UNITED STATES
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FORM
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NEXTPLAY TECHNOLOGIES, INC.,
formerly MONAKER GROUP, INC.
FORM 10-Q
For the Quarter Ended AUGUST 31, 2021
TABLE OF CONTENTS
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 industry 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. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under “Risk Factors”, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K for the year ended February 28, 2021, as filed with the SEC on June 8, 2021 (under the heading “Risk Factors” and in other parts of that report) and in the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2021, as filed with the SEC on July 14, 2021 (under the heading “Risk Factors”). 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 Consolidated Financial Statements included elsewhere in this Report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, derivative liabilities and related disclosure of contingencies. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates, including those related to allowances for doubtful accounts, impairment of long-term assets, especially goodwill and intangible assets, assumptions used in the valuation of stock-based compensation, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the SEC, and in our most recent Annual Report on Form 10-K. All references to years relate to the calendar year ended February 28 or 29 (during leap years) of the particular year.
1
Summary Risk Factors
We face risks and uncertainties related to our business, many of which are beyond our control. In particular, risks associated with our business include:
● Combining HotPlay Enterprise Limited (“HotPlay”) and the Company may be more difficult, costly or time-consuming than expected and the Company may fail to realize the anticipated benefits of the HotPlay share exchange, including expected financial and operating performance of the combined company;
● Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms and can adversely affect the financial strength of our business partners;
● Various third parties owe the Company a significant amount of money which may not be timely paid, if at all;
● The Company owes significant amounts to Streeterville Capital, LLC, which are secured by a security interest over substantially all of its assets;
● The Company will need to raise additional funding to support its operations, which funding may not be available on favorable terms, if at all;
● The Company’s operations have been negatively affected by, and have experienced material declines as a result of, COVID-19 and the governmental responses thereto;
● Currently pending and future litigation affecting the Company may have a material adverse effect on the Company;
● The Company’s operations are subject to uncertainties and risks outside of its control, including third party delays in submissions of alternative lodging rental listings and failures to maintain such rental listings, integrations of such listings and the renewal of such listings;
● The Company is subject to extensive government regulations and rules, the failure to comply which may have a material adverse effect on the Company;
● The success of the Company is subject to the development of new products and services over time;
● Longroot Holding (Thailand) Company Limited’s operations are subject to risks associated with cryptocurrency exchanges being a new industry, regulatory changes and/or restrictions, potential illegal uses of cryptocurrencies, the acceptance and widespread use of cryptocurrencies, cyber security risks, and competing blockchain technologies;
● The Company is subject to competition with competitors who have significantly more resources, more brand recognition and a longer operating history than the Company;
● The Company is subject to risks associated with failures to maintain intellectual property and claims by third parties relating to an allegation that the Company violated such third parties’ intellectual property rights;
● The Company relies on third party service providers and the failure of such third parties to provide the services contracted for, on the terms contracted, or otherwise, could have a material adverse effect on the Company;
● The Company relies on the internet and internet infrastructure for its operations and in order to generate revenues;
● The Company’s ability to raise funding, and dilution caused by such fundings, anti-dilution rights included in outstanding warrants;
● The trading price of the Company’s common stock is subject to numerous risks, including volatility and illiquidity;
● The price of our common stock may fluctuate significantly, and you could lose all or part of your investment;
● The officers and directors of the Company have the ability to exercise significant influence over the Company;
● Our business depends substantially on property owners and managers renewing their listings;
● The market in which we participate is highly competitive, and we may be unable to compete successfully with our current or future competitors;
● If we are unable to adapt to changes in technology, our business could be harmed;
● We may be subject to liability for the activities of our property owners and managers, which could harm our reputation and increase our operating costs;
● We have incurred significant losses to date and require additional capital which may not be available on commercially acceptable terms, if at all;
2
● Our ability to integrate the operations of NextBank International, Inc., and regulatory and other risks associated therewith; and
● Those discussed under the caption “Risk Factors” of this Report.
WHERE YOU CAN FIND OTHER INFORMATION
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The SEC maintains a website (https://www.sec.gov) that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically. Additional information about us is available on our website at www.nextplaytechnologies.com. We do not incorporate the information on or accessible through our websites into this filing, and you should not consider any information on, or that can be accessed through, our websites as part of this filing.
3
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
NextPlay Technologies, Inc.
Condensed Consolidated Balance Sheets
| August 31, | February 28, | |||||||
2021 (Unaudited) | 2021 (Audited) | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts Receivable | ||||||||
| Unbilled receivable | ||||||||
| Other Receivable, related parties | ||||||||
| Advance for investment | ||||||||
| Investment in unconsolidated affiliate: Short-term | ||||||||
| Convertible notes receivable, related party | ||||||||
| Loans receivable | ||||||||
| Total current assets | $ | $ | ||||||
| Non- Current Assets | ||||||||
| Investment in unconsolidated affiliates: Long-term | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Computers, furniture and equipment, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Security Deposits | ||||||||
| Total non-current assets | $ | $ | ||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Line of credit & notes payable, net | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Other current liabilities | | |||||||
| Deferred revenue | ||||||||
| Other current liabilities-customer deposits | ||||||||
| Other liabilities affiliate | ||||||||
| Notes payable - related party | ||||||||
| Total current liabilities | $ | |||||||
| Non-Current Liabilities | ||||||||
| Note payable long term, related parties | ||||||||
| Operating lease liability | ||||||||
| Total non-current liabilities | $ | $ | ||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Series A Preferred stock, $ par value; authorized; and shares issued and outstanding at August 31, 2021 and February 28, 2021, respectively | ||||||||
| Series B Preferred stock, $ par value; authorized; and shares issued and outstanding at August 31, 2021 and February 28, 2021, respectively | ||||||||
| Series C Preferred stock, $ par value; authorized; and shares issued and outstanding at August 31, 2021 and February 28, 2021, respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares outstanding at August 31, 2021 and February 28, 2021, respectively | ||||||||
| Treasury stock | ( | ) | ||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive income | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Stockholders’ equity attributable to NextPlay Technologies, Inc. | $ | $ | ||||||
| Non-controlling interest in consolidated affiliates | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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, | August 31, | August 31, | August 31, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| Travel services | $ | $ | $ | $ | ||||||||||||
| Interest and bank services | ||||||||||||||||
| Media subscription and services | ||||||||||||||||
| Total revenues | ||||||||||||||||
Cost of Revenues | ||||||||||||||||
| Travel services | ||||||||||||||||
| Interest and bank services | ||||||||||||||||
| Media subscription and services | ||||||||||||||||
| Total Cost of Revenue | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Salaries and benefits | ||||||||||||||||
| Technology and development | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Selling and promotions expense | ||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income/ (Expense) | ||||||||||||||||
| Valuation gain/ (loss), net | ( | ) | ( | ) | ||||||||||||
| Impairment loss | ( | ) | ( | ) | ||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ||||||||||||
| Realized gain/(loss) on sale of marketable securities | ( | ) | ( | ) | ||||||||||||
| Other income/ (expense) | ||||||||||||||||
| Total other income/ (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (Loss) before tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Estimated Corporate Taxes | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Share of non-controlling interest | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net (loss) attributable to parent | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation gain (loss) | ( | ) | ( | ) | ||||||||||||
| Total other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Basic net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NextPlay Technologies, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
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 $ Value | Treasury Stock | Subscription receivable | Additional Paid In Capital | Accumulated deficit | Accumulated other comprehensive income | Total
shareholders’ equity | Minority interest | Total
shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance at February 28, 2021 | — | — | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Reduction of share capital | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Reverse acquisition recapitalization | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for consulting and bonus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for debt payment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for business acquisition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for bonus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchase | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at August 31, 2021 | — | — | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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 $ Value | Treasury Stock | Subscription receivable | Additional Paid In Capital | Accumulated deficit | Accumulated other comprehensive income | Total
shareholders’ equity | Minority interest | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance at May 31, 2021 | — | — | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||
| Reduction of share capital | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Reverse acquisition recapitalization | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for consulting and bonus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for debt payment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for business acquisition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for bonus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchase | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at August 31, 2021 | — | — | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
NextPlay Technologies, Inc
Consolidated Statements of Stockholders’ Equity
For the six months ended August 31, 2020
| Preferred B Shares | Preferred B Amount | Preferred C Shares | Preferred C Amount | Common Stock Shares | Common Stock $ Value | Treasury Stock | Subscription receivable | Additional Paid In Capital | Accumulated deficit | Accumulated other comprehensive income | Total shareholders’ equity | Minority interest | Total
shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 6, 2020 (inception) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Share contribution | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| cash | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| intangible assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount on common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at August 31, 2020 | — | — | — | — | $ | $ | — | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||
For the three months ended August 31, 2020
| Preferred B Shares | Preferred B Amount | Preferred C Shares | Preferred C Amount | Common Stock Shares | Common Stock $ Value | Treasury Stock | Subscription receivable | Additional Paid In Capital | Accumulated deficit | Accumulated other comprehensive income | Total shareholders’ equity | Minority interest | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of May 31, 2020 | — | — | — | — | $ | $ | — | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||
| Share contribution | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| cash | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| intangible assets | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at August 31, 2020 | — | — | — | — | $ | $ | — | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
NextPlay Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended | ||||||||
Cash flows from operating activities: | August 31, 2021 | August 31, 2020 | ||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash used for operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Valuation loss, net | ||||||||
| Stock Based Compensation | ||||||||
| Gain on Sale of assets | ( | ) | ||||||
| Share of non-controlling interest | ( | ) | ( | ) | ||||
| Gain / (Loss) on currency translation | ||||||||
| Impairment Loss | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Amounts due from related parties | ( | ) | ||||||
| Amounts due to related party | ||||||||
| Accounts receivable | ||||||||
| Unbilled receivable | ( | ) | ||||||
| Loans receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Security deposits | ( | ) | ||||||
| Operating lease | ||||||||
| Accounts payable & Accrued expenses | ||||||||
| Deferred revenue - related party | ( | ) | ||||||
| Other current liabilities | $ | ( | ) | $ | ||||
| Cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| Cash flows from investing activities: | ||||||||
| Short term investment - related party | ||||||||
| Investment in unconsolidated affiliate | ||||||||
| Additions of intangible assets - related party | ( | ) | ( | ) | ||||
| Additions of intangible assets | ( | ) | ||||||
| Purchase of computer, furniture, and equipment - related party | ( | ) | ||||||
| Purchase of computer, furniture, and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of fixed assets | ||||||||
| Effects of a business combination of NextBank | ||||||||
| Effects of a business combination of NextPlay (Monaker) | ||||||||
| Cash provided by (used in) investing activities | $ | ( | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of ordinary shares | ||||||||
| Proceed from notes payable - related party | ||||||||
| Repayment of notes payable - related party | ( | ) | ( | ) | ||||
| Treasury stock transaction | ( | ) | ||||||
| Proceeds from promissory notes - related party | ||||||||
| Payments on promissory notes - related party | $ | ( | ) | $ | ||||
| Cash (used in) provided by financing activities | $ | ( | ) | $ | ||||
| Net increase/(Decrease) in cash | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Cash at beginning of period | $ | $ | ||||||
| Cash at end of period | $ | $ | ||||||
Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| NON-CASH TRANSACTIONS | ||||||||
| Addition of intangible assets through exchanging shares | ||||||||
| Settle (a) Convertible note receivable and (b) note payable due to closing share exchange transaction | ||||||||
| Settle (a) Convertible note receivable and (b) share capital increase due to closing share exchange transaction | ||||||||
| Operating lease right to use assets obtained in exchange for new operating lease liabilities | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
NextPlay Technologies, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Summary of Business Operations and Significant Accounting Policies
Nature of Operations and Business Organization
NextPlay Technologies, Inc. and its consolidated subsidiaries (“NextPlay”, “we”, “our”, “us”, or the “Company”) is building a technology solutions company, offering games, in-game advertising, crypto-banking, connected TV and travel booking services to consumers and corporations within a growing worldwide digital ecosystem. NextPlay’s engaging products and services utilize innovative advertising technology (AdTech), Artificial Intelligence (AI) and financial technology (FinTech) solutions to leverage the strengths and channels of its existing and acquired technologies.
NextPlay
is organized into three (
In the Interactive Digital Media Division, NextPlay closed its acquisition
of HotPlay Enterprise Limited and its In-Game Advertising (“IGA”) platform on June 30, 2021, and acquired a
In the Finance and Technology Division, the Company’s acquisition of International Financial Enterprise Bank (“IFEB”), now called NextBank International, Inc. (“NextBank”), is expected to allow NextPlay to offer individuals and households asset management and banking services, and travel related services such as travel finance and travel insurance, subject to regulatory approval and licensing.
Our company in accordance with Thailand foreign ownership laws, holds an indirect control of Longroot (Thailand) Company Limited (“Longroot”) which operates Initial Coin Offering (“ICO”) Portal which is approved and regulated by the Thai Securities and Exchange Commission (“Thai SEC”). The Portal enables us to crypto-securitize an array of high quality alternative assets, such as video games, insurance contracts, and real estate. These digital assets serve as a new asset class and will create significant opportunities to accelerate products and services within the Fintech division’s asset management business.
Leveraging Longroot Thailand’s blockchain technology, NextPlay is developing blockchain products and solutions to support its other business units, such as a next generation insurance solution to be offered through our Travel division.
