The accompanying notes are an
integral part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an
integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the
Consolidated Financial Statements
February 28, 2022 and February 28, 2021
Note 1 – Summary of Business Operations and Significant
Accounting Policies
Nature of Operations and Business
Organization
NextPlay Technologies,
Inc. and its consolidated subsidiaries (“NextPlay,” “we,” “our,” “us,” or the “Company”)
is building a technology solutions company, offering games, in-game advertising, digital asset products and services, connected TV and
travel booking services to consumers and corporations within a growing worldwide digital ecosystem. NextPlay’s engaging products
and services utilize innovative advertising technology (“AdTech”), Artificial Intelligence (“AI”) and financial
technology (“FinTech”) solutions to leverage the strengths and channels of its existing and acquired technologies.
NextPlay is organized
into 3 divisions: (i) NextMedia, the Company’s Interactive Digital Media Division; (ii) NextFinTech, the Company’s Finance
and Technology Division; and (iii) NextTrip, the Company’s Travel Division.
| (i) | NextMedia, the Company’s Interactive Digital Media Division |
In the Interactive Digital
Media Division, NextPlay closed its acquisition of HotPlay Enterprise Limited and its In-Game Advertising (“IGA”) platform
on June 30, 2021 and acquired a 51% interest in Reinhart TV AG (“Reinhart”) on June 23, 2021. Reinhart owns 100 percent of
Zappware, a 20-year-old interactive Digital TV solutions company based in Belgium. The acquisition of Reinhart gives NextPlay potential
reach into tens of millions of households with its IGA, Video Game, FinTech, and Travel products.
| (ii) | NextFinTech, the Company’s Finance and Technology Division |
In the Finance and Technology
Division, the Company’s acquisition of International Financial Enterprise Bank (“IFEB”), now called NextBank International,
Inc. (“NextBank”), and the conditional approval from the Labuan Financial Services Authority (“Labuan FSA”) to
operate a general insurance and reinsurance business, is expected to allow NextPlay to offer individuals and households asset management
and banking services, and travel related services such as travel finance and travel insurance, subject to regulatory approval and licensing.
Our Company, in accordance
with Thailand foreign ownership laws, holds an indirect control of Longroot (Thailand) Company Limited (“Longroot”), which
operates in financial advisory service and owns an Initial Coin Offering (“ICO”) Portal which is approved and regulated by
the Thai Securities and Exchange Commission (“Thai SEC”). The Portal enables us to crypto-securitize an array of high-quality
alternative assets, such as video games, insurance contracts, and real estate. These digital assets serve as a new asset class, which
the Company’s management believes will create significant opportunities to accelerate products and services within the Fintech division’s
asset management business.
Effective November 16, 2021,
the Labuan Financial Services Authority (the “Labuan FSA”) approved the Company’s application to carry on general insurance
and reinsurance business, subject to certain conditions including (i) payment of a $15,000 annual license fee, (ii) submission of evidence
reflecting paid up capital amounting to MYR $10.0 mil (approximately to $2,390,000 US), (iii) submission of proof of registration as a
member of Labuan International Insurance Association, and (iv) submission of a Management Services Agreement with the appointed insurance
manager, (v) submission of a Letter of Undertaking, and (vi) submission of constituent documents to the Registration of Company Unit.
The conditions are to be met within 3 months of November 29, 2021, the date Labuan FSA issued a letter confirming the conditional approval.
In May 2022, the Company received a permission letter from Labuan FSA to extend the establishment until August 31, 2022. The Company plans
to use the general insurance license to issue primary insurance products and the reinsurance license to issue crypto-securitized insurance
in collaboration with Longroot.
On October 14, 2021, “Longroot
Inc.” (a subsidiary of the Company) changed its name to “Next Fintech Holdings, Inc.” The Company plans to use Next
Fintech Holdings, Inc. as the holding company for its FinTech division.
| (iii) | NextTrip, the Company’s Travel Division |
NextTrip our travel division,
currently offers booking solutions for both business and leisure travel.
Reverse Acquisition of HotPlay Enterprise
Ltd.
