,438       -  
Reclassification of advance payment to intangible asset – GoGame     1,250,000       -  

 

 

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

 

5

 

 

NextPlay Technologies, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 – Summary of Business Operations and Significant Accounting Policies

 

Nature of Operations and Business Organization

 

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

 

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

 

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

 

In the Interactive Digital Media Division, NextPlay closed its acquisition of HotPlay Enterprise Limited and its In-Game Advertising (“IGA”) platform on June 30, 2021.

 

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

 

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

 

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

 

Effective November 16, 2021, the Labuan Financial Services Authority (the “Labuan FSA”) approved the Company’s application to carry on general insurance and reinsurance business, subject to certain conditions including (i) payment of a $15,000 annual license fee, (ii) submission of evidence reflecting paid up capital amounting to MYR $10.0 mil (approximately to $2,260,000 US), (iii) submission of proof of registration as a member of Labuan International Insurance Association, (iv) submission of a Management Services Agreement with the appointed insurance manager, (v) submission of a Letter of Undertaking, and (vi) submission of constituent documents to the Registration of Company Unit. The conditions were to be met within 3 months of November 29, 2021, the date Labuan FSA issued a letter confirming the conditional approval. In August 2022, the Company received a permission letter from Labuan FSA to extend the establishment until November 30, 2022. The Company plans to use the general insurance license to issue primary insurance products and the reinsurance license to issue crypto-securitized insurance in collaboration with Longroot.

 

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

 

6

 

 

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

 

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

 

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

 

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

 

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

 

In addition, the separation agreement provides for the contribution of (i) $1.5 million to NextTrip and (ii) an additional $1.5 million in ten (10) equal monthly installments beginning July 1, 2022, in exchange for NextTrip, as of May 1, 2022, agreeing to assume the ongoing operating expenses of NextTrip and Reinhart. NextTrip has also agreed to assume payments under that certain payment obligation of the Company pursuant an Amendment to Intellectual Property Purchase Agreement effective May 18, 2021, by and between the Company, IDS Inc., TD Assets Holding LLC, and Ari Daniels in the approximate amount of $2,500,000, provided, however, that, if the Company fails to make any of the above installment payments within five (5) business days of being due, that such IDS payment obligation reverts back to the Company. As of August 31, 2022, the Company has not made the requisite installment payments to NextTrip and, as such, the IDS payment obligation has reverted back to the Company.

 

7

 

 

Closing of the transaction remains subject to various conditions, including (without limitation) regulatory approvals, approval of certain related matters by TGS’ shareholders and consummation of a financing by TGS, and is expected to occur in Q4 2022. No assurances can be provided that the closing conditions will be satisfied, or that the transaction will be consummated on the anticipated timeline, or at all.

 

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

 

As a result of the foregoing, as of August 31, 2022, Reinhart/Zappware and NextTrip were no longer treated as a division of the Company; accordingly, for the six-month and three-month periods ended August 31, 2022, the Company had two remaining reportable business segments: NextFinTech and NextMedia. Assets and liabilities of Reinhart TV AG/Zappware and NextTrip were classified as held for sale according to Strategic Sale of Reinhart Digital TV (Zappware) and NextTrip to TGS Esports, Inc.

 

Reverse Acquisition of HotPlay Enterprise Ltd.

 

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

 

During the six-month period ended August 31, 2022, the Company completed the fair value assessment (Purchase Price Allocation) of the net identifiable assets and liabilities assumed by an independent appraiser. In order to reflect the adjustment to the provisional fair value of the identifiable assets and liabilities of the reverse acquisition of HotPlay Enterprise Ltd. at the acquisition date, the adjustments were made as follows:

 

The following table summarizes the fair value of consideration transferred:

Number of Monaker common shares outstanding as of 6/30/2021     23,854,203  
Monaker share price as of 6/30/2021   $ 2.24  
Fair value of common shares   $ 53,433,415  

 

8

 

 

As of June 30, 2021
    Provisional
fair value
    Increase
(Decrease)
    Adjusted
fair value
 
Assets acquired                        
Cash and cash equivalents   $ 7,837,802      
-
      7,837,802  
Current assets     25,568,584       (9,571 )     25,559,013  
Intangible assets     11,932,042       1,809,023       13,741,065  
Goodwill     40,554,998       (1,799,452 )     38,755,546  
Non-current assets     5,442,439      
-
      5,442,439  
Liabilities assumed                        
Current liabilities     (32,482,319 )    
-
      (32,482,319 )
Non-current liabilities     (5,420,131 )    
-
      (5,420,131 )
Total fair value of net assets from reverse acquisition     53,433,415      
-
      53,433,415  
Fair value of non-controlling interests of the subsidiaries   $ 5,433,783       6,018,273       11,452,056  

 

Fair value adjustments were from the increase in fair value of intangible assets which are developed software and goodwill upon the completion of fair value assessment (Purchase Price Allocation) of the subsidiaries subsequent to the closing date of reverse acquisition. As a result, non-controlling interests of the subsidiaries amounting to $6.0 million were adjusted to reflect the fair value as of June 30, 2021 by recognizing the adjustment in additional paid-in capital in consolidated statement of stockholders’ equity.

 

Interim Financial Statements

 

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended February 28, 2022 and notes thereto and other pertinent information contained in the Company’s Annual Report on Form 10-K, which the Company filed with the Securities and Exchange Commission (the “SEC”) on June 21, 2022.

 

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

 

Principles of Consolidation

 

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

 

Use of Estimates

 

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

 

9

 

 

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, 2022, and February 28, 2022.

 

Short Term Investments

 

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

 

Other Receivable, Unbilled Receivables

 

A receivable is recognized when the Company has an unconditional right to receive consideration. If revenue has been recognized before the Company has an unconditional right to receive consideration, the amount is presented as an unbilled receivable. A receivable is measured at transaction price less credit loss, and unbilled receivables are measured at the amount of consideration that the Company is entitled to, less credit loss. The Company calculates its allowance for current expected credit losses (“CECL”) based on lifetime expected credit losses at each reporting date. CECLs are calculated based on its historical credit loss experience and adjusted for forward-looking factors specific to the debtors and the economic environment. A receivable is written off when there is no reasonable expectation of recovering the contractual cash flows.

 

Loans Receivable and Allowance for Loan Losses

 

Loans Receivable

 

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

 

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

 

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

 

Allowance for Loan Losses

 

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

 

10

 

 

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

  

Unbilled Receivables

 

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

 

Prepaid Expenses and Other Current Assets

 

The Company records cash paid in advance for goods and/or services to be received in the future as prepaid expenses. Prepaid expenses are expensed over time according to the period indicated on the respective contract. Other current assets are recognized when it is probable that the future economic benefits will flow to the Company and the asset has a cost or value that can be measured reliably. It is then charged to expense over the expected number of periods during which economic benefits will be realized.