Our Travel division currently offers booking solutions for both business and leisure travel and plans to expand its product and services offerings by integrating multiple technologies from other NextPlay divisions.
Reverse Acquisition of HotPlay Enterprise Ltd.
On
July 23, 2020, the Company (then known as Monaker Group, Inc. (“Monaker”)) entered into a Share Exchange Agreement (as
amended from time to time, the “Share Exchange Agreement”) with HotPlay Enterprise Limited (“HotPlay”) and
the stockholders of HotPlay (the “HotPlay Stockholders”). Pursuant to the Share Exchange Agreement, Monaker exchanged
shares of its common stock for
Reverse Acquisition
HotPlay, as the accounting acquirer, recorded the assets acquired and liabilities assumed of Monaker in the reverse acquisition at its fair value as of the acquisition date. HotPlay’s historical financial statements have replaced Monaker’s historical consolidated financial statements with respect to periods prior to the completion of the merger, with retroactive adjustments to HotPlay’s legal capital to reflect the legal capital of Monaker. Monaker (which was renamed NextPlay Technologies, Inc. in connection with the reverse acquisition) remains the continuing registrant and reporting company.
8
HotPlay
was determined to be the accounting acquirer based on the following facts and circumstances: (1) members of HotPlay and HotPlay
Stockholders owned approximately
The Company recorded all tangible and intangible assets acquired and liabilities assumed at their preliminary estimated fair values on the reverse acquisition date. The following represents the allocation of the estimated purchase consideration:
| Reverse Acquisition of HotPlay Enterprise Ltd. (6/30/21) | ||||
| Fair Value of Monaker assets acquired | ||||
| Cash | $ | |||
| Current assets | $ | |||
| Non-current assets | $ | |||
| Net assets acquired | $ | |||
| Fair Value of Monaker liabilities assumed | ||||
| Current liabilities | $ | |||
| Non-current liabilities | $ | |||
| Net liabilities assumed | $ | |||
| Net assets acquired | $ | |||
| Purchase consideration | ||||
| Number of Monaker common shares outstanding as of 6/30/2021 | ||||
| Monaker share price as of 6/30/2021 | $ | |||
| Preliminary estimate of fair value of common shares | $ | |||
| Fair value of total estimated consideration transferred | $ | |||
| Purchase Price Allocation | ||||
| Fair value of Monaker net assets acquired as of 6/30/2021 | $ | |||
| Fair value of total estimated consideration transferred | $ | |||
| Goodwill | $ | |||
9
Interim Financial Statements
These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended February 28, 2021 and notes thereto and other pertinent information contained in the Form 10-K and 8-K, the Company has filed with the Securities and Exchange Commission (the “SEC”) on June 8, 2021
The results of operations for the six months ended August 31, 2021, are not necessarily indicative of the results to be expected for the full fiscal year ending February 28, 2022.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All material inter-company transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These differences could have a material effect on the Company’s future results of operations and financial position. Significant items subject to estimates and assumptions include the fair value of investments, the carrying amounts of intangible assets, depreciation and amortization, the valuation of stock options, and deferred income taxes.
Cash and Cash Equivalents
For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company had no cash equivalents on August 31, 2021 and February 28, 2021.
Prepaid Expenses and Other Current Assets
The Company records cash paid in advance for goods and/or services to be received in the future as prepaid expenses. Prepaid expenses are expensed over time according to the period where it is indicated on the contract.
Website Development Costs
The Company accounts for website development costs in accordance with Accounting Standards Codification (ASC) 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day-to-day operation of the website are expensed as incurred. All costs associated with the websites are subject to straight-line amortization over a period.
Loans Receivable
Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are stated at their outstanding principal amount adjusted for charge-offs and the allowance for loan losses. Interest is accrued as earned based upon the daily outstanding principal balance.
The accrual of interest is generally discontinued at the time a loan is 90 days past due, unless the credit is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged- off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. Interest on these loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
As of August 31, 2021, there were no loans placed on non-accrual.
Interest and Non-interest Bearing Deposits
During the period ended August 31, 2021, the Company had interest and non-interest- bearing deposits received from customers with interest rates ranging from 0% to 4% payable per annum.
Software Development Costs
The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines established by “ASC 985-20-25” Accounting for the Costs of Software to Be Sold, Leased, or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Amortization of the capitalized software development costs begins when the product is available for general release to customers. Capitalized costs are amortized based on the straight-line method over the remaining estimated economic life of the product.
10
Computer, Furniture and Equipment
The Company purchases computers, laptops, furniture and fixture. These
are originally recorded at cost and stated at cost less accumulated depreciation. The computers and laptops are depreciated over a useful
life of
Business Combination
The Company uses the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 requires, among other things, that assets acquired, and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value Measurements, as of the closing date. ASC 805 establishes a measurement period to provide the Company with a reasonable amount of time to obtain the information necessary to identify and measure various items in a business combination and cannot extend beyond one year from the acquisition date.
Impairment of Intangible Assets
In accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets”, the Company assesses the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could trigger an impairment review include the following:
| 1. | Significant underperformance compared to historical or projected future operating results; |
| 2. | Significant changes in the manner or use of the acquired assets or the strategy for the overall business; and |
| 3. | Significant negative industry or economic trends. |
When
the Company determines that the carrying value of an intangible asset may not be recoverable based upon the existence of one or
more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted
cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash
flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model.
Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Intangible assets that have finite useful lives are amortized over their useful lives. The Company incurred depreciation and amortization expense
of $
Foreign Currency Translation
The Company prepares the financial statements of its foreign subsidiaries using the local currency as the functional currency. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the rates of exchange at the balance sheet date with the resulting translation adjustments included as a separate component of stockholders’ equity through other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss.
Income and expenses are translated at the average monthly rates of exchange. The Company includes realized gains and losses from foreign currency transactions in other income (expense), net in the consolidated statements of net and comprehensive loss.
The effect of foreign currency translation on cash and cash equivalents is reflected in cash flows from operating activities on the consolidated statements of cash flows.
Reclassification
Certain prior period amounts have been reclassified to conform with the current period presentation. The reclassification has no impact on the total assets, total liabilities, stockholders’ equity and net loss for the period.
Basic earnings per share are computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the six months ended August 31, 2021, convertible notes payables were excluded from the computation of diluted net loss per share as the result of the computation was anti-dilutive.
11
Revenue Recognition
Travel
We recognize revenue when the customer has purchased the product, the occurrence of the earlier of date of travel or the date of cancellation has expired, the sales price is fixed or determinable and collectability is reasonably assured.
Revenue for customer travel packages purchased directly from the Company are recorded gross (the amount paid to the Company by the customer is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues).
We generate our revenues from sales directly to customers as well as through other distribution channels of tours and activities at destinations throughout the world.
Payments for tours or activities received in advance of services being rendered are recorded as deferred revenue and recognized as revenue at the earlier of the date of travel or the last date of cancellation (i.e., the customer’s refund privileges lapse).
NextBank International
NextBank International provides traditional banking services in niche-focused businesses, including commercial and residential real estate and the origination and sale of loans and receivables financing, among other types of lending services. Revenue is recognized from two sources, interest income and loan fees.
Interest is accrued as earned based upon the daily outstanding principal balance. The accrual of interest is generally discontinued at the time a loan is 90 days past due, unless the credit is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged- off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. Interest on these loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. As of August 31, 2021, there were no loans placed on non-accrual.
Revenue is also recognized on service fees such as loan origination fees, brokering fees, and deposit account fees.
Digital Media
Revenue is generated from subscriptions and services rendered. Subscription revenues are deferred and recognized as the service is performed each month. Revenue from services is recognized when the contractual performance obligation is met.
Cost of Revenue
Cost of revenue consists of cost of the tours and activities, commissions and merchant fees charged by credit card processors, interest expense, loan related commissions, cost of services and sub-contractors.
Selling and Promotions Expense
Selling
and promotion expenses consist primarily of advertising and promotional expenses, expenses related to our participation in industry
conferences, and public relations expenses. The expense for the six months ended August 31, 2021 and August 31, 2020, was $
12
Stock-based compensation is accounted for based on the requirements of ASC 718, “Compensation – Stock Compensation”, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.
The Company adopted ASU No. 2018-7, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting awards (“ASU 2018-7”) As a result, awards are measured based on the grant date closing price of the Company’s common stock consistent with awards made to the Company’s employees and directors. The Company recognizes the remaining unrecognized value of unvested awards over the remaining performance period, with no further remeasurement through the performance completion date.
Warrant Modifications
The Company treats a modification of the terms or conditions of an equity award in accordance with ASC Topic 718-20-35-3, by treating the modification as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument by issuing a new instrument of equal or greater value, incurring additional compensation cost for any incremental value. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award determined in accordance with the provisions of ASC Topic 718-20-35-3 over the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date.
Fair Value of Financial Instruments
The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but it does provide guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).
The hierarchy consists of three levels:
| ● | Level 1 - Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities.
Financial instruments consist principally of cash, accounts receivable, investments in unconsolidated affiliates, other receivable, net, accounts payable, accrued liabilities, notes payable, related parties, line of credit and certain other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.
13
Leases
The Company utilizes operating leases for its offices. The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s contractual obligation to make lease payments under the lease. Operating leases are included in operating lease right-to-use assets, non-current, and operating lease liabilities current and non-current captions in the consolidated balance sheets.
Operating lease right-to-use assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. Lease agreements may contain periods of free rent or reduced rent, predetermined fixed increases in the minimum rent and renewal or termination options, all impacting the determination of the lease term and lease payments to be used in calculating the lease liability. Lease cost is recognized on a straight-line basis over the lease term. The Company uses the implicit rate in the lease when determinable. As most of the Company’s leases do not have a determinable implicit rate, the Company uses a derived incremental borrowing rate based on borrowing options under its credit agreement. The Company applies a spread over treasury rates for the indicated term of the lease based on the information available on the commencement date of the lease.
Recent Accounting Pronouncements
ACCOUNTING STANDARDS UPDATE 2016-13, FINANCIAL INSTRUMENTS—CREDIT LOSSES (TOPIC 326)
On June 16, 2016, the FASB completed its Financial Instruments—Credit Losses project by issuing Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new guidance requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
The new guidance; (i) eliminates the probable initial recognition threshold in current GAAP and, instead, reflects an organization’s current estimate of all expected credit losses over the contractual term of its financial assets, (ii) broadens the information that an entity can consider when measuring credit losses to include forward-looking information, (iii) increases usefulness of the financial statements by requiring timely inclusion of forecasted information in forming expectations of credit losses, (iv) increases comparability of purchased financial assets with credit deterioration (PCD assets) with other purchased assets that do not have credit deterioration as well as originated assets because credit losses that are expected will be recorded through an allowance for credit losses for all assets, (v) increases users’ understanding of underwriting standards and credit quality trends by requiring additional information about credit quality indicators by year of origination (vintage), and (vi) aligns the income statement recognition of credit losses, for available-for-sale debt securities, with the reporting period in which changes occur by recording credit losses (and subsequent changes in credit losses) through an allowance rather than a write down.
The new guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income. It affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.
For public business entities that meet the definition of a U.S. Securities and Exchange (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application is permitted.
We are currently evaluating the impact of the new guidance.
Segment Reporting
Accounting Standards Codification 280-10 “Segment Reporting”, established standards for reporting information about operating segments in annual consolidated financial statements and required selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products, services, and geographic areas. Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
An operating segment component has the following characteristics:
| a. | It engages in business activities from which it may recognize revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity). |
| b. | Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. |
| c. | Its discrete financial information is available. |
The Company has three operating segments consisting of (i) the NextMedia Division, which consists of HotPlay and Reinhart/Zappware, (ii) the NextFinTech Division, which consists of Longroot and NextBank, and (iii) NextTrip Division, which includes NextTrip holdings. The Company’s chief operating decision maker is considered to be the Co-Chief Executive Officers. The chief operating decision maker allocates resources and assesses performance of the business and other activities at the single operating segment level.
See Note 13 Business Segment Reporting for details on each segment unit.
Note 2 - Going Concern
As
of August 31, 2021, and February 28, 2021, the Company had an accumulated deficit of $
We
have limited financial resources. As of August 31, 2021, we have working capital of $
We
will need to raise substantial additional capital to support the on-going operation and increased market penetration of our products
until such time as we generate revenues sufficient to support current operations. We believe that in the aggregate, we could require
several millions of dollars to support and expand the marketing and development of our travel and technology driven products, repay debt
obligations, provide capital expenditures for additional equipment and development costs, payment obligations, and systems for managing
the business, and cover other operating costs until our planned revenue streams from all businesses and products are fully implemented
and begin to offset our operating costs. Our failure to obtain additional capital to finance our working capital needs on acceptable
terms, or at all, will negatively impact our business, financial condition, and liquidity. We currently do not have the resources to
satisfy these obligations, and our inability to do so could have a material adverse effect on our business and ability to continue as
a going concern. As indicated by the increase of the Company’s deferred revenue balance as of August 31, 2021, $
14
Management’s plans with regard to this going concern are as follows: (i) the Company plans to continue to raise funds with third parties by way of public or private offerings, (ii) the Company is working aggressively to increase the viewership of its travel and gaming products by promoting it across other mediums which the Company hopes will result in higher revenues, (iii) the Company plans to issue tokens under Longroot entity during the 4th quarter which will result in generating revenues, and (iv) the Company plans to tighten our spending on our expenses which will help in the cost reduction of our operation.