On July 23, 2020,
the Company (then known as Monaker Group, Inc. (“Monaker”)) entered into a Share Exchange Agreement (as amended from
time to time, the “Share Exchange Agreement”) with HotPlay Enterprise Limited (“HotPlay”) and the
stockholders of HotPlay (the “HotPlay Stockholders”). Pursuant to the Share Exchange Agreement, Monaker exchanged 52,000,000
shares of its common stock for 100% of the issued and outstanding capital of HotPlay, with HotPlay continuing as a wholly owned subsidiary
of Monaker. The reverse acquisition between HotPlay and Monaker was completed on June 30, 2021. After the reverse acquisition, effective
July 9, 2021, Monaker changed its name to “NextPlay Technologies, Inc.” The HotPlay acquisition was accounted for as a reverse
acquisition with HotPlay being deemed the acquiring company for accounting purposes. The comparative figure for the period as from incorporation
date to February 28, 2021 represents financial position and operating results of Hotplay Enterprise Ltd.
Reverse Acquisition of HotPlay Enterprise Ltd. (6/30/21) |
Fair Value of Monaker assets acquired | |
| |
Cash | |
$ | 7,837,802 | |
Current assets | |
$ | 25,568,584 | |
Non-current assets | |
$ | 23,078,256 | |
Net assets acquired | |
$ | 56,484,642 | |
| |
| | |
Fair Value of Monaker liabilities assumed | |
| | |
Current liabilities | |
$ | 32,482,319 | |
Non-current liabilities | |
$ | 5,420,131 | |
Net liabilities assumed | |
$ | 37,902,450 | |
| |
| | |
Net assets acquired | |
$ | 18,582,192 | |
Purchase consideration | |
| |
Number of Monaker common shares outstanding as of 6/30/2021 | |
| 23,854,203 | |
Monaker share price as of 6/30/2021 | |
$ | 2.24 | |
Preliminary estimate of fair value of common shares | |
$ | 53,433,415 | |
Fair value of total estimated consideration transferred | |
$ | 53,433,415 | |
Purchase Price Allocation | |
| | |
Fair value of Monaker net assets acquired as of 6/30/2021 | |
$ | 18,582,192 | |
Fair value of total estimated consideration transferred | |
$ | 53,433,415 | |
Goodwill | |
$ | 34,851,223 | |
The
Company is in the process of assessing the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date,
therefore the assets acquired and liabilities assumed were provisionally recorded. The assessment is to be completed within a period of
one year from the acquisition date, pursuant to the measurement period allowed under ASC 805. During the measurement period, the Company
is to retrospectively adjust the provisional amounts recognized at the acquisition date, and recognize additional assets or liabilities,
if it obtains new information about facts and circumstances that existed as of the acquisition date.
The Company’s management
is in the process of assessing the fair value of the assets and liabilities and provisionally adjusted the fair value of the assets and
liabilities based on the new information that existed as of the acquisition date, which resulted in a $ 3.1 million decrease of the assets.
The fair value of the assets and liabilities acquired are provisionally recorded as of February 28, 2022.
As of February 28, 2021 | |
Common Stock Shares | |
Before Recasting | |
| 144,000 | |
Reduction in share capital | |
| (24,000 | ) |
Total Before Recasting | |
| 120,000 | |
Adjustment for recasting | |
| 62,280,000 | |
After Recasting | |
| (1) 62,400,000 | |
(1) |
The recasted common stock represented cash and intangible assets contributed as equity from HotPlay. |
In the accounting for the
reverse acquisition, the share capital of the legal acquiree (HotPlay) replaced the share capital of the legal acquirer (Monaker). The
authorized number of shares of common stock is recasted to present the historical equity of HotPlay on the basis of the 52,000,000 shares
issued to HotPlay shareholders on a pro rata basis. The net assets acquired increased the additional paid-in capital.
Principles of Consolidation
The Company’s consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries, including acquired businesses from the dates
of acquisition. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates. These differences could have a material effect on the Company’s future
results of operations and financial position. Significant items subject to estimates and assumptions include the fair value of investments,
the carrying amounts of intangible assets, depreciation and amortization, deferred income taxes, purchase
price allocation in connection with the business combination and allowance for credit losses.
Cash and Cash Equivalents
For purposes of
balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and
highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company had no cash
equivalents on February 28, 2022, and February 28, 2021.