 

Advances for Investments

 

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

 

Investment in Unconsolidated Affiliates

 

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

 

Computer, Furniture and Equipment

 

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

 

11

 

 

Intangible Assets

 

Software Development Costs

 

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

 

Website Development Costs

 

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

 

Goodwill

 

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

 

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

 

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

 

Impairment of Intangible Assets

 

In accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets”, the Company assesses the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could trigger an impairment review include the following:

 

  1. Significant underperformance compared to historical or projected future operating results;

 

  2. Significant changes in the manner or use of the acquired assets or the strategy for the overall business; and

 

  3. Significant negative industry or economic trends.

 

12

 

 

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

 

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

  

Accounts Payable, Notes Payable and Accrued Expenses

 

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

 

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

  

Customer Demand Deposits Payable

 

Customer deposit represents cash demand deposits payable received from customers at NextBank.

 

Business Combination

 

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

 

Non-Controlling Interests

 

Non-controlling interests represent the equity in a subsidiary that is not attributable directly or indirectly to the parent. At the acquisition date, the Company measures any non-controlling interest at fair value.

 

13

 

 

Foreign Currency Translation

 

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

 

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

 

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

 

Earnings per Share

 

Basic earnings per share are computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the three months ended August 31, 2022 and 2021, warrants were excluded from the computation of diluted net loss per share, as the result of the computation was anti-dilutive. The Company presents earnings per share from continuing operation and discontinued operation separately.

 

Assets and liabilities held for sale

 

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

 

Where the fair value less cost to sell of assets held for sale exceed the asset’s carrying amounts, a gain shall be recognized for which not exceeding the cumulative loss previously recognized.

 

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

 

Revenue Recognition

 

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

 

14

 

 

Interest and Financial services

 

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

 

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

 

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

 

Financial services are categorized as follows:

 

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

 

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

 

Cost of Revenue

 

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

  

Selling and Promotions Expense

 

Selling and promotion expenses consist primarily of advertising and promotional expenses, expenses related to our participation in industry conferences, and public relations expenses; the expense is recognized when incurred.

 

Stock Based Compensation

 

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

 

15

 

 

Warrants

 

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

 

The Company treats a modification of the terms or conditions of an equity award in accordance with ASC Topic 718-20-35-3, by treating the modification as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument by issuing a new instrument of equal or greater value, incurring additional compensation cost for any incremental value. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award determined in accordance with the provisions of ASC Topic 718-20-35-3 over the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date.

 

Fair Value of Financial Instruments

 

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

 

The hierarchy consists of three levels:

 

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

 

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

 

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

 

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

 

Financial instruments consist principally of cash, investments in unconsolidated affiliates, other receivables, net, accounts payable, accrued liabilities, notes payable, related parties, line of credit and certain other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

16

 

 

Leases

 

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

 

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

 

Segment Reporting

 

Accounting Standards Codification 280-10 “Segment Reporting” established standards for reporting information about operating segments in annual consolidated financial statements and required selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products, services, and geographic areas. Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

 

An operating segment component has the following characteristics:

 

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

 

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

 

  c. Its discrete financial information is available.

 

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

 

  (i) NextMedia segment, consisting of:

 

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

 

  (ii) NextFinTech segment, consisting of:

 

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

 

17

 

 

  - Longroot Limited

 

  - Longroot Holding (Thailand) Co., Ltd.

 

  - Longroot (Thailand) Co., Ltd.

 

  - NextBank International, Inc.

 

The Company’s chief operating decision makers are considered to be the Co-Chief Executive Officers. The chief operating decision makers allocate resources and assesses performance of the business and other activities at the single operating segment level.

 

As a result of the proposed strategic sale of Reinhart/Zappware and NextTrip, as of August 31, 2022, those entities were no longer treated as a division of the Company; accordingly, for the six-month period ended August 31, 2022, the Company had two remaining reportable business segments: NextFinTech and NextMedia.

 

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

  

Comparative figures

 

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

 

Recent Accounting Pronouncements

 

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

 

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

 

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

 

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

 

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Note 2 - Going Concern

 

As of August 31, 2022, and February 28, 2022, the Company had an accumulated deficit of $54.01 million and $39.17 million, respectively. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern.

 

We have limited financial resources. As of August 31, 2022, we have working capital of $6.75 million. Our monthly cash requirement is approximately $1.4 million. The monthly cash requirement decreased by approximately $0.4 million beginning May 1, 2022 as a result of the proposed sale of Reinhart/Zappware and NextTrip.

 

We will need to raise additional capital or borrow loans to support the on-going operations, increase market penetration of our products, expand the marketing and development of our technology driven products, repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, and systems for managing the business including covering other operating costs until our planned revenue streams from all businesses and products are fully implemented and begin to offset our operating costs. Our failure to obtain additional capital to finance our working capital needs on acceptable terms, or at all, would negatively impact our business, financial condition, and liquidity. We currently have limited resources to satisfy these obligations, and our inability to do so could have a material adverse effect on our business and ability to continue as a going concern.

 

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

 

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

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

 

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

 

Note 3 – Notable Financial Information

  

Short term investment

 

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

 

19

 

 

Loans Receivable

 

Loans receivable related to the provision of traditional banking services in niche-focused businesses, including commercial and residential real estate and the origination and sale of loans and receivables financing, among other types of lending services of NextBank. As of August 31, 2022 and February 28, 2022, the Company had loans receivable of $22.0 million and $17.3 million, respectively, and the allowance for loan losses of $0.4 million and $0.1 million, respectively. The interest rate ranges from 5.5% to 17.9%.

 

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

 

As of August 31, 2022, there were loans placed on a non-accrual basis of $0.04 million.

 

Unbilled Receivables

 

As of August 31, 2022 and February 28, 2022, the Company had unbilled receivables of $0.006 million and $0.002 million, respectively.

 

Prepaid Expenses and Other Current Assets

 

As of August 31, 2022 and February 28, 2022, the Company had prepaid expenses of $0.9 million and $0.5 million, respectively. As of August 31, 2022 and February 28, 2022, the Company had other current assets of $0.3 million and $0.3 million respectively.

 

Convertible Notes Receivable, Related Party, net

 

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

 

Goodwill

 

The Company had total goodwill as allocated to units as follows:

 

Reporting unit   August 31,
2022
    February 28,
2022
 
HotPlay   $ 2,125,648     $ 4,209,381  
Longroot     6,634,936       7,966,005  
NextBank     10,979,453       15,774,168  
Total   $ 19,740,037     $ 27,949,554  

 

As a result of completion of fair value assessment of certain acquisitions during this period, the Company has reassigned the goodwill to the reporting units to reflect the change in fair value of net assets acquired.

 

20

 

 

Computers, Furniture and Equipment

 

As of August 31, 2022 and February 28, 2022, the Company had net computers, furniture and equipment of $0.3 million and $0.4 million, of which $0.4 million and $0.1 million included depreciation expense, respectively.

 

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

 

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

 

Operating lease Right-to-Use asset   August 31,
2022
    February 28,
2022
 
Net Carrying Value   $ 553,467     $

1,894,654

 

 

Operating lease liability   August 31,
2022
    February 28,
2022
 
Current portion   $ 190,652     $ 218,181  
Noncurrent portion     383,908       1,543,627  
Totals   $ 574,560     $ 1,761,808  

 

Accounts Payable and Accrued Expenses

 

As of August 31, 2022 and February 28, 2022, the Company had accounts payable of $2.7 million and $1.9 million, respectively. As of August 31, 2022 and February 28, 2022, the Company had accrued expenses of $4.2 million and $2.8 million, respectively.