The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan and generate greater revenues. Management believes that the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern.
Although we currently cannot predict the full impact of the COVID-19 pandemic on our fiscal 2022 financial results relating to our operations, we anticipate an increase in year-over-year revenue as compared to the fiscal year 2021 ended February 28, 2021. However, the ultimate extent of the COVID-19 pandemic and its impact on global travel and overall economic activity is constantly changing and impossible to predict currently.
Note 3 – Notable Financial Information
Prepaid Expenses and Other Current Assets
As
of August 31, 2021 and February 28, 2021, the Company had prepaid expenses and other current assets of $
15
Accounts Receivable
As
of August 31, 2021 and February 28, 2021, the Company had accounts receivable of $
Unbilled Receivables
As of August 31, 2021 and February 28, 2021, the Company
had unbilled receivables of $
Loans Receivable
As
of August 31, 2021 and February 28, 2021, the Company had loan receivable of $
Goodwill
As
of August 31, 2021 and February 28, 2021, the Company had total goodwill of $
Computer, Furniture and Equipment
As
of August 31, 2021 and February 28, 2021, the Company had net computer, furniture and equipment of $
Accounts Payable and Accrued Expenses
As
of August 31, 2021 and February 28, 2021, the Company had accounts payable and accrued expenses of $
Other Liabilities – Customer Deposits
As
of August 31, 2021 and February 28, 2021, the Company had other current liabilities – customer deposits of $
Deferred Revenue
As
of August 31, 2021 and February 28, 2021, the Company had deferred revenue of $
Short Term Note Payable – Related Parties
As
of August 31, 2021 and February 28, 2021, the Company had short term note payable – related party of $
Long Term Note Payable – Related Parties
As
of August 31, 2021 and February 28, 2021, the Company had long term note payable – related party of $
Note 4 – Notes Receivable
Current
$
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.
16
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 of the then outstanding common shares of Axion, in consideration for
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 $
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 shares of outstanding Series B Convertible Preferred Stock and shares of outstanding Series C Convertible Preferred Stock automatically converted into and shares of common stock of the Company, respectively, in accordance with the terms of such preferred stock (the “Preferred Conversion”).
The
Creditor Warrants, have cashless exercise rights, an exercise price of $
On August 20, 2021, our counsel sent a demand letter for payment to Axion Ventures Inc. As of August 31, 2021, there has been no response in related to the demand letter.
On
September 1, 2021, the Company filed a claim in the Supreme Court of British Columbia demanding payment of $
Note 5 – Investments in Unconsolidated Affiliates
We assess the potential impairment of our equity method investments when indicators such as a history of operating losses, negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value.
17
Note 5.1 – Advances for investments
Letter of Intent to Acquire Axion shares
On October 28, 2020, the Company entered into a non-binding Letter of Intent (as amended by the first amendment thereto dated March 10, 2021, the “Letter of Intent”) with Radiant Ventures Limited, which manages Radiant VC1 Limited and Radiant PV 1 Limited, two stockholders of Axion, which the Company acquired approximately of (provided that such ownership of Axion has not been formally transferred to the Company to date) on November 16, 2020, as discussed above.
Pursuant
to the Letter of Intent, the Company agreed, subject to certain condition precedents, including regulatory approvals and the entry
into material agreements with the sellers, to acquire approximately shares of Axion, equal to
As
of August 31, 2021, total payment of cash and shares is $. The Company plans to make the final payment of
Go Game Securities Purchase Agreement
On
June 30, 2021, the Company entered into a Securities Purchase Agreement (the “Go Game SPA”) with David Ng,
an individual (the “Seller”). Pursuant to the Go Game SPA, the Company agreed to acquire a
Pursuant
to the Go Game SPA, the Company was also granted an option (the “Go Game Option”), to purchase up to an additional
shares of Go Game’s Class B Preferred shares from the Seller (the “Option Shares”)(representing
18
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 shares of Company common stock (including shares of preferred stock issuable upon conversion thereof).
The closing of the acquisition of the Initial Go Game Shares is subject to certain closing conditions and requirements which may not be met on a timely basis, if at all. The Company and Seller have made customary representations and warranties and have agreed to customary covenants in the Go Game SPA. There is no assurance that all of the conditions to the consummation of the Go Game SPA will be satisfied.
In connection with the parties’ entry into the Go Game SPA, the Seller entered into a lock-up agreement with the Company, whereby the Seller agreed that the Seller would not transfer or sell, any of the Series D Preferred Stock shares and/or shares of common stock issuable upon conversion thereof, until 18 months after the Company’s acquisition of the Initial Go Game Shares (the “Initial Closing”), without the prior written consent of the Company, except that of such shares may be transferred or sold six months after the Initial Closing, and an additional shares may be transferred or sold 12 months after the Initial Closing.
As
of August 31, 2021, the second payment of $
Note 5.2 – Investment in Unconsolidated Affiliates
shares of Bettwork Industries Inc. Common Stock (OTC Pink: BETW)
On
July 2, 2018, three Secured Convertible Promissory Notes aggregating $
On
February 28, 2021, the shares of Bettwork’s common stock held by the Company were trading at $ per share valued
at $
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 shares of the Company’s common stock in exchange for shares of Recruiter common stock. Also, the Company issued to Recruiter an additional shares of common stock for marketing initiatives within the Recruiter platform. In essence, the Company issued shares of its common stock to purchase shares of Recruiter, and the Company issued an additional shares of its common stock as a prepayment for marketing and advertising within the Recruiter platform. Recruiter was at that time a private company with a platform that companies and individuals use for employment placements.
During
the quarter ended August 31, 2021, the Company sold in open market transactions shares of Recruiter stock. The sale of
these shares resulted in a realized gain of $
19
On
February 28, 2021, the Company owned shares of Recruiter’s common stock compared to shares of Recruiter’s
common stock as of August 31, 2021. As of August 31, 2021, each share of Recruiter’s common stock was valued at $ per
share which changed the fair value of the shares of Recruiter common stock to $
Acquisition of Axion Shares
The
investment in affiliate of $
Also
pursuant to the Axion Exchange Agreement, which closed on November 16, 2020, certain creditors of Axion (the “Axion Creditors”)
exchanged debt owed to them by Axion in the aggregate amount of $
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 shares of the Company’s common stock. The warrants vest on the earlier
of (i) the date the Axion debt is fully repaid by Axion or (ii) the date that the Company obtains
20
Note 6 – Acquisitions and Dispositions
Reinhart Interactive TV AG and Zappware N.V. Acquisition
On January 15, 2021, we entered into a Founding Investment and Subscription Agreement (the “Investment Agreement”) with Reinhart, and Jan C. Reinhart, the founder of Reinhart (“Founder”).
The
Investment Agreement contemplated the Company acquiring
We paid the founder $
In accordance with ASC 805, as described in “Note 1 – Summary of Business Operations and Significant Accounting Policies”, the Company has accounted for this business combination utilizing the following values in connection with the business acquisition of Reinhart as of June 23, 2021. The business combination accounting is provisionally complete for all assets and liabilities acquired on the acquisition date and we will continue to evaluate the fair values within the 1-year timeframe as provided in the applicable guidance.
| Acquisition of Reinhart TV AG/Zappware | ||||
| Total Identifiable Assets | $ | |||
| Total liabilities | $ | |||
| Net Assets | $ | |||
| Total Consideration transferred | $ | |||
Reinhart is in the business of providing a software-based TV and video distribution platform to telecom companies and digital content owners, and providing services to telecom companies and digital content owners for user interaction design, as well as software development, deployment and support.
In connection with our entry into the Investment Agreement, we entered
into a Founding Shareholders’ Agreement with the Founder (the “Shareholders’ Agreement”). The Shareholders’
Agreement set forth certain rules for the governance and control of Reinhart. Given the percentage ownership of
21
| Date right is triggered | Percent of Founder’s Shares eligible to be sold | Required Purchase Price |
| % | ||
| % | ||
| % | ||
| % |
The Shareholders’ Agreement also allows the parties to file for an initial public offering on a Swiss trading exchange. The Shareholders’ Agreement has a term of , extendable thereafter for successive periods, unless terminated by either party with prior written notice (provided that any such termination shall only be applicable to the terminating shareholder), subject to earlier termination in connection with certain initial public offerings.
NextBank International (formerly IFEB) Acquisition
On
April 1, 2021, we entered into a Bill of Sale for Common Stock, effective March 22, 2021 (the “Bill of Sale”),
with certain third parties pursuant to which the Company agreed to purchase shares (the “IFEB Shares”)
of authorized and outstanding Class A Common Stock of International Financial Enterprise Bank, Inc., a Puerto Rico corporation
licensed as an Act 273-2012 international financial entity headquartered in San Juan Puerto Rico (“IFEB”),
which IFEB Shares totaled approximately % of the outstanding Class A Common Stock of IFEB. The purchase price of the IFEB
Shares was $
IFEB was incorporated in 2017 as a corporation under the laws of the Commonwealth of Puerto Rico and received its international financial entity license on June 18, 2017 from the Office of the Commissioner of Financial Institutions of Puerto Rico, in Spanish, “Oficina del Comisionado de Instituciones Financieras” or “OCIF”, as license #51. As a result, IFEB is regulated by OCIF.
On May 6, 2021, in anticipation of the acquisition of the IFEB Shares, and control of IFEB, the Company and IFEB entered into a Preferred Stock Exchange Agreement, which was amended by a First Amendment to Preferred Stock Exchange Agreement entered into May 10, 2021 and effective May 6, 2021 (as amended by the first amendment, the “Original Preferred Exchange Agreement”), pursuant to which the Company agreed to exchange shares of the Company’s restricted common stock for shares of cumulative, non-compounding, non-voting, non-convertible, perpetual Series A preferred shares of IFEB. The Original Preferred Exchange Agreement was subsequently replaced by the Preferred Exchange Agreement, described below under “Note 14—Subsequent Events”.
22
Notwithstanding the terms of the Bill of the Sale, and the payment by the Company of the aggregate purchase price pursuant thereto, the transfer of the Initial IFEB Shares to the Company and the Company’s acquisition of control of IFEB was subject to review of the Company’s financial viability, as well as other matters, by OCIF, which approval of OCIF was received in June 2021, but which acquisition did not close until July 21, 2021.
Separately, on July 21, 2021, the Company entered into, and closed the transactions contemplated by, a Share Exchange Agreement with various other holders of shares of Class A Common Stock of IFEB (the “Additional Sellers” and the “IFEB Exchange Agreement”). Pursuant to the IFEB Exchange Agreement, the Additional Sellers exchanged an aggregate of of the outstanding Class A Stock of IFEB, representing % of such outstanding Class A Stock of IFEB in consideration for an aggregate of shares of the Company’s restricted common stock (the “IFEB Common Shares”), with each one share of Class A Stock of IFEB being exchanged for shares of restricted common stock of the Company, based on an agreed upon value of $ per share for each share of Company common stock and $ per share for each share of Class A Stock of IFEB.
As a result of the closing of both transactions, we acquired control of 100% of IFEB as of July 21, 2021.
In accordance with ASC 805, as described in “Note 1 – Summary of Business Operations and Significant Accounting Policies”, the Company has accounted for this business combination utilizing the following values in connection with the business acquisition of NextBank as of July 21, 2021. The business combination accounting is provisionally complete for all assets and liabilities acquired on the acquisition date and we will continue to evaluate the fair values within the 1-year timeframe as provided in the guidance.
| Acquisition of NextBank International, Inc. (7/21/21) | ||||
| Fair Value of assets acquired | ||||
| Cash | $ | |||
| Current assets | $ | |||
| Non-current assets | $ | |||
| Net assets acquired | $ | |||
| Fair Value of liabilities assumed | ||||
| Current liabilities | $ | |||
| Non-current liabilities | $ | |||
| Net liabilities assumed | $ | |||
| Net assets acquired | $ | |||
| Purchase consideration | ||||
| Cash | $ | |||
| Common stock ( shares @ $) | $ | |||
| Fair value of total consideration transferred | $ | |||
| Purchase Price Allocation | ||||
| Fair value of net assets acquired as of 7/21/2021 | $ | |||
| Fair value of total consideration transferred | $ | |||
| Goodwill | $ | |||
| (1) |
23
The IFEB Exchange Agreement required that:
(a) three legacy board members of IFEB remain on the Board of Directors of IFEB for a period of one year after the closing date of the IFEB Exchange Agreement, subject to rights of removal if such continued appointment/service as board members would violate the fiduciary duties of any other board members;
(b) certain outstanding loans held by one of the legacy board members be extended, and be subject to a further extension;
(c) that Ms. Nithinan Boonyawattanapisut, Mr. J. Todd Bonner, Mr. Donald P. Monaco and Mr. William Kerby (each a member of the Board of Directors of the Company) and Mr. Jan Reinhart, the founder of Reinhart, be appointed as members of the Board of Directors of IFEB;
(d) that
Ronald Poe will be appointed as Vice President of Longroot, Inc., the Company’s wholly-owned subsidiary, and be provided
a salary of $
(e) that
Robert Fiallo, will be hired by an affiliate of the Company pursuant to an employment agreement, and be paid a base salary of
$
Note 7 – Website Development Costs and Intangible Assets
The following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of August 31, 2021:
August 31, 2021
| Useful Life | Cost | Impairment | Accumulated Amortization |
Net
Carrying Value |
In-Service Date (Estimate) |
||||||||||||||||
| Website platform | $ | — | $ | $ | — | — | |||||||||||||||
| Contracts, domains, customer lists | — | — | — | ||||||||||||||||||
| Website platform | — | — | — | ||||||||||||||||||
| Website development costs | — | — | |||||||||||||||||||
| Software development costs | — | — | |||||||||||||||||||
| Trademark & License | Indefinite | — | — | ||||||||||||||||||
| Software licenses | — | — | |||||||||||||||||||
CIP – IDS Project |
— | — | — | ||||||||||||||||||
| CIP – Not in service | — | — | |||||||||||||||||||
| $ | $ | ||||||||||||||||||||
24
During
the quarter ended August 31, 2021, the Company purchased a total of $
As part of the IDS Settlement, the Company reviewed the IDS platform software.