Short term investment
Short
term investment is short-term cash deposit with a maturity date more than three months required by the Office of the Commissioner of
Financial Institutions (“OCIF”) for business purpose of a subsidiary.
Accounts Receivable, Other Receivable,
Unbilled Receivables
A receivable is recognized
when the Company has an unconditional right to receive consideration. If revenue has been recognized before the Company has an unconditional
right to receive consideration, the amount is presented as an unbilled receivable. A receivable is measured at transaction price less
impairment loss and unbilled receivables are measured at the amount of consideration that the Company is entitled to, less credit loss.
The Company calculates its allowance for current expected credit losses (CECL) based on lifetime expected credit losses at each reporting
date. CECLs are calculated based on its historical credit loss experience and adjusted for forward-looking factors specific to the debtors
and the economic environment. A receivable is written off when there is no reasonable expectation of recovering the contractual cash flows.
Loans Receivable and Allowance for Loan Losses
Loans Receivable
Loans that the
Company has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are stated at their outstanding
principal amount adjusted for charge-offs and the allowance for loan losses. Interest is accrued as earned based upon the daily outstanding
principal balance.
The accrual of
interest is generally discontinued at the time a loan is 90 days past due unless the credit is well-secured and in the process of collection.
Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier
date if collection of principal or interest is considered doubtful.
All interest accrued
but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. Interest on these loans is accounted
for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for
loan losses is evaluated on a regular basis by Management and is based upon collectability of loans, based on historical experience, the
nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of
any underlying collateral and prevailing economic conditions. This represents management’s estimate of current expected credit losses
(“CECL”) in the Company’s loan portfolio over its expected life, which is the contract term being the reasonable and
supportable period that we can reasonably and supportably forecast future economic conditions to estimate expected credit losses. The
historical loss experience is to be adjusted for asset-specific risk characteristics and economic conditions, including both current conditions
and reasonable and supportable forecasts of future conditions.
This evaluation
is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
Due to potential changes in conditions, it is possible that changes in estimates will occur and that such changes could be material to
the amounts reported in the Company statements.
Work In Progress
Work in progress represents
costs associated with software development according to contracts with customers. Work in progress mainly consists of employee and payroll
related expenses and recorded on a project where milestone has not been made.
Prepaid Expenses and Other Current Assets
The Company records cash paid
in advance for goods and/or services to be received in the future as prepaid expenses. Prepaid expenses are expensed over time according
to the period indicated on the respective contract. Other current assets are recognized when it
is probable that the future economic benefits will flow to the Company and the asset has a cost or value that can be measured reliably.
It is then charged to expense over the expected number of periods during which economic benefits will be realized.
Advance for Investment
Advance for investment represents
cash deposits transferred to the potential seller as a deposit payment as stipulated in the investment purchase agreement, mainly for
potential acquisition of asset or business.
Investment in Unconsolidated Affiliates
Investment in unconsolidated
affiliates is recognized at cost less valuation loss.
Computers, Furniture and Equipment
The Company purchases computers,
laptops, furniture and fixtures. These are originally recorded at cost and stated at cost less accumulated depreciation and impairment
if any. The computers and laptops are depreciated over a useful life of 3 - 5 years, respectively. The furniture and fixture are depreciated
over a useful life of 5 and 10 years, respectively. Straight-line depreciation is used for all computers, laptops, furniture and equipment.
Intangible Assets
Software Development Costs
The Company capitalizes internal
software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines
established by “ASC 985-20-25” Accounting for the Costs of Software to Be Sold, Leased, or Otherwise Marketed, requiring
certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect
to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies.
Amortization of the capitalized software development costs begins when the product is available for general release to customers. Capitalized
costs are amortized based on the straight-line method over the remaining estimated economic life of the product.
Website Development Costs
The Company accounts for
website development costs in accordance with Accounting Standards Codification (“ASC”) 350-50 “Website Development
Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application
and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day-to-day operation of the
website are expensed as incurred. All costs associated with the websites are subject to straight-line amortization over a three-year
period.
Goodwill
Goodwill represents the future
economic benefits arising from assets acquired in a business combination that is not individually identified and separately recognized
as an asset. Adjustments made to the acquisition accounting during the measurement period may affect the recognition and measurement
of assets acquired and liabilities assumed, any non-controlling interest “NCI”, consideration transferred and goodwill or
any bargain purchase gain, as well as the remeasurement of any pre-existing interest in the acquiree.