 

Other Liabilities – Customer Demand Deposits Payable

 

As of August 31, 2022 and February 28, 2022, the Company had other current liabilities – customer demand deposits payable of $25.8 million and $7.5 million, respectively, relating to NextBank.

 

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

 

Line of credit and notes payable

 

As of August 31, 2022, and February 28, 2022, the Company had a Line of credit and notes payable of $5.2 million and $4.5 million, respectively, relating to McCarthy Tetrault LLP. The notes payable are unsecured, accrue interest at a rate of 18% per annum. The first note matured on July 31, 2022, and the second note matured on September 1, 2022. The Company is in the process of re-negotiating the payment schedules.

 

Short Term Note Payable – Related Parties

 

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

 

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Long Term Note Payable – Related Parties

 

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

 

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

 

Revenue

 

Disaggregation of revenue information was as follows:

 

    August 31,
2022
    August 31,
2021
 
NextFinTech            
Interest income   $ 768,777       153,338  
Financial services     154,171       140,019  
Total revenue   $ 922,948       293,357  

 

Note 4 – Acquisitions and Dispositions

 

Reinhart Interactive TV AG and Zappware N.V. Acquisition

 

On January 15, 2021, we entered into a Founding Investment and Subscription Agreement (the “Investment Agreement”) with Reinhart, and Jan C. Reinhart, the founder of Reinhart (“Founder”). The Investment Agreement contemplated the Company acquiring 51% of the ownership of Reinhart, in consideration for 10,000,000 Swiss Francs (approximately $10.7 million US). On March 31, 2021, the Company paid the founder $10.7 million in cash and received the transfer of the shares on June 23, 2021. As of June 23, 2021, all the closing conditions had been satisfied and this transaction was completed.

 

During the six-month period ended August 31, 2022, the Company completed the fair value assessment (Purchase Price Allocation) of the net identifiable assets and liabilities assumed by an independent appraiser. The fair value assessment was taken into account the entirety of the valuation of the acquired company and therefore resulted in the increase in fair value of intangible assets which is developed software and non-controlling interests.

 

In order to reflect the adjustment to the provisional value of the identifiable assets and liabilities of Reinhart Interactive TV AG and Zappware N.V. at the acquisition date, the adjustments were made as follows:

 

As of June 23, 2021
    Provisional
value
    Increase
(Decrease)
    Adjusted
fair value
 
Assets acquired                  
Cash and cash equivalents   $ 3,086,212       -       3,086,212  
Current assets     8,083,041       -       8,083,041  
Right-of-use assets     2,537,789       -       2,537,789  
Non-current assets     6,681,714       1,413,272       8,094,986  
Liabilities assumed                        
Current liabilities     (9,931,882 )     -       (9,931,882 )
Lease liabilities     (2,537,789 )     -       (2,537,789 )
Non-current liabilities     (302,815 )     -       (302,815 )
Total identifiable net assets     7,616,270       1,413,272       9,029,542  
Add: Goodwill     3,091,490       8,874,576       11,966,066  
Fair value of non-controlling interests     -       (10,287,848 )     (10,287,848 )
Total fair value of purchase consideration     10,707,760       -       10,707,760  

 

22

 

 

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

 

NextBank International (formerly IFEB) Acquisition

 

On April 1, 2021, the Company entered into a Bill of Sale for Common Stock, effective March 22, 2021 (the “Bill of Sale”), with certain third parties, pursuant to which the Company agreed to purchase 2,191,489 shares (the “IFEB Shares”) of authorized and outstanding Class A Common Stock of International Financial Enterprise Bank, Inc., a Puerto Rico corporation licensed as an Act 273-2012 international financial entity headquartered in San Juan Puerto Rico (“IFEB”), representing 57.16% of the outstanding Class A Common Stock of IFEB. The purchase price of the IFEB Shares was $6,400,000, which amount was paid to the sellers on April 1, 2021.

 

On May 6, 2021, the Company and IFEB entered into a Preferred Stock Exchange Agreement, which was amended by a First Amendment to Preferred Stock Exchange Agreement entered into May 10, 2021 and effective May 6, 2021, pursuant to which the Company agreed to exchange 1,950,000 shares of the Company’s common stock for 5,850 shares of cumulative, non-compounding, non-voting, non-convertible, perpetual Series A Preferred shares of IFEB.

 

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

 

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

 

The following table summarizes the fair value of consideration transferred:

Cash   $ 6,400,000  
Common stock (1,925,581 shares @ $2.03, closing price of NXTP common stock on July 21, 2021)   $ 3,908,929  
Fair value of consideration paid   $ 10,308,929  

 

During the six-month period ended August 31, 2022, the Company completed the fair value assessment of the net identifiable assets and liabilities assumed by an independent appraiser which primarily resulted in a decrease in goodwill due to the change in fair value of purchase consideration. During the year ended February 28, 2022, the purchase consideration of common stock was calculated based on $2.50 per share, according to the IFEB Exchange Agreement. Considering fair value of consideration paid, the share price of NXTP common stock has been adjusted to its closing price as of closing date of the acquisition on July 21, 2021 without any changes in number of shares issued. As a result, the change in purchase consideration were adjusted by $0.9 million to reflect the fair value as of July 21, 2021 by recognizing the adjustment in additional paid-in capital in consolidated statement of stockholders’ equity.

 

23

 

 

In order to reflect the adjustment to the provisional value of the identifiable assets and liabilities of NextBank International (formerly IFEB) at the acquisition date, the adjustments were made as follows:

As of July 21, 2021
    Provisional
value
    Increase
(Decrease)
    Adjusted
fair value
 
Assets acquired                  
Cash and cash equivalents   $ 7,039,001       483,930       7,522,931  
Current assets     7,584,013       (483,930 )     7,100,083  
Non-current assets     148,842       -       148,842  
Liabilities assumed                        
Current liabilities     (11,474,443 )     -       (11,474,443 )
Non-current liabilities     -       -       -  
Total identifiable net assets     3,297,413       -       3,297,413  
Adjustment: Goodwill     7,916,540       (905,024 )     7,011,516  
Total fair value of purchase consideration   $ 11,213,953       (905,024 )     10,308,929  

 

24

 

 

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

 

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

 

    As of August 31, 2022  
    Reinhart
/Zappware
    NextTrip     Total  
Goodwill                  
Carrying amount   $ 23,887,059     $ 1,295,400       25,182,459  
Accumulated translation adjustment     (394,795 )           (394,795 )
Impairment loss     (8,936,142 )     (1,295,400 )     (10,231,542 )
Goodwill, net   $ 14,556,122     $     $ 14,556,122  
                         
Intangible assets                        
Net book value   $ 9,295,223     $ 4,131,091       13,426,314  
Impairment loss           (1,681,873 )     (1,681,873 )
Valuation adjustment of held-for-sale assets     (5,430,273 )     1,605,694       (3,824,579 )
Intangible assets, net   $ 3,864,950     $ 4,054,912     $ 7,919,862  

 

The fair value completion of the acquisition of Reinhart/Zappware and Reverse Acquisition disclosed in Note 1 and 4 resulted in an increase in goodwill of $8.2 million and intangible assets of $1.8 million for Reinhart/Zappware and increase in intangible assets of $10 thousand for NextTrip.