As a result of the review, the Company determined to impair the remaining balance of the software platform in the amount of $
Intangible
assets are amortized on a straight-line basis over their expected useful lives which is estimated to be
Based on the carrying value of definite-lived intangible assets as of August 31, 2021, we estimate our amortization expense for the next five years will be as follows:
| As of August 31, 2021 | Amortization Expense | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| $ | ||||
25
Note 8 – Notes Payable
Note Purchase Agreements: Streeterville Capital, LLC
On
November 23, 2020, the Company entered into a Note Purchase Agreement (the “November 2020 Note Purchase Agreement”)
with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company sold Streeterville a Secured
Promissory Note in the original principal amount of $
The
November 2020 Streeterville Note bears interest at a rate of
The
November 2020 Streeterville Note provided that if any of the following events had not occurred on or before April 30, 2021, the
then outstanding balance of the note (including accrued and unpaid interest) increases by an amount equal to
Pursuant
to the November 2020 Streeterville Note, we provided Streeterville a right of first refusal to purchase any promissory note, debenture
or other debt instrument which we propose to sell, other than sales to officers or directors of the Company and/or sales to the
government. Each time, if ever, that we provide Streeterville such right, and Streeterville does not exercise such right to provide
such funding, the outstanding balance of the November 2020 Streeterville Note increases by
In connection with the November 2020 Note Purchase Agreement and the November 2020 Streeterville Note, the Company entered into a Security Agreement with Streeterville (the “Security Agreement”), pursuant to which the obligations of the Company are secured by substantially all the assets of the Company, subject to a priority lien and security interest in the collateral of the Company.
26
The
November 2020 Investor Note, in the principal amount of $
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
$
The
March 2021 Streeterville Note bears interest at a rate of
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
The March 2021 Note Purchase Agreement required that we complete the purchase of the Reinhart (the “Reinhart Interest”), within ten days of the date of the sale of the March 2021 Streeterville Note, and that the Company pledge the Reinhart Interest to Streeterville pursuant to a pledge agreement thereafter, both of which were timely completed.
Also
on May 26, 2021, Streeterville funded the March 2021 Investor Note (in the amount of $
We
made a required equity payment of $
27
We
failed to timely meet the November 2020 Note Transaction Conditions; however, on June 1, 2021, Streeterville agreed to defer
On
June 22, 2021, the Company entered into an Exchange Agreement with Streeterville, pursuant to which Streeterville exchanged $
On
July 21, 2021, the Company entered into an Exchange Agreement with Streeterville, whereby Streeterville exchanged $
HotPlay Convertible Notes
On
September 1, 2020, September 18, 2020, September 30, 2020, on or around November 2, 2020, and on November 24, 2020, and on around
December 28, 2020 and on and around January 6, 2021 HotPlay advanced NextPlay Technologies, Inc $
On
March 16, 2021, March 19, 2021, and April 15, 2021, HotPlay loaned the Company $
The advances, and the entry into the HotPlay Convertible Notes, were required conditions to the HotPlay Exchange Agreement.
The HotPlay Notes were automatically forgiven by HotPlay as inter-company loans upon the closing of the HotPlay Exchange Agreement which occurred on June 30, 2021.
Note 9 – Related Party Promissory Notes and Transactions
| Name of related parties | Relationship with the Company |
| Red Anchor Trading Corporation (“RATC”) | |
| Tree Roots Entertainment Group Company Limited (“TREG”) | |
| T&B Media Global (Thailand) Company Limited (“T&B”) | |
| Dees Supreme Company Limited | |
| HotNow (Thailand) Company Limited (“HotNow”) | |
| True Axion Interactive Company Limited (“TAI”) | |
| Magnolia Quality Development Corporation Limited (“MQDC”) | |
| Nithinan Boonyawattanapisut | |
28
Other than disclosed elsewhere, the Company had the following significant related party transactions for the six months ended August, 31, 2021.
| Payment of rental expense: | ||||
| Tree Roots Entertainment Group Co., Ltd | ||||
| Purchase of intangible asset: | ||||
| HotNow (Thailand) Company Limited | ||||
| Purchase of equipment: | ||||
| HotNow (Thailand) Company Limited | ||||
| Operating expense: | ||||
| HotNow (Thailand) Company Limited | ||||
| Interest expense of loan from: | ||||
| Magnolia Quality Development Corporation Limited | ||||
| Tree Roots Entertainment Group Company Limited | ||||
| Rental expense: | ||||
| Tree Roots Entertainment Group Co., Ltd | ||||
| Payment of loan interest: | ||||
| Magnolia Quality Development Corporation Limited | ||||
| Tree Roots Entertainment Group Co., Ltd | ||||
| Payment of contract cost: | ||||
| HotNow (Thailand) Company Limited | ||||
The
Company entered into a short-term loan with MQDC for $
The
Company entered into a short-term loan with TREG for $
29
| a) | The Company had the following related party balances as of August 31, 2021: |
| Nature | August 31 , 2021 | |||||
| Amounts due from related party: | ||||||
| HotNow (Thailand) Company Limited | ||||||
| Amounts due to related parties: | ||||||
| Magnolia Quality Development Corporation Limited | Accrued Interest expense | |||||
| Tree Roots Entertainment Group | Other payable | |||||
| Accrued Interest expense | ||||||
| Accrued rental expense | ||||||
| Total | $ | |||||
| Notes payable: | ||||||
| Magnolia Quality Development Corporation Limited | ||||||
| Tree Roots Entertainment Group | ||||||
| Total | $ | |||||
On
March 31, 2021, HotPlay Thailand entered into an asset purchase agreement with HotNow, a related party, which is also under the
same common control of HotPlay Thailand to purchase some of the assets, all software used in the business including all rights
under licenses and other agreements and employees with the aggregate price of
HotPlay
Thailand entered into a short-term loan with MQDC for
$
HotPlay
Thailand entered into a short-term loan with TREG
for $
Also on April 7, 2021, the board of directors of the Company ratified the current compensation payable to members of the board of directors, which provides that each non-executive member of the Board be paid (a) compensation of shares per year; (b) compensation of shares per year, if they are the chairperson of any committee of the board of directors; and (c) compensation of shares per year, to the Chairman of the Board (collectively, the “Board Compensation Terms”), except that all shares due to the Directors serving as of March 1, 2021, for the fiscal year ending February 28, 2022, were agreed to be issued up front and to be fully-vested/earned on the date of grant, instead of vesting over time, as previously awarded. In total, an aggregate of shares of common stock were issued to the non-executive directors on April 8, 2021 for compensation for fiscal 2022 (such shares, the “Fiscal 2022 Board Compensation Shares”). The Fiscal 2022 Board Compensation Shares were issued under the Company’s Amended and Restated 2017 Equity Incentive Plan (the “Plan”).
On April 7, 2021, the Company entered into a Lock-Up Agreement with each of the non-executive members of the board of directors. Pursuant to the Lock-Up Agreements, each non-executive director agreed not to transfer, sell, pledge or assign any of their applicable Fiscal 2022 Board Compensation Shares until March 1, 2022.
On
April 7, 2021, the board of directors of the Company, consistent with the employment agreement of Mr. William Kerby, the Co-Chief
Executive Officer of the Company, which provides for Mr. Kerby to receive a base salary of $
30
The
Company declared dividends in arrears of $
On
April 8, 2021, the Company entered into an Exchange Agreement with William Kerby, its Co-Chief Executive Officer and director
and Monaco Investment Partners II, LP (“MI Partners”), of which Donald P. Monaco is the managing general partner
and the Co-Chairman of the board of directors of the Company (the “Exchange Agreement”). Pursuant to the Exchange
Agreement, the terms of which were approved by the board of directors of the Company, Mr. Kerby and MI Partners exchanged their
right to an aggregate of $
The
Convertible Promissory Notes accrue interest at the rate of
The Audit Committee of the board of directors of the Company is tasked with reviewing and approving any issues relating to conflicts of interests and all related party transactions of the Company (“Related Party Transactions”). The Audit Committee, in undertaking such review and approval, will analyze the following factors, in addition to any other factors the Audit Committee deems appropriate, in determining whether to approve a Related Party Transaction: (1) the fairness of the terms for the Company (including fairness from a financial point of view); (2) the materiality of the transaction; (3) bids / terms for such transaction from unrelated parties; (4) the structure of the transaction; (5) the policies, rules and regulations of the U.S. federal and state securities laws; (6) the policies of the Committee; and (7) interests of each related party in the transaction.
The Audit Committee will only approve a Related Party Transaction if the Audit Committee determines that the terms of the Related Party Transaction are beneficial and fair (including fair from a financial point of view) to the Company and are lawful under the laws of the United States. In the event multiple members of the Audit Committee are deemed a related party, the Related Party Transaction will be considered by the disinterested members of the board of directors in place of the Committee.
Note 10 – Stockholders’ Equity
Preferred stock
The aggregate number of shares of preferred stock that the Company is authorized to issue is up to One Hundred Million (), with a par value of $0 per share (the “Preferred Stock”) with the exception of Series A Preferred Stock shares having a $0 par value per share. The Preferred Stock may be divided into and issued in series. The board of directors of the Company is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. The board of directors of the Company is authorized, within any limitations prescribed by law and the articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of Preferred Stock.
31
Series A Preferred Stock
The
Company has authorized and designated shares of Preferred Stock as Series A
Dividends
in arrears on the previously outstanding Series A Preferred Stock shares totaled $
The Company had shares of Series A Preferred Stock issued and outstanding as of August 31, 2021 and February 28, 2021.
Series B Preferred Stock
The Company has authorized and designated 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 % of the outstanding common shares of Axion pursuant to the Axion Exchange Agreement (see “Note 5 – Investment in Unconsolidated Affiliates”). Each share of Series B Preferred Stock automatically, and without any required action by any holder, converted into shares of common stock upon the closing of the HotPlay Share Exchange on June 30, 2021.
As of August 31, 2021 and February 28, 2021, (zero) and shares of Series B Preferred Stock are outstanding, respectively.
Series C Preferred Stock
The Company has authorized and designated shares of Preferred Stock as Series C Convertible Preferred Stock. The Series C Preferred Stock was issued to certain debt holders of Axion who are party to the Axion Share Exchange Agreement and who agreed to exchange certain debt owed to such debt holders by Axion for shares of Series C Preferred Stock pursuant to the Share Exchange Agreement. Each share of Series C Preferred Stock is automatically, and without any required action by any Holder, converted into common stock, on a -for one basis, upon the occurrence of certain events, including five business days after the closing of the HotPlay Exchange Agreement.
As of August 31, 2021 and February 28, 2021, (zero) and shares of Series C Preferred Stock are outstanding, respectively.
Series D Preferred Stock
On
July 21, 2021, the Company designated Series D Convertible Preferred Stock (“Series D Preferred Stock”), by filing
a Certificate of Designation of such Series D Preferred Stock with the Secretary of State of Nevada (the “Series D Designation”).
The Series D Designation, which was approved by the Board of Directors of the Company on July 15, 2021, designated shares of
Series D Preferred Stock, $ 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 $
32
Common Stock
The
Company issued the initial payment of $
During the three months ended August 31, 2021, the following shares of common stock were issued:
| ● | shares of common stock in an Exchange agreement valued at $ |
| ● | shares of common stock for consulting and investor relations services rendered valued at $ |
| ● | shares of common stock for related redemption on a loan valued at $ |
| ● | shares of common stock as a bonus for an executive of the Company valued at $ |
| ● | shares of common stock in related to the reverse acquisition of HotPlay valued at $ |
The Company had and shares of common stock issued and outstanding at August 31, 2021 and February 28, 2021, respectively.
Common Stock Warrants
| Warrant | Weighted Average Exercise |
|||||||
| Outstanding, February 28, 2021 | $ | |||||||
| Warrants granted | $ | |||||||
| Warrants exercised/forfeited/expired | ( |
) | $ | ( |
) | |||
| Outstanding, August 31, 2021 | $ | |||||||
| Common stock issuable upon exercise of warrants | $ | |||||||
33
At
February 28, 2021, there were warrants outstanding to purchase
At
August 31, 2021, there were warrants outstanding to purchase
During the quarter ended August 31, 2021, the Company granted:
● warrants to purchase shares of common stock in connection with subscriptions for shares of common stock.