In our assessment,
goodwill arisen from reverse acquisition is allocated systematically and reasonably to 3 reporting segment and existing operating entities
on the closing of reverse acquisition date which are
|
i) |
NextMedia
segment consisted of |
|
- |
Reinhart
Interactive TV AG |
|
- |
HotPlay
Enterprise Ltd. and HotPlay (Thailand) Co., Ltd., became under NextMedia segment after the reverse acquisition date |
|
ii) |
NextFintech
segment consisted of |
|
- |
Next Fintech
Holdings, Inc (formerly Longroot Inc) |
|
- |
Longroot
Holding (Thailand) Co., Ltd. |
|
- |
Longroot
(Thailand) Co., Ltd. |
|
- |
Next Bank
International, Inc, became under NextFintech segment on its acquisition date, subsequent to reverse acquisition. |
|
iii) |
NextTrip
segment consisted of |
|
- |
NextTrip
Holdings, Inc. |
|
- |
Extraordinary
Vacations USA, Inc. |
These segments
are reviewed regularly by Chief Operating Decision Maker (“CODM”). The chief operating decision makers allocate resources
and assess performance of the business and other activities at the single operating segment level. The reporting units for impairment
testing purpose are determined as the lowest level of cash generating unit below the operating segments since the components constitute
a business for which discrete financial information is available, and CODM regularly reviews the operating results of that components.
Certain components share similar economic characteristic and deem single reporting unit. As a result, there are 5 reporting units, which
are
|
i) |
Reinhart/Zappware
consisted of Reinhart Interactive TV AG and Zappware N.V, |
|
ii) |
HotPlay
consisted of HotPlay Enterprise Ltd. and HotPlay (Thailand) Co., Ltd., |
|
iii) |
Longroot
consisted of Next Fintech Holdings, Inc, Longroot Limited, Longroot Holding (Thailand) Company Limited and Longroot (Thailand) Co.,
Ltd. |
|
v) |
NextTrip
consisted of NextTrip Holdings, Inc and Extraordinary Vacations USA, Inc. |
The Company assigned assets
and liabilities to each reporting unit based on either specific identification or by using judgment for the remaining assets and liabilities
that are not specific to a reporting unit. Goodwill was assigned to the reporting units based on a combination of specific identification
and relative fair values.
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 but not limited to:
|
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.
|
In
impairment testing, goodwill acquired in a business combination is allocated to each of the Company’s reporting unit that are expected
to benefit from the synergies of the combination. The Company estimates the recoverable amount of each reporting unit to which the goodwill
and intangible assets relates. Where the recoverable amount of the reporting unit is less than the carrying amount, an impairment loss
is recognized in profit or loss. Impairment losses cannot be reversed in future periods. During the fourth quarter of each fiscal year,
the Company carries out annual impairment reviews at the reporting unit level in respect of goodwill and intangible assets by performing
qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, including goodwill. If those impairment indicators exist, the quantitative assessment is required to assess the recoverable amount
of the reporting unit by performing step 1 of the two-step goodwill impairment test. If we perform step 1 and the carrying amount of the
reporting unit exceeds its fair value, we would perform step 2 to measure such impairment. In determining value in use, the estimated
future cash flows are discounted to their present value to reflect current market assessments of the time value of money and the risks
specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated
by a valuation model that, based on information available, reflects the amount that the Company could obtain from the disposal of the
asset in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal.
In determining
allowance for impairment of goodwill and intangible assets, the management is required to exercise judgements regarding determination
of the recoverable amount of the asset, which is the higher of its fair value less costs of disposal and its value in use.
Accounts payable, note payables and accrued expenses
Accounts payable are recognized
when the Company receives invoices and accrued expenses are recognized when it is probable that an outflow of resources embodying economic
benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured
reliably.
Notes payables are recognized
at cost net transaction costs. Transaction costs are amortized over the terms of notes payable using effective interest rate method.
Customer Demand Deposits Payable
Customer deposit represents
cash demand deposits payable received from customers at NextBank.