 

During the six-month period ended August 31, 2022, the Company performed the impairment assessment and recognized the impairment loss in operation loss from discontinued operations to reflect the expected recoverable amount upon the classification to held-for-sale assets, comprised of impairment loss on intangible assets of NextTrip amounting to $0.5 million, and impairment loss on goodwill of Reinhart/Zappware, amounting to $0.1 million and has recorded the valuation adjustment of held-for-sale assets in operation loss from discontinued operations amounting to $3.8 million.

 

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

 

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

 

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

 

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

 

25

 

 

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

 

    Reinhart/Zappware  
    August 31,
2022
    February 28,
2022
 
Assets            
Cash and cash equivalent   $ 1,093,770       2,185,719  
Accounts receivable, net     986,233       839,612  
Unbilled receivables     1,911,822       3,275,229  
Other receivable           3,251  
Work in progress     513,020       691,863  
Prepaid expenses and other current assets     121,357       123,084  
Intangible assets, net     3,864,950        
Goodwill, net     14,556,122        
Computers, furniture and equipment, net     68,051        
Operating lease right-of-use asset     2,189,153        
Security deposits     58,155        
Total current assets held for sale     25,362,633       7,118,758  
                 
Intangible assets, net           6,468,491  
Goodwill, net           10,996,865  
Computers, furniture and equipment, net           149,791  
Operating lease right-of-use asset           2,067,942  
Security deposits           71,401  
Total non current assets held for sale           19,754,490  
                 
Total assets   $ 25,362,633       26,873,248  
                 
Liabilities                
Line of credit and notes payable, net   $ 2,624,216       2,878,274  
Accounts payable and accrued expenses     4,012,059       3,557,080  
Other current liabilities           264,905  
Deferred revenue     539,206       2,040,787  
Current portion of operating lease liability     2,189,152       493,622  
Total current liabilities held for sale     9,364,633       9,234,668  
                 
Line of Credit and Notes Payable Long Term, net           270,808  
Operating lease liability, net of current portion           1,574,320  
Other long term liability           28,761  
Total non current liabilities held for sale           1,873,889  
                 
Total liabilities   $ 9,364,633       11,108,557  
                 
Net asset   $ 15,998,000       15,764,691  

 

26

 

 

    NextTrip  
    August 31,
2022
    February 28,
2022
 
Assets            
Cash and cash equivalent   $ 130,085       151,122  
Accounts receivables, net           1,056  
Other receivables           1,197  
Prepaid expenses and other current assets     50,799       60,861  
Advance for investments     50,000        
Intangible assets, net     4,054,912        
Computers, furniture and equipment, net     24,364        
Operating lease right-of-use asset     1,003,239        
Security deposits     15,000        
Total current assets held for sale     5,328,399       214,236  
                 
Intangible assets, net           1,309,396  
Computers, furniture and equipment, net           41,671  
Security deposits           15,000  
Total non current assets held for sale           1,366,067  
Total assets   $ 5,328,399       1,580,303  
                 
Liabilities                
Accounts payable and accrued expenses     832,365       315,595  
Deferred revenue     915,643       157,790  
Current portion of operating lease liability     1,039,391        
Total current liabilities held for sale     2,787,399       473,385  
Total liabilities   $ 2,787,399       473,385  
Net asset     2,541,000       1,106,918  

 

27

 

 

    Total assets and
liabilities held for sale
 
    August 31,
2022
    February 28,
2022
 
Assets            
Cash and cash equivalent     1,223,855       2,336,841  
Accounts receivables, net     986,233       840,668  
Unbilled receivables     1,911,822       3,275,229  
Other receivables           4,448  
Work in progress     513,020       691,863  
Prepaid expenses and other current assets     172,156       183,945  
Advance for investments     50,000        
Intangible assets, net     7,919,862        
Goodwill, net     14,556,122        
Computers, furniture and equipment, net     92,415        
Operating lease right-of-use asset     3,192,392        
Security deposits     73,155        
Total current assets held for sale     30,691,032       7,332,994  
                 
Intangible assets, net           7,777,887  
Goodwill, net           10,996,865  
Computers, furniture and equipment, net           191,462  
Operating lease right-of-use asset           2,067,942  
Security deposits           86,401  
Total non current assets held for sale           21,120,557  
                 
Total assets     30,691,032       28,453,551  
                 
Liabilities                
Line of credit and notes payable, net     2,624,216       2,878,274  
Accounts payable and accrued expenses     4,844,424       3,872,675  
Other current liabilities           264,905  
Deferred revenue     1,454,849       2,198,577  
Operating lease liability     3,228,543       493,622  
Total current liabilities held for sale     12,152,032       9,708,053  
                 
Line of Credit and Notes Payable Long Term, net           270,808  
Operating lease liability, net of current portion           1,574,320  
Other long term liability           28,761  
Total non current liabilities held for sale           1,873,889  
Total liabilities     12,152,032       11,581,942  
                 
Net asset     18,539,000       16,871,609  

 

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

 

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

 

28

 

 

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

  

For the six-month ended August 31, 2022   Reinhart/
Zappware
    NextTrip     Total  
Revenue   $ 6,336,398     $ 366,016     $ 6,702,414  
Cost of Revenue     1,404,945       252,045       1,656,990  
Gross Profit   $ 4,931,453     $ 113,971     $ 5,045,424  
Operating expenses     3,809,934       2,199,791       6,009,725  
Valuation adjustment of held-for-sale assets     5,430,273       (1,605,694 )     3,824,579  
Impairment loss     63,436       466,128       529,564  
Other Expense/(income)     147,864       30,783       178,647  
Net profit (loss) before tax for the period from discontinued operations   $ (4,520,054 )   $ (977,037 )   $ (5,497,091 )
Estimated corporate taxes   $
    $
    $
 
Net profit (loss) after tax for the period from discontinued operations   $ (4,520,054 )   $ (977,037 )   $ (5,497,091 )
Share loss of non-controlling interest     (2,214,826 )    
      (2,214,826 )
Net loss from discontinued operation attributable to parent     (2,305,228 )     (977,037 )     (3,282,265 )
                         
Other Comprehensive (loss) income:                        
Currency Translation from discontinued operation   $ (1,083,361 )   $
    $ (1,083,361 )
Comprehensive (loss) income   $ (5,603,415 )   $ (977,037 )   $ (6,580,452 )
                         
Currency translation allocated to:                        
Equity holders of the Company   $ 552,514     $
    $ 552,514  
Non-controlling interests of the subsidiaries     530,847      
      530,847  
    $ 1,083,361     $
    $ 1,083,361  
                         