Note 11 – Commitments and Contingencies
The
Company entered into a new office lease to relocate our executive, administrative, and operating offices located in Sunrise, Florida
where we leased approximately
The
rent for the quarters ended August 31, 2021 and August 31, 2020 was $
The following schedule represents obligations and commitments on the part of the Company that are not included in liabilities:
| Current | Long Term | |||||||||
| FYE 2022 | FYE 2023 | Totals | ||||||||
| Office Leases Nextplay | $ | $ | $ | |||||||
| Office Lease HotPlay | $ | |
$ | |
||||||
| Insurance and Other | ||||||||||
| Totals | $ | $ | $ | |||||||
Legal Matters
The Company is involved, from time to time, in litigation, other legal claims and proceedings involving matters associated with or incidental to our business, including, among other things, matters involving breach of contract claims, intellectual property, employment issues, and other related claims and vendor matters. The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change considering the discovery of facts not presently known to the Company or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.
IDS Settlement
On
August 15, 2019, the Company entered into an Intellectual Property Purchase Agreement with IDS Inc. (“IDS”
and the “IP Purchase Agreement”). Pursuant to the agreement, the Company purchased certain proprietary technology
from IDS for the reservation and booking of air travel, hotel accommodations, car rentals, and ancillary products, services, and
amenities, integration of the same with the providers of such products and services, associated functions, including website addresses,
patents, trademarks, copyrights and trade secrets relating thereto, and all goodwill associated therewith (collectively, the “IP
Assets”). In consideration for the purchase, the Company issued IDS shares of restricted common stock (the
“IDS Shares”) valued at $ per share, or $
34
On April 27, 2020, the Company filed a verified complaint for injunctive relief against IDS and TD Assets Holding, LLC (“TD Asset”), Navarro McKown, Aaron McKown and Ari Daniels (“Daniels”), which parties are affiliated with IDS, in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (Case No. CACE-20-007088). Pursuant to the complaint, the Company alleged causes of action against the defendants, including IDS, based on among other things, fraud, conspiracy to commit fraud, aiding and abetting fraud, rescission, and breach of contract, and sought a temporary and permanent injunction against the defendants, requiring such persons to return the IDS Shares issued pursuant to the terms of the IP Purchase Agreement and preventing such persons from selling or transferring any IDS Shares, sought damages from the defendants, rescission of the IP Purchase Agreement, attorneys fees and other amounts. The defendants subsequently filed various counterclaims against the Company.
On April 29, 2020, the Company filed a Verified Motion for Temporary Injunction (the “Injunction Motion”). Defendants IDS, TD Assets, and Ari Daniels filed an answer, affirmative defenses, and counterclaims (the “Answer and Counterclaim”). The Answer and Counterclaim included alleged breach of contract and tort claims against the Company. On September 17, 2020, the Company moved to strike the affirmative defenses and dismiss the counterclaims. On October 15, 2020, defendants IDS, TD Assets, and Ari Daniels filed an amended Answer and Counterclaim, including alleged breach of contract, tort, and federal securities claims against the Company, Mr. William Kerby, our Chief Executive Officer and an employee of the Company.
On July 27, 2020, the Company entered into a confidential settlement agreement with certain of the defendants in the IDS matter, Navarro Hernandez, P.L., Aaron M. McKown, and Jeffery S. Bailey. The settlement provided for mutual releases of the parties and amounts payable from such parties to the Company in four tranches, in consideration for such settlement, of which all such payments have been timely paid pursuant to the terms of the settlement.
The remaining parties to the litigation subsequently attempted to mediate their claims pursuant to a court ordered mediation in February 2021.
Effective
on May 18, 2021, the Company, IDS, TD Asset and Ari Daniels, the principal of IDS, entered into an Amendment to Intellectual Property
Purchase Agreement (the “IP Purchase Amendment”). Pursuant to the IP Purchase Agreement, the parties amended
the IP Purchase Agreement, with the Company agreeing to make a payment to IDS in the amount of $ (the “Payment”),
payable by way of an initial payment of $
Pursuant
to the IP Purchase Amendment, on May 19, 2021 the Company made the initial payment of $
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) $
35
Litigation between Axion and NextPlay
On January 15, 2021, Axion Ventures, Inc., filed a civil claim in the Supreme Court of British Columbia (Action No. S-209245), against J. Todd Bonner, our director, Nithinan Boonyawattanapisut, our Co-Chief Executive Officer and director, the Company, William Kerby, our Co-Chief Executive Officer, Cern One Limited, Red Anchor Trading Corp., CC Asia Pacific Ventures Ltd., HotPlay Enterprise Limited, HotPlay (Thailand) Ltd., Longroot, Inc. and certain other parties. The claim alleges that Mr. Bonner and his wife, Ms. Boonyawattanapisut, used their positions as directors and officers of Axion and certain of its subsidiaries, together with the other defendants, to unlawfully take ownership of Axion’s subsidiaries and assets, including its intellectual property. Axion’s claim includes causes of action for conspiracy and fraud; theft of Axion intellectual property and ownership of Longroot; an investor scheme; breaches of fiduciary duty by Mr. Bonner and Ms. Boonyawattanapisut and others; negligence; knowing assistance of breach of fiduciary duty; collective trust; knowing receipt of trust property; knowing assistance in dishonest conduct; unjust enrichment; and breach of honest performance. The claim seeks general and special damages for conspiracy, damages for breaches of fiduciary duties, accountings and repayments of amounts alleged improperly paid, including to the Company, interim, interlocutory and permanent injunctions, rescission of the issuance of shares of Longroot Cayman; restitution; the return of Axion’s intellectual property; and other accountings, damages, punitive damages, interest and special costs.
On April 9, 2021, the Company, on behalf of itself, Mr. Kerby and Longroot, Inc., filed a response to Axion’s claim whereby all parties disputed Axion’s claims and argued all such transactions involving the Company, Mr. Kerby and Longroot which are the subject of Axion’s claims were legitimate and pleading various other defenses. The Company, Mr. Kerby and Longroot dispute Axion’s claims and continue to vigorously defend themselves against the allegations made.
On September 1, 2021, the Company filed a lawsuit
in the Supreme Court of British Columbia (Action No. S-217835) under the Canadian Foreign Money Claims Act (R.S.B.C. 1996, c. 155). The
defendants are Axion; Axion Interactive Inc., a wholly-owned subsidiary of Axion; and Ying Pei Digital Technology (Shanghai) Company
Ltd., a Chinese wholly-owned subsidiary of Axion. NextPlay owns approximately
The Company alleges debts that the defendants refuse
to pay totaling USD $
The lawsuit states that J. Todd Bonner, Nithinan ‘Jess’
Boonyawattanapisut, Cern One Limited, and Red Anchor Trading Corp. made loans totaling USD $
Note 12 – Business Segment Reporting
Accounting Standards Codification 280-10 “Segment Reporting”, established standards for reporting information about operating segments in annual consolidated financial statements and required selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products, services, and geographic areas. Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
The Company has three operating segments consisting of (i) the NextMedia Division, which consists of HotPlay and Reinhart/Zappware, (ii) the NextFinTech Division, which consists of Longroot and NextBank, and (iii) NextTrip Division, which includes NextTrip holdings. The Company’s chief operating decision maker is considered to be the Co-Chief Executive Officers. The chief operating decision maker allocates resources and assesses performance of the business and other activities at the single operating segment level.
Schedule of segments
| For the six months ended August 31, 2021 | NextTrip | NextFinTech | NextMedia | Total | ||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | $ | $ | $ | $ | ||||||||||||
| Gross Profit | $ | $ | $ | $ | ||||||||||||
| For the three months ended August 31, 2021 | NextTrip | NextFinTech | NextMedia | Total | ||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | $ | $ | $ | $ | ||||||||||||
| Gross Profit | $ | $ | $ | $ | ||||||||||||
| For the six months ended August 31, 2020* | NextTrip | NextFinTech | NextMedia | Total | ||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | $ | $ | $ | $ |
| For the three months ended August 31, 2020* | NextTrip | NextFinTech | NextMedia | Total | ||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | $ | $ | $ | $ |
| * |
There were no reconciling or inter-company items between segments.
36
Schedule of geographic information
| Sales | August 31, 2021 | August 31, 2020 | ||||||
| United States and Puerto Rico | $ | $ | ||||||
| Europe | ||||||||
| Thailand | ||||||||
| $ | $ | |||||||
| Long-lived Assets | August 31, 2021 | February 28, 2021 | ||||||
| United States and Puerto Rico | $ | $ | ||||||
| Europe | ||||||||
| Thailand | ||||||||
| $ | $ | |||||||
37
Note 13 – Subsequent Events
Nithinan Boonyawattanapisut’s Employment Agreement
On September 16, 2021, the Company entered into an Employment Agreement with Nithinan ‘Jess’ Boonyawattanapisut, its Co-Chief Executive Officer and member of its board of directors, which agreement has an effective date of October 1, 2021. The agreement remains in effect (renewing automatically on a month-to-month basis), until either party provides the other at least 30 days prior written notice of its intent to terminate the agreement, or until terminated as discussed below.
The agreement includes a non-compete provision, prohibiting Ms. Boonyawattanapisut from competing against the Company during the term of the agreement and for a period of 12 months after termination thereof (subject to certain exceptions described below), in any state or country in connection with (A) the commercial sale of products sold by the Company during the six (6) months preceding the termination date; and (B) any services the Company commercially offered during the six (6) months prior to the termination date (collectively, the “Non-Compete”).
During
the term of the agreement, Ms. Boonyawattanapisut is to receive a base salary of $
The agreement provides Ms. Boonyawattanapisut with the option of receiving some or all of the base salary and/or any bonus in shares of the Company’s common stock, with such shares being based on the higher of (a) the closing sales price per share on the trading day immediately preceding the determination by Ms. Boonyawattanapisut to accept shares in lieu of cash; and (b) the lowest price at which such issuance will not require stockholder approval under the rules of the stock exchange where the Company’s common stock is then listed or Nasdaq ((a) or (b) as applicable, the “Share Price” and the “Stock Option”), provided that Ms. Boonyawattanapisut is required to provide the Company at least five business days prior written notice if she desires to exercise the Stock Option as to any payment of compensation, unless such time period is waived by the Company. The issuance of the shares described above is subject to the approval of the stock exchange where the Company’s common stock is then listed or Nasdaq, and where applicable, stockholder approval, and in the sole discretion of the board of directors, may be issued under, or outside of, a stockholder approved stock plan.
The agreement includes standard provisions relating to the reimbursement of business expenses, indemnification rights, rights to Company property and inventions (which are owned by the Company), dispute resolutions, tax savings, clawback rights and provisions entitling Ms. Boonyawattanapisut to receive any fringe benefits offered by the Company to other executives (subsidized in full by the Company) including, but not limited to, family coverage for health/medical/dental/vision, life and disability insurance.
The agreement terminates upon Ms. Boonyawattanapisut’s death and can be terminated by the Company upon her disability (as described in the agreement), by the Company for Cause (defined below) or Ms. Boonyawattanapisut for Good Reason (defined below). For the purposes of the agreement, (A) “Cause” means (i) Ms. Boonyawattanapisut’s gross and willful misappropriation or theft of the Company’s or any of its subsidiary’s funds or property; or (ii) Ms. Boonyawattanapisut’s conviction of, or plea of guilty or nolo contendere to, any felony or crime involving dishonesty or moral turpitude; or (iii) Ms. Boonyawattanapisut materially breaches any obligation, duty, covenant or agreement under the agreement, which breach is not cured or corrected within thirty (30) days of written notice thereof from the Company ( except for certain breaches which cannot be cured); or (iv) Ms. Boonyawattanapisut commits any act of fraud; and (B) “Good Reason” means (i) without the consent of Ms. Boonyawattanapisut, the Company materially reduces Ms. Boonyawattanapisut’s title, duties or responsibilities, without the same being corrected within ten (10) days after being given written notice thereof; (ii) the Company fails to pay any regular installment of base salary to Ms. Boonyawattanapisut and such failure to pay continues for a period of more than thirty (30) days; or (iii) a successor to the Company fails to assume the Company’s obligations under the agreement, without the same being corrected within thirty (30) days after being given written notice thereof.
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In the event of termination of the agreement for death or disability by Ms. Boonyawattanapisut without Good Reason, or for Cause by the Company, Ms. Boonyawattanapisut is due all consideration due and payable to her through the date of termination. In the event of termination of the agreement by Ms. Boonyawattanapisut for Good Reason or the Company for any reason other than Cause (or if Ms. Boonyawattanapisut’s employment is terminated other than for Cause within six (6) months before or twenty-four (24) months following the occurrence of a Change of Control (defined in the agreement) of the Company), Ms. Boonyawattanapisut is due all consideration due and payable through the date of termination; a lump sum payment equal to twelve (12) months of base salary; continued participation in all benefit plans and programs of the Company for twelve (12) months after termination (or at the option of the Company, reimbursement of COBRA insurance premiums for substantially similar coverage as the Company’s plans); and the Non-Compete will not apply to Ms. Boonyawattanapisut.
The terms of the agreement were approved by the Company’s Compensation Committee and Audit Committee, each consisting solely of ‘independent’ members of the Company’s board of directors.