Business Combination
The Company uses the acquisition
method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 requires, among other things,
that assets acquired, and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value
Measurements, as of the closing date. ASC 805 establishes a measurement period to provide the Company with a reasonable amount of time
to obtain the information necessary to identify and measure various items in a business combination and cannot extend beyond one year
from the acquisition date.
Non-controlling interests
Non-controlling
interests represent the equity in a subsidiary that is not attributable directly or indirectly to the parent. At the acquisition date,
the Company measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree. Changes
in the Company’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Foreign Currency Translation
The Company prepares
the consolidated financial statements using U.S. dollars as the functional currency. The assets and liabilities of the Company’s
foreign subsidiaries are translated into U.S. dollars at the rates of exchange at the balance sheet date with the resulting translation
adjustments included as a separate component of stockholders’ equity through other comprehensive income (loss) in the consolidated
statements of operations and comprehensive loss.
Income and expenses
are translated at the average monthly rates of exchange. The Company includes realized gains and losses from foreign currency transactions
in other income (expense), net in the consolidated statements of net and comprehensive loss.
The effect of foreign
currency translation on cash and cash equivalents is reflected in cash flows from operating activities on the consolidated statements
of cash flows.
Earnings per Share
Basic earnings per share are
computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share are computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during each period. For the years ended February 28, 2022 and 2021, warrants
were excluded from the computation of diluted net loss per share, as the result of the computation was anti-dilutive.
Revenue Recognition
The Company recognizes
revenue in accordance with ASC 606 which involves identifying the contracts with customers, identifying performance obligations in the
contracts, determining transactions price, allocating transaction price to the performance obligation and recognizing revenue when the
performance obligation is satisfied. Types of revenue consist of:
Media Subscription and Services
Media
subscription revenue is the revenue from sales of software to 3rd party, activation of license and initial activation of
license. The Company acts as principal as it considers obtaining control of the specified goods or services before they are
transferred to the customer, as well as being a party primarily responsible for fulfillment, inventory risk, and discretion in
establishing price. The revenue is recognized at a point in time when the Company makes the intellectual property available and the
obligations to the customers fulfilled and provided activation/initial activation of license to its customers.
Revenue from maintenance
service is recognized over the time based on contractual performance obligation monthly.
Revenue from product development is recognized
at the point in time when the contractual performance obligation is met for a specific milestone of the contract.
The Company’s deferred
revenue reflects amounts received in advance that will be recognized as revenue over time or as services are rendered. Deferred revenue
expected to be realized within one year is classified as a current liability and the remaining is recorded as a non-current liability.
Interest and Financial services
NextBank International provides
traditional banking services in niche-focused businesses, including commercial and residential real estate and the origination and sale
of loans, among other types of lending services. Revenues are categorized as interest income and financial services. NextBank is primarily
responsible for fulfilling the services to clients, bear risks on its loan products, has discretion in establishing the price, hence
it acts as principal, and recognizes revenues at the gross amount received for the services.
Interest is accrued as earned
based upon the daily outstanding principal balance. The accrual of interest is generally discontinued at the time a loan is 90 days past
due unless the credit is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. In
all cases, loans are placed on non-accrual or charged- off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not
collected for loans placed on nonaccrual or charged-off is reversed against interest income. Interest on these loans is accounted for
on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments are reasonably assured.
Financial services are categorized
as follows:
| - | Origination fee is recognized at point of time when the loan
contract is mutually originated between a customer and the Company. |
| - | Deposit account fees and other administrative fee are generally recognized
upon completion of services (wire in/out processing, certain deposit condition met, etc.). |
Travel
The Company recognizes
revenue when the customer has purchased the product, the occurrence of the earlier of date of travel or the date of cancellation has expired,
as satisfaction of the performance obligation, 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).
The Company generates
revenues from sales directly to customers as well as through other distribution channels of tours and activities at destinations throughout
the world.
The Company controls
the specified travel product before it is transferred to the customer and is therefore a principal, include but not limited to, the following
| - | The Company is primarily responsible for fulling the promise
to provide such travel product. |
| - | The Company has inventory risk before the specified travel
product has been transferred to a customer or after transfer of control to a customer. |
| - | The Company has discretion in establishing the price for the
specified travel product |
Payments for tours
or activities received in advance of services being rendered are recorded as deferred revenue and recognized as revenue at the earlier
of the date of travel or the last date of cancellation (i.e., the customer’s refund privileges lapse).