Total comprehensive (loss) income attributable to:                        
Equity holders of the Company   $ (2,857,741 )   $ (977,037 )   $ (3,834,778 )
Non-controlling interests of the subsidiaries     (2,745,674 )    
      (2,745,674 )
    $ (5,603,415 )   $ (977,037 )   $ (6,580,452 )

 

For the three-month ended August 31, 2022   Reinhart/
Zappware
    NextTrip     Total  
Revenue   $ 2,308,736     $ 194,265     $ 2,503,001  
Cost of Revenue     89,177       116,160       205,337  
Gross Profit   $ 2,219,559     $ 78,105     $ 2,297,664  
Operating expenses     2,068,901       1,028,531       3,097,432  
Valuation adjustment of held-for-sale assets     5,430,273       (1,605,694 )     (3,824,579 )
Other Expense/(Income)     94,084       (29,586 )     64,498  
Net profit (loss) before tax for the period from discontinued operations   $ (5,373,699 )   $ 684,854     $ (4,688,845 )
Estimated corporate taxes   $
    $
    $
 
Net profit (loss) after tax for the period from discontinued operations   $ (5,373,699 )   $ 684,854     $ (4,688,845 )
Share profit of non-controlling interest     (2,633,112 )    
      (2,633,112 )
Net profit (loss) from discontinued operation attributable to parent     (2,740,587 )     684,854       (2,005,733 )
                         
Other Comprehensive (loss) income:                        
Currency Translation from discontinued operation   $ (336,780 )   $
    $ (336,780 )
Comprehensive (loss) income   $ (5,710,479 )   $ 684,854     $ (5,025,625 )
                         
Currency translation allocated to:                        
Equity holders of the Company   $ 171,758     $
    $ 171,758  
Non-controlling interests of the subsidiaries     165,022      
      165,022  
    $ 336,780     $
    $ 336,780  
                         
Total comprehensive (loss) income attributable to:                        
Equity holders of the Company   $ (2,912,344 )   $ 684,854     $ (2,227,490 )
Non-controlling interests of the subsidiaries     (2,798,135 )    
      (2,798,135 )
    $ (5,710,479 )   $ 684,854     $ (5,025,625 )

 

29

 

 

For the six-month ended August 31, 2021   Reinhart/
Zappware
      NextTrip         Total  
Revenue   $ 2,317,036     $ 36,890     $ 2,353,926  
Cost of Revenue     1,152,770       34,231       1,187,001  
Gross Profit   $ 1,164,266     $ 2,659     $ 1,166,925  
Operating expenses     1,748,536       504,182       2,252,718  
Other Expense     72,387       (27,011 )     45,376  
Net loss before tax for the period from discontinued operations   $ (656,657 )   $ (474,512 )   $ (1,131,169 )
Estimated corporate taxes   $ 52,755     $
-
    $ 52,755  
Net loss after tax for the period from discontinued operations   $ (603,902 )   $ (474,512 )   $ (1,078,414 )
Share profit of non-controlling interest     (295,912 )    
-
      (295,912 )
Net loss from discontinued operation attributable to parent     (307,990 )     (474,512 )     (782,502 )
                         
Other Comprehensive loss:                        
Currency Translation from discontinued operation   $ (262,567 )   $
-
    $ (262,567 )
Comprehensive loss   $ (866,469 )   $ (474,512 )   $ (1,340,981 )
                         
Currency translation allocated to:                        
Equity holders of the Company   $ (133,909 )   $
-
    $ (133,909 )
Non-controlling interests of the subsidiaries     (128,658 )    
-
      (128,658 )
    $ (262,567 )   $ -     $ (262,567 )
                         
Total comprehensive (loss) income attributable to:                        
Equity holders of the Company   $ (570,557 )   $ (474,512 )   $ (1,045,069 )
Non-controlling interests of the subsidiaries     (295,912 )    
-
      (295,912 )
    $ (866,469 )   $ (474,512 )   $ (1,340,981 )

 

For the three-month ended August 31, 2021   Reinhart/
Zappware
      NextTrip       Total  
Revenue   $ 2,317,036     $ 36,890     $ 2,353,926  
Cost of Revenue     1,152,770       34,231       1,187,001  
Gross Profit   $ 1,164,266     $ 2,659     $ 1,166,925  
Operating expenses     1,748,536       504,182       2,252,718  
Other Expense     72,387       (27,011 )     45,376  
Net loss before tax for the period from discontinued operations   $ (656,657 )   $ (474,512 )   $ (1,131,169 )
Estimated corporate taxes   $ 52,755     $
-
    $ 52,755  
Net loss after tax for the period from discontinued operations   $ (603,902 )   $ (474,512 )   $ (1,078,414 )
Share profit of non-controlling interest     (295,912 )    
-
      (295,912 )
Net loss from discontinued operation attributable to parent     (307,990 )     (474,512 )     (782,502 )
                         
Other Comprehensive loss:                        
Currency Translation from discontinued operation   $ (262,567 )   $
    $ (262,567 )
Comprehensive loss   $ (866,469 )   $ (474,512 )   $ (1,340,981 )
                         
Currency translation allocated to:                        
Equity holders of the Company   $ (133,909 )   $ -     $ (133,909 )
Non-controlling interests of the subsidiaries     (128,658 )    
-
    (128,658 )
    $ (262,567 )   $
-
    $ (262,567 )
                         
Total comprehensive (loss) income attributable to:                        
Equity holders of the Company   $ (570,557 )   $ (474,512 )   $ (1,045,069 )
Non-controlling interests of the subsidiaries     (295,912 )    
-
      (295,912 )
    $ (866,469 )   $ (474,512 )   $ (1,340,981 )

 

The net cashflow of held-for-sale entities are included in the Company’s cash flow statement for the six-month period ended August 31, 2022 and 2021 were as follows:

 

For the six-month ended August 31, 2022   Reinhart/
Zappware
    NextTrip     Total  
Net cash flows from operating activities     1,790,926       1,178,085       2,969,011  
Net cash flows used in investing activities     (2,754,585 )     (2,699,122 )     (5,453,707 )
Net cash flows from (used in) financing activities     (128,290 )     1,500,000       1,371,710  
Net decrease in cash and cash equivalent   $ (1,091,949 )   $ (21,037 )   $ (1,112,986 )

 

For the six-month ended August 31, 2021   Reinhart/
Zappware
    NextTrip     Total  
Net cash flows from operating activities   $ 7,938,801       2,052,310       9,991,111  
Net cash flows used in investing activities     (9,899,377 )     (2,048,753 )     (11,948,130 )
Net cash flows from financing activities     3,453,686       -         3,453,686  
Net increase in cash and cash equivalent   $ 1,493,110       3,557       1,496,667  

 

 

30

 

 

Note 5 – Related Party Transactions

 

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

 

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

 

 

Other than disclosed elsewhere, the Company had the following significant related party transactions for the six months ended August 31, 2022 and August 31, 2021:

 