Board of Directors’ Compensation
On
September 16, 2021, the Board of Directors approved an updated compensation plan setting forth compensation payable to the non-executive
members of the Board of Directors. Pursuant to the updated compensation plan, each non-executive member of the Board of Directors
will receive (a) compensation of $
Hudson Bay’s Warrant Exchange Agreement
On
September 22, 2021, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Hudson Bay Master
Fund Ltd. (the “Holder”), a holder of warrants to purchase shares of the Company’s common stock with an exercise
price $ per share (the “Warrants”) originally purchased from the Company on September 28, 2018. Pursuant to the
terms of the Warrants, the Holder had the right, upon closing of our acquisition of HotPlay Enterprise Limited, effective on June
30, 2021, to elect to require the redemption of the Warrants for a cash payment of the Black Scholes Value of the Warrants (the
“Black Scholes Value”), which election was subsequently made by the Holder. Pursuant to the Exchange Agreement, the
Holder agreed to exchange the Warrant ( and thereby release the Company from the obligation to pay the Black Scholes Value) for
a promissory note in the principal amount of $
The
Note is payable by the Company, in four equal payments of $
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NextBank International Preferred Stock Exchange Agreement
On September 28, 2021, the Company entered into a Preferred Stock Exchange Agreement (the “Preferred Exchange Agreement”) with NextBank, which was acquired by the Company on July 21, 2021 (see “Note 6—Acquisitions and Dispositions”).
Pursuant
to the Preferred Exchange Agreement, the Company agreed to exchange shares of the Company’s restricted common
stock (the “Exchanged Common Shares”), for shares of cumulative, non-compounding, non-voting, non-convertible,
perpetual Series A preferred stock shares of NextBank (the “NextBank Preferred Shares”). The NextBank Preferred Shares
have an aggregate face value of $
The Preferred Exchange Agreement included customary representations, covenants and warranties of the parties, and closing conditions which would be customary for a transaction of this type. The transactions contemplated by the Preferred Exchange Agreement closed on October 1, 2021.
IDS Settlement
On
September 27, 2021, the Court entered into the Agreed Order. The Court ordered that (i) to resume the monthly payment on or
before September 28, 2021, (ii) $
Streeterville Exchange Agreement
On
September 1, 2021 the Company entered into an Exchange Agreement with Streeterville, whereby Streeterville exchanged $
Intellectual Property Purchase Agreements
On August 19, 2021, the Company entered into an Intellectual Property Purchase Agreements with Fighter Base Publishing Inc. (“Fighter Base”) and Inc. (“Token IQ”, and together with Fighter Base, the “IP Sellers”), dated as of the same date (the “IPP Agreements”). Pursuant to the IPP Agreements, the Company agreed to acquire certain intellectual property owned by Fighter Base (relating to the games industry), which entity is owned and controlled by Mark Vange, the Chief Technology Officer of the Company. Pursuant to the IPP Agreement, the Company agreed to acquire certain intellectual property owned by Token IQ (relating to the distributed ledger industry), which entity is owned and controlled by Mark Vange, the Chief Technology Officer of the Company.
Pursuant
to the Fighter Base IPP Agreement, the intellectual property to be acquired thereunder has a mutually agreed upon value of $
Pursuant
to the Token IQ IPP Agreement, the intellectual property to be acquired thereunder has a mutually agreed upon value of $
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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The closing of the transactions contemplated by the IPP Agreements are subject to customary closing conditions, which include, due to Mr. Vange’s status as an officer of the Company, the approval of the Company’s shareholders of the transactions contemplated by the IPP Agreements and the issuance of shares of common stock thereunder.
Consulting Agreement
Effective on August 19, 2021, the Board of Directors of the Company appointed Mr. Andrew Greaves to serve as the Company’s Chief Operating Officer and changed Mr. Timothy Sikora’s titles from Chief Operating Officer of the Company and Chief Information Officer of NextTrip, to Chief Information Officer of the Company and President and Chief Operating Officer of NextTrip.
On
June 9, 2021, GLM Consulting Ltd (the “Consultant”), of which Mr. Greaves serves as the sole officer and director,
entered into a Consulting Agreement with the Company to assist the Company in growing a connected subscriber base and ecosystem
across all devices: Digital TV, Set Top Box, Streaming Devices, PC, Laptop, Tablet and Smartphones, by providing a range of operational
expertise. The term of the agreement started on July 6, 2021 and is effective until June 30, 2022, provided that the agreement
may be terminated at any time, by either party, with two weeks written prior notice. The Company agreed to pay the Consultant
a daily consulting fee of one thousand US dollars ($
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General Information
This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the unaudited financial statements and notes thereto and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended February 28, 2021, filed with the Securities and Exchange Commission on June 8, 2021.
Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information - Item 1. Financial Statements”.
Our logo and some of our trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
The market data and certain other statistical information used throughout this Report are based on independent industry publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosures contained in this Report, and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding any third-party information presented in this Report, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under, and incorporated by reference in, the section entitled “Item 1A. Risk Factors” of this Report. These and other factors could cause our future performance to differ materially from our assumptions and estimates. Some market and other data included herein, as well as the data of competitors as they relate to NextPlay Technologies, Inc., is also based on our good faith estimates.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” and “NextPlay” refer specifically to NextPlay Technologies, Inc., formerly Monaker Group, Inc. and its consolidated subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this report only:
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
| ● | “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
Where You Can Find Other Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The SEC maintains a website (https://www.sec.gov) that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically. Additional information about us is available on our website at www.nextplaytechnologies.com. We do not incorporate the information on or accessible through our websites into this filing, and you should not consider any information on, or that can be accessed through, our websites as part of this filing.
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Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
| ● | Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A. | |
| ● | Results of Operations. An analysis of our financial results comparing the three and six months ended August 31, 2021 and 2020. | |
| ● | Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition. |
| ● | Critical Accounting Policies and Estimates. Accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. |
OVERVIEW
NextPlay offers an ecosystem for video gamers, digital consumers, and travelers through its three divisions: (i) NextMedia; (ii) NextFinTech; and (iii) NextTrip. Through the development and integration of innovative technology solutions, NextPlay is building a [unified] platform that offers a suite of personal services for its users.
NextMedia Division
HotPlay
HotPlay Enterprise Limited (“HotPlay”), which is wholly-owned by NextPlay, is an in-game advertising (“IGA”) platform that delivers advertisements into video games without disrupting gameplay, enabling video games to monetize without compromising on the integrity of the game. The platform enables advertisers and merchants of all sizes to hyper-locally deliver promotional coupons to gamers, offering them real world rewards from playing video games. Video games could also deliver relevant virtual rewards through the platform in order to increase retention rate.
Upon receiving the rewards, gamers are able to access them via the HotPlay redemption mobile application (“Redemption App”). The redemption app also features a list of games integrated with HotPlay IGA, giving video games visibility among the HotPlay user base.
In order to increase HotPlay IGA adoption among third party video game developers, HotPlay has established an in-house game development studio dedicated to developing casual and hyper-casual games that help showcase the capabilities of our technology.
Reinhart TV
Reinhart TV AG/Zappware NV (“Reinhart”) is an award-winning entertainment service provider. The platform, which is currently deployed on devices across Europe and Latin America, provides end users with an intuitive and personalized multi-screen TV experience across set-top boxes, connected TVs, smartphones, tablets, and PCs. The platform also provides a service management system that enables operators to effectively manage user experience and monetization of their services.
Following the 51% acquisition of Reinhart TV on June 23, 2021, NextPlay is integrating its HotPlay IGA platform with Reinhart, which is anticipated to provide HotPlay access to Reinhart’s significant Pay TV customer base. Furthermore, the integration is expected to provide Reinhart with a more comprehensive offering for operators as they transition from a business-to-business (B2B) model to a business-to-business-to-consumer (B2B2C) model. NextPlay plans to further increase the combined platform suite of services by integrating FinTech and Travel service offerings in the future.
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NextFinTech Division
Longroot
NextPlay owns 100% of Longroot, Inc. (“Longroot”), which in turn owned 75% of Longroot Limited, a Cayman Islands company (“Longroot Cayman”). Longroot Cayman owns 49% of the outstanding ordinary shares (with 51% of the Preferred shares owned by two Thai citizen nominee shareholders) of Longroot Holding (Thailand) Company Limited (“Longroot Thailand”), provided that Longroot Cayman controls 90% of Longroot Thailand’s voting shares and therefore effectively controls Longroot Thailand. Longroot Thailand is an Initial Coin Offering (“ICO”) Portal that provides digital asset financing and investment services that are fully regulated and licensed by the Securities and Exchange Commission of Thailand (the “Thai SEC”). It is focused on creating Thai regulated cryptocurrencies backed by high quality assets that are designed to be more resistant to market declines. The initial class of assets includes video games, insurance, precious metals, and real estate.
Longroot Thailand is a licensed ICO Portal under the Thai SEC, and is regulated under the Thai Digital Asset Law which stipulates that all offerings of digital assets have to be conducted via a Thai SEC licensed ICO Portal.
NextBank International
NextBank International (“NextBank”) (previously International Financial Enterprise Bank), which is wholly-owned by NextPlay, is an International Financial Entity (“IFE”) operating under the laws of the Commonwealth of Puerto Rico. Licensed under Act 273 by the Office of the Commissioner of Financial Institutions (“OCIF”), NextBank currently offers concierge services to high net worth individuals and entrepreneurs, and loan products.
Following the completed acquisition of NextBank on July 21, 2021, NextPlay plans to create a diversified FinTech solution company that offers asset banking, asset management and mobile payment and banking services.
NextTrip Division
NextTrip
NextTrip (currently operated through NextPlay) offers booking solutions for both business and leisure travel via NextTrip Business and NextTrip Journeys, respectively. NextTrip Business offers corporate travel management solutions for small- and medium- sized businesses and allows companies to manage travel expenses, travel booking, expense reports, and provides access to concierge-like travel support services, while NextTrip Journeys provides an online travel agency portal where Personal Journey Consultants book and manage vacation packages with concierge like services.
The platform is powered by a proprietary property management system and booking engine that has approximately 3.4 million instantly confirmed vacation rental units.
Travel Magazine
Travel Magazine is an online digital media company whose goal is to inspire travelers to explore the world. Travel Magazine publishes articles, videos, and interactive media highlighting travel destinations throughout the world. Through its interactive media platform, leveraging NextPlay Technology solutions, Travel Magazine also plans to offer non-fungible tokens (NFTs).
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Novel Coronavirus (COVID-19)
In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions began issuing ‘stay-at-home’ orders. For example, the state of Florida, where the Company’s principal business operations are, issued a ‘stay-at-home’ order effective on April 1, 2020, which remained in place, subject to certain exceptions, through June 2020, when the order was gradually lifted.
The COVID-19 pandemic, and governmental responses thereto, including travel restrictions, ‘stay-at-home’ orders and required social distancing orders, severely restricted the level of economic activity around the world, and is having an unprecedented effect on the global travel industry. Additionally, the ability to travel has been curtailed through border closures, mandated travel restrictions and limited operations of hotels, airlines, and may be further limited through additional voluntary or mandated closures of travel-related businesses, the majority of which have now been lifted.
The measures implemented to contain the COVID-19 pandemic have had, and may in the future have continue to have, a significant negative effect on our business, financial condition, results of operations, cash flows and liquidity position.
The duration and severity of the COVID-19 pandemic are still uncertain and difficult to predict at this time. The pandemic could continue to negatively affect global economic activity for an extended period of time, even as restrictions have been lifted in most jurisdictions and vaccines are widely available in the United States and certain other countries. The effects of COVID-19 may significantly reduce discretionary spending by individuals and businesses on travel and may create a recession in the United States or globally. In turn, that could have a negative impact on demand for our services. We also cannot predict the long-term effects of the COVID-19 pandemic on our partners and their business and operations or the ways that the pandemic may fundamentally alter the travel industry. The aforementioned circumstances could result in a material adverse impact on our business, financial condition, results of operations and cash flows, potentially for a prolonged period.
The Company’s liquidity could also be adversely impacted by delays in payments of outstanding accounts receivable amounts beyond normal payment terms and insolvencies.
It is difficult to estimate COVID-19’s impact on future revenues, results of operations, cash flows, liquidity or financial condition, but such impacts have been and will continue to be significant and could continue to have a material adverse effect on our business, financial condition, results of operations, cash flows and liquidity position for the foreseeable future. In the near term, we do expect that the COVID-19 pandemic will continue to negatively affect our operating results and year-over-year results.
As a result of the above, we may be forced to scale back our operations, adjust our plan of operations, borrow or raise additional funding, which may not be available on favorable terms if at all. In the event we require and are unable to raise additional funding in the future, we may be forced to seek bankruptcy protection.
RESULTS OF OPERATIONS
For the Three months Ended August 31, 2021 Compared to three months Ended August 31, 2020
Revenues
Our total revenues increased to $2,647,283 for the three months ended August 31, 2021, as compared to $0 for the three months ended August 31, 2020, an increase of $2,647,283 from the prior period. The increase in sales is a result of the acquisition of HotPlay by Monaker, now part of NextPlay Technologies, which included the acquisitions of Reinhart TV, NextBank, and Longroot. Travel revenue increased $36,890, FinTech revenue increased $293,357 and digital interactive media revenue increase $2,317,036. The increase of $2,317,036 in digital interactive media revenue is a result of the acquisition of Reinhart. Travel revenue is being affected less as travel destinations lift COVID-19 restrictions, as we have experienced an increase in travel reservations. Some travelling schedules have been postponed to later in the year, or the beginning of next year; however, the ultimate effect, duration and effects of the COVID-19 pandemic are currently unknown at this time. FinTech revenue increased is a result of interest income and loan fees.