Cost of Revenue
Cost revenue from
digital media mainly consists of cost of employees - software developer, other sub-contractors and amortization.
Cost of revenue from finance
and technology mainly consists of interest expense, loan related commissions, amortization of core banking software and technology facilities
and infrastructures.
Cost of revenue from travel
mainly consists of cost of the tours and activities, sales commissions paid to agents and employees who sell travel package, and merchant
fees charged by credit card processors.
Comparative figures
The certain comparative figure
has been reclassified to conform with the current year presentation.
Selling and Promotions Expense
Selling and promotion expenses
consist primarily of promotional expenses, expenses related to our participation in industry conferences, and public relations expenses,
and the expense is recognized when incurred.
Income Taxes
The Company
accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes” in accordance with
the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial
reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. These differences result in deferred tax assets and liabilities, which are included in our consolidated
balance sheets. We then assess the likelihood that the deferred tax assets will be recovered from future taxable income and the reversal
of temporary taxable differences. A valuation allowance is established against deferred tax assets to the extent we believe that recovery
is not likely. Significant judgment is required in determining any valuation allowance to be recorded. In assessing the need for a valuation
allowance, we consider all available evidence, including past operating results, estimates of future taxable income, reversals of taxable
temporary differences and the feasibility of tax planning over the periods in which the temporary differences are deductible. In the event
we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with
a corresponding impact to the provision for income taxes in the period in which the determination is made.
The difference
between our effective income tax rate and the federal statutory rate is primarily a function of the mix of uncertain tax positions and
permanent differences including non-deductible charges. Our provision for income taxes is subject to volatility and could be adversely
impacted if earnings or tax rates differ from our expectations or if new tax laws are enacted.
Significant
judgment is required in evaluating any uncertain tax positions, including the timing and amount of deductions and allocations of income
among various tax jurisdictions. We are required to identify, evaluate and measure all uncertain tax positions taken or to be taken on
tax returns and to record liabilities for the amount of these positions that may not be sustained, or may only partially be sustained,
upon examination by the relevant taxing authorities. Although we believe that our estimates and judgments are reasonable, actual results
may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. We adjust these reserves
in light of changing facts and circumstances, such as the closing of an audit or the refinement of an estimate. To the extent that the
final outcome of a matter is different than the amount recorded, such differences will impact the provision for income taxes in the period
in which the determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that
are considered appropriate, as well as any related net interest and penalties.
We have adopted ASC
740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled
for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the
completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled,
an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained
based solely on the basis of its technical merits and the statute of limitations remains open. As of February 28, 2022, the Company’s
income tax returns for tax years ending February 28, 2021 - 2015 remain potentially subject to audit by the taxing authorities.
We follow the
guidance of ASC 740, “Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary difference between
carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net
operating loss carry- forwards. No current tax provision has been made in the accompanying statement of income (loss) because no taxes
are due currently or were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry- forward has
been recognized, as it is not deemed likely to be realized.
Stock
Based Compensation
Stock-based
compensation is accounted for based on the requirements of ASC 718, “Compensation – Stock Compensation”, which requires
recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period).
The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date
fair value of the award. The Company recognizes compensation on a straight-line basis over the requisite service period for each award
and recognizes forfeitures as when they occur.
Warrants
The Company accounts for
the warrants pursuant to share exchange agreements in accordance with the guidance contained in ASC 815, under which the Warrants do
not meet the criteria for equity classification and must be recorded as liabilities. All such warrant agreements contain fixed strike
prices and number of shares that may be issued at the fixed strike price, and do not contain exercise contingencies that adjust the strike
price or number of shares issuable upon settlement of the warrants. All such warrant agreements are exercisable at the option of the
holder and settled in shares of the Company. The warrants are qualified as equity-linked instrument embedded in a host instrument whereby
do not meet definition of derivative, therefore it’s not required to separate the embedded component from its host.
The
Company treats a modification of the terms or conditions of an equity award in accordance with ASC Topic 718-20-35-3, by treating the
modification as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument by issuing
a new instrument of equal or greater value, incurring additional compensation cost for any incremental value. Incremental compensation
cost is measured as the excess, if any, of the fair value of the modified award determined in accordance with the provisions of ASC Topic
718-20-35-3 over the fair value of the original award immediately before its terms are modified, measured based on the share price and
other pertinent factors at that date.