    For the six months ended  
    August 31,
2022
    August 31,
2021
 
Payment of contract cost:            
HotNow (Thailand) Company Limited   $
      499,843  
Payment of loan interest                
Magnolia Quality Development Corporation Limited    
      21,097  
Tree Roots Entertainment Group Company Limited    
      22,077  
General and admin expense:                
HotNow (Thailand) Company Limited     237,436      
 
Rental expense:                
Tree Roots Entertainment Group Company Limited    
      54,078  
Technology and development expense:                
HotNow (Thailand) Company Limited     1,068      
 
Operating expense:                
HotNow (Thailand) Company Limited    
      188,492  
Interest expense of loan from:                
HotNow (Thailand) Company Limited     634      
 
Magnolia Quality Development Corporation Limited     19,606       21,446  
Tree Roots Entertainment Group Company Limited   $ 14,160       51,262  

 

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

 

    Nature   August 31,
2022
    February 28,
2022
 
Amounts due from related parties:                    
HotNow (Thailand) Company Limited   Other receivable           155,425  
Total       $       155,425  
                     
Amounts due to related parties:                    
HotNow (Thailand) Company Limited   Account payable     312       393  
    Accrued expense     1,071        
Magnolia Quality Development Corporation Limited   Accrued expense     15,530       3,169  
Tree Roots Entertainment Group   Accrued expense     41,627       32,700  
Axion Interactive Inc.   Accrued expense     1,770       1,770  
Red Anchor Trading Corporation   Account payable    
      395,782  
Total       $ 60,310       433,814  
                     
Notes payable:                    
Magnolia Quality Development Corporation Limited         411,647       459,024  
Tree Roots Entertainment Group         274,431       306,016  
Immediate Family Member        
      966,314  
Total       $ 686,078       1,731,354  

 

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Significant agreements with related parties

 

On March 24, 2021, HotPlay Thailand entered into a short-term loan with MQDC for $480,000 (15,000,000 Thai Baht) with an interest rate of 9% per annum, which is payable on demand and unsecured. Accrued interest on this loan was $6,619 as of August 31, 2022.

 

During June and July 2020, HotPlay Thailand entered into a short-term loan with TREG for the aggregate principal amount of $543,000 (17,000,000 Thai Baht) with an interest rate of 9.75% per annum, which is payable on demand and unsecured. Accrued interest on this loan was $4,780 as of August 31, 2022. On May 31, 2021, HotPlay Thailand repaid 7,000,000 Thai Baht (approximately $223,000 US) in connection with the short-term loan from TREG.

 

Next Bank currently holds a $705,000 loan that was purchased in 2020 at a discounted purchase price of $647,776, when NextBank was not partially or wholly owned by the Company. The borrower is an entity affiliated with a current member of the Bank’s board of directors. The loan bears interest at an annual rate of 10%. It is expected to be fully collected in Q3 FY2023. As of August 31, 2022, the outstanding balance was $705,000.

  

Significant agreements with management of the Company

 

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

 

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

 

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

 

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

 

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

 

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On May 2, 2022, the Company completed such assets acquisitions from Fighter Base and Token IQ, and pursuant to the terms of the respective IPP Agreements, the Company issued shares of its common stock as consideration for the purchase from Fighter Base and Token IQ in the amount of 1,666,667 and 1,250,000 shares, respectively. The Company recorded at fair value of the common stock issued on May 2, 2022, at a closing price $0.415 per share, as intangible asset under development, as of the recognition date and as of August 31, 2022 the balance amounted to $1,210,417.

 

Note 6 – Investments in Unconsolidated Affiliates

 

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

 

Note 6.1 – Advances for investments

 

Letter of Intent to Acquire Axion Shares

 

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

 

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

 

On August 11, 2022, the British Columbia Securities Commission (the “BCSC”) announced the revocation order, however, the securities of Axion will remain suspended from trading on the TSX Venture Exchange pending the completion of a reinstatement application to the TSX Venture Exchange. The management has closely monitored Axion’s trading status and will take further action once the stock resumes trading in an active market. As of August 31, 2022, total prepayment was $937,117 which is expected to be recovered in full.

 

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

 

On November 1, 2021, the Company signed a non-binding Letter of Intent to acquire 100% of the capital stock of a bank holding company which is the 100% owner of a community bank. In connection with the execution of the non-binding Letter of Intent, on November 10, 2021, the Company made a non-refundable deposit of $1,000,000 on behalf of itself and other parties to the acquisition (as discussed below), which shall be credited against the purchase price at closing, if completed. The acquisition, if completed, will be made with other parties, to be named subsequently, and it is expected that no individual party will acquire more than 24.9% of said bank holding company. There is no legal obligation between the parties with respect to the acquisition unless and until the parties enter into a definitive agreement with respect thereto. Closing of the transaction will be subject to regulatory approvals, amongst other things. The balance as of August 31, 2022 was in the amount of $1,000,000.

 

Note 6.2 – Investment in Unconsolidated Affiliates

 

Soma Innovation Lab Joint Venture

 

On March 8, 2021, the Company entered into a Joint Venture Agreement with Soma Innovation Lab (“Soma”). Pursuant to the agreement, the parties agreed to form a joint venture for designing hyper-personalized experiences for targeted gamers. The agreement requires the Company to provide Soma the use of the HotPlay technology, assuming the Company acquire ownership of such technology as a result of the closing of the Company’s pending Share Exchange (as defined below), with HotPlay (as defined below), which technology is owned by HotPlay, and that the Company would issue the principals of Soma 72,000 shares of restricted common stock (valued at $180,000), of which $45,000 was earned immediately and the remaining shares will be earned at the rate of 6,000 per month. Pursuant to the agreement, Soma agreed to provide the Company use of an email client list and other services. The joint venture is owned 50/50 between us and Soma, with net profits/revenues paid pursuant to the same 50/50 split. In the event the joint venture achieves revenue in excess of expenses and the Company recovers the $180,000 value of the shares, then the Company agreed to issue Soma a bonus of 50,000 shares of restricted common stock. The joint venture (and agreement) each have a term of two years. The Company also agreed to use Soma for certain work to be performed on its websites and travel magazine and agreed to pay Soma $75,000 per month ($225,000 in aggregate) for such work, payable by way of the issuance of 90,000 shares of restricted common stock. As of August 31, 2022, no development and activity has been started. Soma is anticipated to continue the project with NextTrip after completion of the sale thereof to TGS.

  

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

 

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

 

On August 31, 2022, the 6,142,856 shares of Bettwork’s common stock held by the Company were trading at $0.0003 per share, valued at an aggregate of $1,843. Any change in fair value is recognized as other expense in statement of income as of August 31, 2022.

 

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

 

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

 

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

 

34

 

 

 

During the year ended February 28, 2022, the Company sold in open market transactions 68,083 shares of Recruiter.com common stock. The sale of these shares resulted in a realized gain of $28,028 for the year ended February 28, 2022.

 

The Company owned 3,461 shares of Recruiter’s common stock as of August 31, 2022. As of August 31, 2022, each share of Recruiter’s common stock was valued at $1.6 per share, which changed the fair value of the 3,461 shares of Recruiter common stock to $5,555.