Cost of Revenues
Our total cost of revenues increased to $1,274,340 for the three months ended August 31, 2021, compared to $0 for the three months ended August 31, 2020. Our gross profit was $1,372,943 for the three months ended August 31, 2021, compared to $0 for the three months ended August 31, 2020. Cost of revenues increased, and gross profit increased, due to the acquisition of HotPlay.
Operating Expenses
Our operating expenses include general and administrative, salaries and benefits, technology and development, stock based compensation, selling and promotion and depreciation and amortization. Our operating expenses increased by $5,780,066 or 1,381% to $6,198,562 for the three months ended August 31, 2021, as compared to the $418,496 for the three months ended August 31, 2020.
This increase was mainly related to:
(i) general and administrative expenses which increased $1,846,020 to $2,057,079 for the three months ended August 31, 2021, as compared to $211,059 for the three months ended August 31, 2020. The increase is mainly due to professional fees of $852,336, consultant fees of $238,013, loan related expenses of $199,501, travel expenses of $100,121, rent expense of $90,658, and utilities of $67,500;
(ii) a $1,872,266 increase in salaries and benefits mainly attributable to salaries of $1,450,130 and benefits of $160,180;
(iii) a $1,261,165 increase in depreciation and amortization;
(iv) a $334,350 increase in selling and promoting expenses;
(v) a $251,032 increase in technology and development expenses; and
(vi) a $215,233 increase in stock-based compensation.
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Other Income and Expenses
Our other income and expenses include valuation gain or loss on investments, interest expense, and other income. Our total other expenses increased to $4,636,796 for the three months ended August 31, 2021, compared to $16,646 for the three months ended August 31, 2020, a change of $4,507,286 from the prior period. The increase is mainly attributable to the valuation loss, net of our holdings in Axion Ventures, Bettwork, Verus (defined below) and Recruiter.com, as described in greater detail in “Note 5 – Investment in Unconsolidated Affiliates”, which resulted in a loss of $1,496,393, and impairment loss on intangible assets of $3,126,543 for the three months ended August 31, 2021.
Loss from non-controlling interest
We had a loss from non-controlling interest of $599,041 for the three months ended August 31, 2021, compared to a loss from non-controlling interest of $236,522 for the three months ended August 31, 2020.
Net Loss
We had a net loss attributable to the Company of $8,814,001 for the three months ended August 31, 2021, compared to a net loss attributable to the Company of $198,620 for the three months ended August 31, 2020, resulting in an increase in net loss of $8,615,381 from the prior period. The increase in the net loss was primarily due to the increase in operating expenses of $5,780,066 and an increase in other expenses of $4,507,286, of which $3,126,543 relates to impairment of intangible assets as described in greater detail above.
For the Six months Ended August 31, 2021 Compared to the Six months Ended August 31, 2020
Revenues
Our total revenues increased to $2,647,283 for the six months ended August 31, 2021, as compared to $0 for the six months ended August 31, 2020, an increase of $2,647,283 from the prior period. The increase in sales is a result of the reverse acquisition of HotPlay by Monaker now part of NextPlay Technologies which include Reinhart TV, IFEB Bank, and Longroot. NextTrip Revenue increased $36,890, NextFinTech Revenue increased $293,357 and Digital Interactive Media Revenue increase $2,317,036. The increase of $2,317,036 is a result of the acquisition of Reinhart. NextTrip Revenue is being affected less as travel destinations lift COVID-19 restrictions, as we have experienced an increase in travel reservations. Some travelling schedules have been postponed to later in the year, or the beginning of next year; however, the ultimate effect, duration and effects of the COVID-19 pandemic are currently unknown at this time; provided that we expect such pandemic to continue to have a material adverse effect on our revenues for the remainder of the calendar year and continuing throughout calendar 2021. NextFinTech revenue increase is a result of interest income and loan fees.
Cost of Revenues
Our total cost of revenues increased to $1,274,340 for the six months ended August 31, 2021, compared to $0 for the six months ended August 31, 2020. Our gross profit was $1,372,943 for the six months ended August 31, 2021, compared to $0 for the six months ended August 31, 2020. Cost of revenues increased, and gross profit increased, based on the reverse acquisition results.
Operating Expenses
Our operating expenses include general and administrative expenses, salaries and benefits, technology and development, stock-based compensation, selling and promotions expenses, and depreciation and amortization. Our operating expenses increased by $6,200,288 or 1,172.1% to $6,729,293 for the six months ended August 31, 2021, as compared to $529,005 for the six months ended August 31, 2020 due to the reverse acquisition of HotPlay.
The increase was mainly related to:
(i) General and administrative expenses as a result of a reverse acquisition which increased $2,022,903 to $2,245,896, for the six months ended August 31, 2021, as compared to $222,993 for the six months ended August 31, 2020. The increase is mainly due to professional fees of $1,073,805, consultant fees of $420,059, loan related expenses of $199,501, travel expenses of $126,556, rent expense of $96,402, and utilities of $89,808;
(ii) a $2,046,875 increase in salaries and benefits related expenses is attributable to salaries of $1,613,429, benefits of $79,350, social security taxes of $141,018, and recruiting expense of $202,616;
(iii) a $1,332,626 increase in depreciation and amortization resulting from a $900,284 increase in amortization of intangibles, a $393,030 increase in amortization of debt issuance costs, a $39,312 increase in depreciation of fixed assets;
(iv) a $361,629 increase in selling and promoting expenses mainly generated by marketing expenses of $190,431 and promotional expenses of $171,198;
(v) a $251,032 increase in technology and development expenses; and
(vi) a $215,233 increase in stock-based compensation.
Other Income and Expenses
Our other income and expenses include valuation gain or loss on investments, interest expense, and other income.
Our total other expenses increased to $4,679,176 for the six months ended August 31, 2021, compared to $24,547 for the six months ended August 31, 2020, a change of $4,654,629 from the prior period. The increase is mainly attributable to the valuation loss, net of our holdings in Axion Ventures, Bettwork, Verus and Recruiter.com, as described in greater detail in "Note 5 - Investment in Unconsolidated Affiliates", which resulted in a loss of $2,841,871 for the six months ended August 31, 2021, compared to a loss of $341,933 for the six months ended August 31, 2020, for an additional loss of $2,499,938. This additional loss was partially offset by a reduced loss on the sale of unconsolidated affiliates, Verus International, Inc. (formerly known as RealBiz Media Group, Inc. ("Verus")) and Recruiter holdings, of $532,209.
Loss from non-controlling interest
We had a loss from non-controlling interest of $776,389 for the six months ended August 31, 2021, compared toa loss from non-controlling interest of $354,932 for the six months ended August 31, 2020.
Net Loss
We had a net loss attributable to the Company of $9,209,764 for the six months ended August 31, 2021, compared to a net loss attributable to the Company of $198,620 for the six months ended August 31, 2020, resulting in an increase in net loss of $9,011,144 or 4,536.9% from the prior period. The increase in the net loss was primarily due to the increase in operating expenses of $6,200,288 and an increase in other expenses of $4,654,629, of which $3,126,543 relates to impairment of intangible assets as described in greater detail above.
LIQUIDITY AND CAPITAL RESOURCES
On August 31, 2021, we had $8,944,775 of cash on-hand which was an increase of $8,499,855 from $444,920 on February 28, 2021. The increase in cash on hand was mainly attributed to the business acquisition activity where there was a increase of $13,251,410 in investing activities, offset by cash used for operating activities of $3,059,601.
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As of August 31, 2021, the Company had total current liabilities of $30,740,500, were mainly attributed to the reverse acquisition as well as the business combination of the IFEB and Reinhart TV and Zappware. The total liabilities consists of the Secured Notes owed to Streeterville Capital LLC of $8,415,782, short-term loans for $3,069,066 for Reinhart Zappware, an increase of accounts payable and accrued expense of $5,847,026, accrued payroll of $896,102 and accrued interest from notes of $710,486 due to the reverse acquisition and business combination of IFEB and Reinhart Zappware. Deferred revenue increased $898,088 from $0 as of August 31, 2020. IFEB increased other current liabilities in the amount of $11,269,465 due to customer deposit.
As of August 31, 2021, we had $103.8 million in total assets, $33.3 million in total liabilities, working capital of $6.5 million and a total accumulated deficit of $10.4 million.
Cash used in operating activities was $3,629,273 for the six months ended August 31, 2021, compared to $569,672 of cash used in operating activities during the six months ended August 31, 2020. The decrease was mainly due to an increase unbilled receivable of $4,760,457, and increase of loans receivable of $1,572,298, and other current liabilities of $105,284, which were offset mainly by accounts receivable of $4,749,175 which are mainly due to the reverse acquisition and the new entities being consolidated in the quarter.
Net cash used in investing activities increased to $12,293,699 for the quarter ended August 31, 2021, as compared to net cash provided by investing activities of $957,711 for six months ended August 31, 2020. The increase can be attributed mainly to the effects of the business combination as part of the reverse acquisition in the amount of $9,323,686 and $4,200,006 which represents the cash from the business combination with NextPlay and IFEB, respectively.
Net cash used for financing activities was $24,075 for the six months ended August 31, 2021, compared to $1,625,318 for the six months ended August 31, 2020. The decrease was primarily due to payment on promissory notes, related parties in the amount of $1,303,613 and stock repurchase of $771,456, offset by proceeds from promissory notes related parties in the amount of $2,264,149.
On June 15, 2016, we entered into a revolving line of credit agreement with Republic Bank, Inc. of Duluth, Minnesota, which merged with National Bank of Commerce, which continued as the surviving entity, on July 8, 2019 (“National Bank”). The revolving line of credit has been amended various times to date, and on May 7, 2020, we entered a new Promissory Note with National Bank (“New Note”) in connection with the line of credit. The New Note replaced a prior promissory Note we had in place with National Bank in connection with our $1,200,000 revolving line of credit and extended the due date of the prior Note from June 30, 2020 to December 31, 2020. The New Note also amended the interest rate of the prior Note to provide that amounts due under the New Note accrue interest at the rate of prime plus 3% (which rate is currently 6.25%) (the interest rate of the prior Note was prime plus 1%), subject to a floor of 4.5%, which interest is payable monthly in arrears. The New Note may be prepaid at any time without penalty. The New Note contains standard and customary events of default. On December 1, 2020 the company paid off the full balance of the New Note of $1,192,746.
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Additional information regarding our notes payable, notes receivable, investments in equity instruments, acquisitions and dispositions and line of credit can be found under “Part I. Financial Statements—Item 1. Financial Statements” – “Note 4 – Notes Receivable”; “Note 10 – Related Party Promissory Notes and Transactions”, “Note 5 – Investment in Unconsolidated Affiliates”, “Note 6 – Acquisitions and Dispositions”, “Note 8 – Line of Credit”; and “Note 9 – Notes Payable”, and “Note 14 – Subsequent Events”.
We have very limited financial resources. We currently have a monthly cash requirement of approximately $1,450,000, exclusive of capital expenditures. Management intends to seek additional equity or obtain additional credit facilities or loans. However, we may be unable to raise additional capital upon terms acceptable to us. The sale of additional equity will result in additional dilution to our shareholders. A portion of our cash may be used to acquire or invest in complementary businesses, or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies.
We will need substantial additional capital to support the on-going operation and increased market penetration of our products including the development of national advertising relationships, increases in operating costs resulting from additional staff and office space until such time as we generate revenues sufficient to support ourselves. We believe that in the aggregate, we could require several millions of dollars to support and expand the marketing and development of our travel products, repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, office space and systems for managing the business, and cover other operating costs until our planned revenue streams from all products are fully implemented and begin to offset our operating costs. Our failure to obtain additional capital to finance our working capital needs on acceptable terms, or at all, will negatively impact our business, financial condition, and liquidity. As of August 31, 2021, we had approximately $30.7 million of current liabilities. We currently do not have the resources to satisfy these obligations, and our inability to do so could have a material adverse effect on our business and ability to continue as a going concern.
To date, we have funded our operations with the proceeds from equity and debt financings and we anticipate we will need to meet our funding requirements through the sale of equity or debt financing, which funds may not be available on favorable terms, if at all. We anticipate that we would need several millions of dollars to properly market our services and fund the operations for the next 12 months.
Separately, our capital requirements may increase in the near term and long-term due to the impact of the COVID-19 pandemic, the resulting reduced demand for travel services, the increases in cancellations and re-bookings, and the extent to which such pandemic may further impact the ability of our customers to fulfill their payment obligations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates past judgments and estimates, including those related to bad debts, accrued liabilities, convertible promissory notes and contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed 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. The accounting policies and related risks described in the Company’s Annual Report are those that depend most heavily on these judgments and estimates. As of August 31, 2021, there had been no material changes to any of the critical accounting policies contained therein.
Recently Issued Accounting Standards
For more information on recently issued accounting standards, see in “Note 1 – Summary of Business Operations and Significant Accounting Policies”, to the Notes to Consolidated Financial Statements included herein under “Part I - Financial Information - Item 1. Financial Statements”.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
This represents the risk of loss that may result from the potential change in value of a financial instrument because of fluctuations in interest rates and market prices. We do not currently have any trading derivatives, nor do we expect to have any in the future. We have established policies and internal processes related to the management of market risks, which we use in the normal course of our business operations.