 

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

 

Acquisition of Axion Shares

 

The investment in affiliate at cost of $4,856,825 represents the Company’s acquisition of approximately 33.85% of Axion on November 16, 2020. Pursuant to the Axion Exchange Agreement (as defined in Note 7, below), which closed on November 16, 2020, the Axion Stockholders, exchanged ordinary shares of Axion equal to approximately 33.85% of the outstanding common shares of Axion, in consideration for 10,000,000 shares of Series B Convertible Preferred Stock of the Company, which automatically converted into 7,417,700 common shares of the Company on June 30, 2021. As of August 31, 2022, the outstanding amount of this investment was $4,415; there was no change in market price during the six-month period ended August 31, 2022.

 

Also pursuant to the Axion Exchange Agreement, which closed on November 16, 2020, the Company granted a warrant to Cern One Limited (one of the Axion Stockholders), to purchase 1,914,250 shares of the Company’s common stock, with an exercise price of $2.00 per share. The warrants vest on the earlier of (i) the date the Axion debt is fully repaid by Axion or (ii) the date that the Company obtains 51% or more of the voting control of, and economic rights to, Axion, provided that such vesting date must occur before November 16, 2021 or the warrants will terminate. Because the vesting conditions had not been satisfied as of November 16, 2021, the warrants terminated automatically on such date pursuant to their terms. Accordingly, as of August 31, 2022, these warrants are no longer outstanding.

 

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

 

Note 7 – Notes Receivable

 

Current

 

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

 

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

 

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

 

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

 

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

 

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

 

  (i) The date the Axion Debt is fully repaid by Axion, and

 

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

 

Because the vesting conditions had not been satisfied as of November 16, 2021, the warrants terminated automatically on such date pursuant to their terms. Accordingly, as of August 31, 2022, these warrants are no longer outstanding.

 

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

 

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

 

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

 

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

 

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

 

Note 8 – Intangible Assets

 

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

 

    Useful Life   Cost      Impairment     Accumulated Amortization     Net Carrying Value  
Software development costs   3.0 - 5.0 years   $ 492,094       200,000       6,301       285,793  
Trademark & License   1.0 - 20.0 years     6,214,698      
-
      1,327,304       4,887,394  
CIP – Software development         11,328,518      
-
     
-
      11,328,518  
        $ 18,035,310       200,000       1,333,605       16,501,705  

 

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

 

Amortization expense related to website development costs and intangible assets, excluding amortization of debt issuance costs, was $0.1 million and $0.2 million for the six-month periods ended August 31, 2022 and 2021, respectively.

 

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

 

As of August 31, 2022   Amortization
Expense
 
2023   $ 1,249,046  
2024     1,729,261  
2025     1,629,784  
2026     565,096  
2027    
-
 
    $ 5,173,187  

 

CIP – Software under development acquired from Go Game

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

On August 19, 2021, the Company entered into the IPP Agreements with Fighter Base and Token IQ Inc., dated as of the same date. Pursuant to the IPP Agreements, the Company agreed to acquire certain intellectual property owned by Fighter Base (relating to the games industry) and by Token IQ (relating to the distributed ledger industry), both of which entities are owned and controlled by Mark Vange, the Chief Technology Officer of the Company.  

 

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

 

Note 9 – Notes Payable

 

Description   As of
August 31,
2022
    As of
February 28,
2022
 
Streeterville Capital, LLC   $ 4,517,639     $ 4,053,736  
Business Brokers, LLC     678,750       725,000  
McCarthy Tetrault LLP     362,893      
 
Total     5,559,282       4,778,736  
Less: Debt issuance cost     (325,833 )     (315,265 )
Line of Credit and Notes Payable, net     5,233,449       4,463,471  
Less: Current portion of Line of Credit and Notes Payable     (5,233,449 )     (4,463,471 )
Line of Credit and Notes Payable Long Term, net   $
    $
 

 

Note Purchase Agreements: Streeterville Capital

 

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

 

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

 

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

 

  (a) HotPlay must have become a wholly-owned subsidiary of the Company;

 

  (b) during the period beginning on July 21, 2020, and ending on the date that the HotPlay Share Exchange is consummated, HotPlay must have raised at least $15,000,000 in cash through equity investments;

 

  (c) upon consummation of the HotPlay Share Exchange, all outstanding debt owed by the Company to HotPlay must have either been forgiven by HotPlay or converted into the Company’s common stock;

 

  (d) HotPlay must have become a co-borrower on the November 2020 Streeterville Note; and

 

  (e) the Company must have paid off all outstanding debt obligations to the Donald P. Monaco Insurance Trust and National Bank of Commerce, in full (collectively, the “November 2020 Note Transaction Conditions”).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

We failed to timely meet the November 2020 Note Transaction Conditions; however, on June 1, 2021, Streeterville agreed to defer 50% of the April 2021 Note Increase which was otherwise to occur due to the Company’s failure to timely meet all of the November 2020 Note Transaction Conditions. As such, a total of $506,085 was capitalized into the outstanding balance of the November 2020 Streeterville Note effective as of April 30, 2021, and the remaining $506,085 of the April 2021 Note Increase would only be added to the balance of the November 2020 Streeterville Note if the Company failed to meet the November 2020 Transaction Conditions by June 30, 2021. Separately, if the Company did not meet the March 2021 Note Transaction Conditions by June 30, 2021, the March 2021 Streeterville Note would be subject to the June 2021 Note Increase. The Company completed the acquisition of HotPlay effective as of June 30, 2021, and as such the November 2020 Transaction Conditions and the March 2021 Note Transaction Conditions were satisfied.

 

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

 

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

 

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

 

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

 

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The October 2021 Streeterville Note bears interest at a rate of 10% per annum and matures 12 months after its issuance date (i.e., on October 22, 2022). From time to time, beginning six months after issuance, Streeterville may redeem any portion of the October 2021 Streeterville Note, up to a maximum amount of $375,000 per month. In the event the Company fails to pay the amount of any requested redemption within three trading days, an amount equal to 25% of such redemption amount is added to the outstanding balance of the October 2021 Streeterville Note. Under certain circumstances, the Company may defer the redemption payments up to three times, for 30 days each, provided that upon each such deferral, the outstanding balance of the October 2021 Streeterville Note is increased by 2%. Subject to the terms and conditions set forth in the October 2021 Streeterville Note, the Company may prepay all or any portion of the outstanding balance of the October 2021 Streeterville Note at any time subject to a prepayment penalty equal to 10% of the amount of the outstanding balance to be prepaid. For so long as the October 2021 Streeterville Note remains outstanding, the Company has agreed to pay to Streeterville 20% of the gross proceeds that the Company receives from the sale of any of its common stock or preferred stock within ten days of receiving such amount, which payments will be applied towards and will reduce the outstanding balance of the October 2021 Streeterville Note, which percentage increases to 30% upon the occurrence of, and continuance of, an event of default under the October 2021 Streeterville Note (each an “Equity Payment”). Each time that the Company fails to pay an Equity Payment, the outstanding balance of the October 2021 Streeterville Note automatically increases by 10%. Additionally, in the event the Company fails to timely pay any such Equity Payment, Streeterville may seek an injunction which would prevent the Company from issuing common or preferred stock until or unless the Company paid all past-due Equity Payments.

 

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

 

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

 

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

 

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

 

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

 

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

 

On April 29, 2022, the Company entered into the Standstill Agreement with Streeterville, pursuant to which, Streeterville agreed not to seek to redeem any portion of the October 2021 Streeterville Note (in the original principal amount of $1,665,000) until September 18, 2022. As consideration for such agreement, the outstanding balance of the October 2021 Note was increased by $87,639.33 (the “Standstill Fee”); as a result, the outstanding balance of the October 2021 Note as of April 29, 2022 was $1,840,912.84 (including outstanding interest). Subsequently on September 22, 2022, the Company elected the redemption deferral option which added $38,331.27 to the principal for a total outstanding principal balance of $1,790,971 as of the same date.

 

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

 

The May 2022 Streeterville Note bears interest at a rate of 10% per annum and matures 12 months after its issuance date (i.e., on May 5, 2023). From time to time, beginning six months after issuance, Streeterville may redeem any portion of the May 2022 Streeterville Note, up to a maximum amount of $625,000 per month. In the event the Company fails to pay the amount of any requested redemption within three trading days, an amount equal to 25% of such redemption amount is added to the outstanding balance of the May 2022 Streeterville Note. Under certain circumstances, the Company may defer the redemption payments up to three times, for 30 days each, provided that upon each such deferral, the outstanding balance of the May 2022 Streeterville Note is increased by 2%.

 

Subject to the terms and conditions set forth in the May 2022 Streeterville Note, the Company may prepay all or any portion of the outstanding balance of the May 2022 Streeterville Note on or before the date that is 6 months from the Effective Date subject to a prepayment penalty equal to 5% of the amount of the outstanding balance, and after 6 months from the Effective Date will be subject to 10%. For so long as the May 2022 Streeterville Note remains outstanding, the Company has agreed to pay to Streeterville 20% of the gross proceeds that the Company receives from the sale of any of its common stock or preferred stock within ten days of receiving such amount, which payments will be applied towards and will reduce the outstanding balance of the May 2022 Streeterville Note. Each time that the Company fails to pay an Equity Payment, the outstanding balance of the May 2022 Streeterville Note automatically increases by 10%. Additionally, in the event the Company fails to timely pay any such Equity Payment, Streeterville may seek an injunction which would prevent the Company from issuing common or preferred stock until or unless the Company paid all past-due Equity Payments.

 

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

 

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

 

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

 

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

 

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

 

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

 

  i) The October 2021 Note: principal balance of $1,752,639, accrued interest of $152,778 and accumulated unamortized debt issuance cost of $31,894.

 

  ii) The May 2022 Note: principal balance of $2,765,000, accrued interest of 92,119 and accumulated unamortized debt issuance cost of $293,939.

 

Loan agreement with Business Brokers, LLC

 

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

 

June 2022 Promissory Notes

 

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

 

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Note 10 – Stockholders’ Equity

 

Preferred stock

 

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

 

Series A Preferred Stock

 

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

 

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

 

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

 

Series B Preferred Stock

 

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

 

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

 

Series C Preferred Stock

 

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

 

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

 

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Series D Preferred Stock

 

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

 

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

 

Common Stock

   

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

 

  - 698,593 shares of common stock for Board of Directors’ compensation, valued at $256,314.
     
  - 506,577 shares of common stock for consulting services, valued at $367,112.
     
  - 3,136,605 shares of common stock for assets purchased, valued at $1,262,366.

 

The Company had 112,701,795 and 108,360,020 shares of common stock issued and outstanding at August 31, 2022 and February 28, 2022, respectively.

 

Changes in ownership interests in subsidiaries without change in control

 

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

 

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Common Stock Warrants

 

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

 

    Warrants     Weighted
Average
Exercise
Price
 
             
Outstanding, February 28, 2022     14,811,679     $ 2.05  
Warrants expired     (380,771 )     5.15  
Outstanding, August 31, 2022     14,430,908     $ 1.97  
Common stock issuable upon exercise of warrants     14,430,908     $ 1.97  

 

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

 

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

 

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

 

On August 31, 2022, there were warrants outstanding to purchase an aggregate of 14,430,908 shares of common stock with a weighted average exercise price of $1.97 and weighted average remaining life of 4.22 years.

 

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

 

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

 

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

 

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

 

Note 11 – Commitments and Contingencies

 

The Company entered into an office lease in Sunrise, Florida where we leased approximately 5,279 square feet of office space at 1560 Sawgrass Corporate Parkway, Suite 130, Sunrise, Florida 33323. In accordance with the terms of the office space lease agreement, the Company will be renting the commercial office space, for a term of almost eight years from March 1, 2021, through July 31, 2028. As per the Separation Agreement by and between the Company, Reinhart/Zappware and NextTrip, however, the Company has transferred the office lease contract to NextTrip from May 1, 2022 onwards and therefore presented under assets and liabilities held for sale. On August 25, 2022, the Company entered into an office lease in Sunrise, Florida for a term of six months from September 1, 2022, through January 30, 2023. Additionally, the Group rents office space located in Puerto Rico and Thailand with lease terms ranging from five to nine years.

 

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

 

    Current     Long Term        
    FYE 2023     FYE 2024     Totals  
Office Leases   $ 229,709     $ 331,489     $ 561,199  
Insurance and Other     35,153       7,200       42,353  
Totals   $ 264,862     $ 338,689     $ 603,551  

 

Legal Matters 

 

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

 

IDS Settlement

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The entire IDS Settlement, agreements, and amendment are part of the proposed sale of NextTrip, whereby upon closing of the proposed transaction, the IDS settlement will no longer be a responsibility of the Company; provided, however, that, if the Company fails to make certain required installment payments to NextTrip within five (5) business days of being due, such IDS payment obligations will revert back to the Company. As of August 31, 2022, the Company failed to make such payments.

 

Litigation between Axion and NextPlay

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Note 12 – Business Segment Reporting

 

Accounting Standards Codification 280-10 “Segment Reporting” established standards for reporting information about operating segments in annual consolidated financial statements and required selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products, services, and geographic areas. Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

 

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As of August 31, 2022, the Company has two operating segments consisting of (i) the NextMedia Division, which consists of HotPlay, and (ii) the NextFinTech Division, which consists of Longroot and NextBank. The Company’s chief operating decision makers are considered to be the Co-Chief Executive Officers. The chief operating decision makers allocate resources and assesses performance of the business and other activities at the single operating segment level. At the reporting date, only NextFinTech generated revenue from operation.

 

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

 

Schedule of segments

 

For the six-month ended August 31, 2022   NextFinTech     NextMedia     Totals  
Revenue   $ 922,948      
      922,948  
Cost of revenue   $ 668,024      
      668,024  
Gross profit   $ 254,924      
      254,924  
                         
Operating expenses:                        
General and administrative   $ 1,621,401       309,685       1,931,086  
Salaries and benefits     1,817,910       506,662       2,324,572  
Depreciation and amortization     55,181       296,210       351,391  
Others     344,683       80,363       425,046