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Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the Principal Executive Officer (Mr. Kerby our Co-Chief Executive Officer) and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Co-Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Co-Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of August 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the Principal Executive Officer (Mr. Kerby our Co-Chief Executive Officer) and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control over Financial Reporting
As of August 31, 2021, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions, and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
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.
Such current litigation and prior settlements are described in, and incorporated by reference in, this “Item 1. Legal Proceedings” from, Part I, Item 1 of this Form 10-Q in the Notes to Consolidated Financial Statements in “Note 12 - Commitments and Contingencies”, under the heading “Legal Matters”. The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change in light of 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.
Additionally, the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.
Item 1A. Risk Factors.
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended February 28, 2021, filed with the Commission on June 8, 2021, under the heading “Risk Factors” and our Quarterly Report on Form 10-Q for the quarter ended May 31, 2021, as filed with the Commission on July 14, 2021, under the heading “Risk Factors”, which risk factors are incorporated by reference herein, except as discussed below, and investors should review the risks provided in the Form 10-K, Form 10-Q, and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Annual Report on Form 10-K for the year ended February 28, 2021, under the heading “Risk Factors” and our Quarterly Report on Form 10-Q for the quarter ended May 31, 2021, , under the heading “Risk Factors” or below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
Risks Relating to Our Business:
We need additional capital which may not be available on commercially acceptable terms, if at all, which raises questions about our ability to continue as a going concern.
As of August 31, 2021, the Company had an accumulated deficit of $10,410,073. Net loss for the six months ended August 31, 2021, amounted to $9,209,764. Our Digital Media Division generated gross profits of $1,164,266, our FinTech Division generated gross profits of $206,018 and our travel operations generated gross profits of $2,659 for the six months ended August 31, 2021, and as of August 31, 2021, we had working capital of $6,514,366. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.
We are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of a long-standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. Our revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven. We may never ever achieve profitable operations or generate significant revenues. Our future operating results depend on many factors, including demand for our products, the level of competition, and the ability of our officers to manage our business and growth. As a result of the emerging nature of the market in which we compete, we may incur operating losses until such time as we can develop a substantial and stable revenue base. Additional development expenses may delay or negatively impact the ability of the Company to generate profits. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, achieve, or sustain profitability, or continue as a going concern. Furthermore, due to our relatively small size and market footprint, we may be more susceptible to issues affecting the global travel, cryptocurrency, gaming and banking industries in general, such as COVID-19, contractions in the global travel industry, cryptocurrency, gaming and banking regulatory changes, as compared to larger competitors.
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We currently have a monthly cash requirement of approximately $1,450,000. We believe that in the aggregate, we could require several millions of dollars to support and expand the marketing and development of our products, repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, office space and systems for managing the business, and cover other operating costs until our planned revenue streams from all products are fully implemented and begin to offset our operating costs. We require additional funding in the future and if we are unable to obtain additional funding on acceptable terms, or at all, it will negatively impact our business, financial condition, and liquidity. As of August 31, 2021 and February 28, 2021, we had $30,740,500 and $1,446,446, respectively, of current liabilities.
We have derived our funding of operations with equity transactions and with the proceeds from debt offerings. Currently, revenues provide less than 2% of our cash requirements.
We have experienced liquidity issues due to, among other reasons, our limited ability to raise adequate capital on acceptable terms. We have historically relied upon the sale of common stock and the issuance of promissory notes to fund our operations and have devoted significant efforts to reduce that exposure. We anticipate that we will need to issue equity to fund our operations and continue to repay our outstanding debt for the foreseeable future. If we are unable to achieve operational profitability or are not successful in securing other forms of financing, we will have to evaluate alternative actions to reduce our operating expenses and conserve cash.
These conditions raise substantial doubt about our ability to continue as a going concern for the next twelve months. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The financial statements included herein also include a going concern footnote from our auditors.
In the event we are unable to raise adequate funding in the future for our operations and to pay our outstanding debt obligations, we may be forced to scale back our business plan and/or liquidate some or all of our assets or may be forced to seek bankruptcy protection, which could result in the value of our outstanding securities declining in value or becoming worthless.
HotPlay Thailand relies on relationships with developers to provide it with an extensive game portfolio and sufficient advertising spaces.
HotPlay Thailand’s ability to sell advertising depends on establishing developers’ interest in integrating their mobile games with its platform. To provide sufficient inventory of advertising space, HotPlay Thailand needs to maintain good relationships with developers and ensure its software does not impact any performance or weaken the security of the games that it integrates with. If HotPlay Thailand’s relationship with developers terminates for any reason, or if the commercial terms of its relationships are changed or do not continue to be renewed on favorable terms, HotPlay Thailand would need to qualify new developers which could adversely impact its revenue and its business. Furthermore, in the event that game engines or other software frameworks that are used commonly by developers offer built-in features for advertising and rewards similar to the way HotPlay Thailand does, this could result in more increased competition as developers may choose those options over HotPlay Thailand.
The planned transition to an operational expenditure (Opex) based model could fail to attract adoption among operators
With the integration of HotPlay and other NextPlay offerings in the future, Zappware is transitioning from a Capex based to Opex based fee model where it derives revenues from profit sharing instead of upfront payments. There is no guarantee that operators will adopt the enhanced product offering or new fee model. Failure to gain adoption might negatively impact the near time revenues and operating margins and future growth of Zappware, and will negatively affect HotPlay Thailand’s go to market strategy, resulting in slower adoption of HotPlay Thailand’s IGA platform.
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The transition to an Opex model will have near term pressure on revenues and net profit margins
The transition from a Capex based model to an Opex based model will result in significantly lower or no upfront payments from operators when they adopt Zappware’s solutions. Furthermore, Zappware may need to invest significantly in initial upfront capital expenditures such as hardware technologies and software development in order to service the operators. Although management believes that an Opex based fee model would likely result in high revenues in the long term, there will be near term pressure on revenues and net profits as Zappware expects to receive less upfront payment and will have to cover the upfront costs required to service the operators.
Integration of HotPlay Thailand and Reinhart TV may not be successful.
The Zappware and HotPlay Thailand IGA platforms were developed independently prior to the incorporation of both entities under the Company. While management believes that the integration of both platforms will mutually benefit both parties and the Company’s overall business, there is no guarantee that the integration will be successful as they were developed on different technologies. This may result in the curtailing of the overall features that are offered or the inability to offer certain features on particular user platforms. The failure to successfully integrate all or some of the features may result in a lack of acceptance from operators and end users. This may negatively impact Zappware’s transition to a Opex model and HotPlay Thailand’s adoption rate resulting in loss of revenues to the Media Division and the Company.
The performance of the digital assets issued is dependent on the issuer and underlying assets.
The performance of the digital assets offered by Longroot Thailand is unpredictable and dependent on the issuer and underlying assets. Mismanagement of the underlying assets or failure of the issuer to fulfil their commitments to investors may adversely affect the digital asset performance. Although Longroot Thailand will conduct extensive due diligence to verify the quality of the digital assets issued, the eventual performance of the issuer, underlying asset, and market acceptance of the digital asset is unpredictable. The underperformance of digital assets offered by Longroot Thailand may result in reputational damage and adversely affect the ability to attract clients and investors, resulting in a loss in revenues.
Acceptance and/or widespread use of digital assets is uncertain.
Currently, there is a relatively small use of digital assets in the retail and commercial marketplace for goods or services. In comparison, there is a relatively large use by speculators contributing to price volatility. Furthermore, although security tokens are increasingly being adopted by institutions, these are still at a nascent stage. There is no guarantee that digital assets will gain widespread adoption and a lack of acceptance or decline in acceptances would have a material adverse effect on the ability of Longroot Thailand to continue as a going concern or to pursue this segment at all, which would have a material adverse effect on the business, prospects or operations of Longroot Thailand and ultimately the Company.
Digital Asset exchanges and other trading venues are relatively new.
Digital asset market prices depend, directly or indirectly, on the prices set on exchanges and other trading venues, which are new and, in most cases, largely unregulated as compared to established, regulated exchanges for securities, commodities or currencies. When digital asset exchanges or other trading venues are involved in fraud or experience security failures or other operational issues, such events could result in a reduction in digital asset prices, impact the success of Longroot Thailand, and have a material adverse effect on the ability of Longroot Thailand to continue as a going concern, which correspondingly could harm the business, prospects and operations of the Company.
There are cyber security risks related to digital asset trading.
Trading platforms and third-party service providers may be vulnerable to hacking or other malicious activity. As with any computer code generally, flaws in digital asset codes may be exposed to such negative activities. Several errors and defects have been found previously, including those that disabled some functionality for users of digital asset trading platforms and exposed such users’ personal information. Flaws in and exploitations of the source code allowing malicious actors to take or create money have previously occurred. Any of the above events affecting Longroot Thailand may adversely affect its operations and results of operations and ultimately have a material adverse effect on the Company.
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Longroot Thailand depends on third party cryptographic and algorithmic protocols governing the issuance of and transactions in digital assets.
Digital assets issued by Longroot Thailand depend on the infrastructure of third party cryptographic and algorithmic protocols. The growth of this industry in general, and the use of digital assets in particular, is subject to a high degree of uncertainty, and the slowing or stopping of the development or acceptance of developing protocols may occur and is unpredictable. Furthermore, the occurrence of security or cryptography issues might adversely affect Longroot Thailand’s ability to operate and, Longroot Thailand would be reliant on the respective protocols to resolve the issues.
Longroot Thailand’s tokens might be used for illegal or improper purposes, which could expose Longroot Thailand to additional liability and harm its business.
Longroot Thailand’s tokens remain susceptible to potentially illegal or improper uses as criminals are using increasingly sophisticated methods to engage in illegal activities involving internet services, such as money laundering, terrorist financing, drug trafficking, human trafficking, illegal online gaming, romance and other online scams, prohibited sales of pharmaceuticals, fraudulent sale of goods or services, piracy of software, movies, music and other copyrighted or trademarked goods, unauthorized uses of credit and debit cards or bank accounts and similar misconduct. Tokenholders may also encourage, promote, facilitate or instruct others to engage in illegal activities. If the measures Longroot Thailand has taken are too restrictive and inadvertently screen proper transactions, this could diminish customer experience which could harm its business.
Regulatory changes or actions may alter the nature of the Company’s ownership of Longroot Thailand or restrict the use of digital assets in a manner that adversely affects Longroot Thailand’s business, prospects or operations.
As digital assets have grown in both popularity and market size, governments around the world have reacted differently, with certain governments deeming them illegal while others have allowed their use and trade. Thailand, where Longroot Thailand is regulated, is the first country to approve a legal initial coin offering (“ICO”) portal for issuers. Under Thai Securities and Exchange Commission (“Thai SEC”) regulation, all digital asset issuance in Thailand must be approved by the Thai SEC and carried out via an approved ICO Portal such as Longroot Thailand. Governments may in the future take regulatory actions that prohibit or severely restrict the right to acquire, own, hold, sell, use or trade digital assets or to exchange digital assets for fiat currency. Similar actions by governments or regulatory bodies could impact the ability of Longroot Thailand to continue to operate and such actions could affect the ability of Longroot Thailand to continue as a going concern, which could have a material adverse effect on the business, prospects or operations of the Company.
Furthermore, a large proportion of the digital assets Longroot Thailand plans to issue are likely to be classified as securities. This will subject Longroot Thailand’s activities to securities regulations in different jurisdictions, which could limit its business activities, such as restricting issuances to non-retail investors only. This may negatively impact Longroot Thailand’s profitability. Furthermore compliance with existing laws and regulations will involve significant amounts of time, including that of Longroot Thailand’s senior leaders and that of dedicated compliance personnel, all of which might negatively impact Longroot Thailand’s results of operations.
Next Bank International is subject to various regulatory capital requirements. Regulatory changes or actions may alter the requirement of the capital.
Under capital adequacy guidelines, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of common equity; (i) Tier 1 capital to risk-weighted assets, and (ii) Tier 1 capital to average assets.
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Cryptocurrency business is required to be approved by the Office of the Commissioner of Financial Institutions (“OCFI”)
Next Bank International is required to get an approval from the OCFI for the cryptocurrency business. The application of getting an approval is a long process. It is estimated to be up to a year. It may not be approved. This may result in delaying the growth of the cryptocurrency business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales of Securities
There have been no sales of unregistered securities during the three months ended August 31, 2021, and from the period from September 1, 2021, to the filing date of this report, which have not previously been disclosed in our Quarterly Report on Form 10-Q for the quarter ended August 31, 2021, or a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
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| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | |||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | |||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | |||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | |||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | |||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | |||||||||||
| 104 | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set | X |
| * | Filed herewith. |
| ** | Furnished herewith. |
| *** | Indicates a management contract or any compensatory plan, contract or arrangement. |
| + | Certain schedules, exhibits, annexes and similar attachments have been omitted pursuant to Item 601(a)(5) and/or Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however that NextPlay Technologies, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NEXTPLAY TECHNOLOGIES, INC. | |
| Date: October 20, 2021 | /s/ William Kerby |
| William Kerby | |
| Co-Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: October 20, 2021 | /s/ Sirapop ‘Kent’ Taepakdee |
| Sirapop ‘Kent’ Taepakdee | |
| Chief Financial Officer | |
| (Principal Accounting/Financial Officer) |
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