Fair Value of Financial Instruments
The Company has
adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair
value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but it
does provide guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.
The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions
(unobservable inputs).
The hierarchy consists
of three levels:
| ● | Level 1 - Quoted prices in active
markets for identical assets or liabilities. |
| ● | Level 2 - Inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities. |
| ● | Level 3 - Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company uses Level 3 inputs for
its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities.
Financial instruments consist
principally of cash, accounts receivable, investments in unconsolidated affiliates, other receivable, other receivable, related parties,
accounts payable, accrued liabilities, notes payable, related parties, line of credit and certain other current liabilities. The carrying
amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term
nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these
financial instruments.
Leases
The Company
utilizes operating leases for its offices and cars. The Company determines if an arrangement is a lease at inception. Right-of-use assets
represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s
contractual obligation to make lease payments under the lease. Operating leases are included in operating lease right-to-use assets, non-current,
and operating lease liabilities current and non-current captions in the consolidated balance sheets.
Operating lease
right-to-use assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease
term. Lease agreements may contain periods of free rent or reduced rent, predetermined fixed increases in the minimum rent and renewal
or termination options, all impacting the determination of the lease term and lease payments to be used in calculating the lease liability.
Lease cost is recognized on a straight-line basis over the lease term. The Company uses the implicit rate in the lease when determinable.
As most of the Company’s leases do not have a determinable implicit rate, the Company uses a derived incremental borrowing rate
based on borrowing options under its credit agreement. The Company applies a spread over treasury rates for the indicated term of the
lease based on the information available on the commencement date of the lease.
Segment Reporting
Accounting Standards
Codification 280-10 “Segment Reporting” established standards for reporting information about operating segments in
annual consolidated financial statements and required selected information about operating segments in interim financial reports issued
to stockholders. It also established standards for related disclosures about products, services, and geographic areas. Operating segments
are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
An operating segment
component has the following characteristics:
|
a. |
It engages in business activities from which it may recognize revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity). |
|
|
|
|
b. |
Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. |
|
|
|
|
c. |
Its discrete financial information is available. |
The Company has
three operating segments consisting of (i) the NextMedia Division, which consists of HotPlay and Reinhart/Zappware, (ii) the NextFinTech
Division, which consists of Longroot and NextBank, and (iii) NextTrip Division, which includes NextTrip holdings. The Company’s
chief operating decision makers are considered to be the Co-Chief Executive Officers. The chief operating decision makers allocate resources
and assesses performance of the business and other activities at the single operating segment level.
See Note 12 Business
Segment Reporting for details on each segment unit.
Recent Accounting Pronouncements
July 2017, the
FASB issued ASU 2017-11, ASC Subtopic 260 “Earnings Per Share”. The amendments in this update that relate to the recognition,
measurement, and earnings per share of certain freestanding equity-classified financial instruments that include down round features affect
entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share. and when the down round feature
is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as
a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic
transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair
value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
In December 2019, the FASB
issued ASU 2019-12, ASC Subtopic 740 “Income Taxes”: Simplifying the Accounting for Income Taxes. The amendments in this Update
simplify the accounting for income taxes by removing the following exceptions:
| 1. | Exception to the incremental approach for intra-period tax
allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations
or other comprehensive income). |
| 2. | Exception to the requirement to recognize a deferred tax liability
for equity method investments when a foreign subsidiary becomes an equity method investment. |
| 3. | Exception to the ability not to recognize a deferred tax liability
for a foreign subsidiary when a foreign equity method investment becomes a subsidiary. |
| 4. | Exception to the general methodology for calculating income
taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. |
The amendments
in this Update also simplify the accounting for income taxes by doing the following:
| 1. | Requiring that an entity recognize a franchise tax (or similar
tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax. |
| 2. | Requiring that an entity evaluate when a step up in the tax
basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when
it should be considered a separate transaction. |
| 3. | Specifying that an entity is not required to allocate the
consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements.
However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded
by the taxing authority. |
| 4. | Requiring that an entity reflect the effect of an enacted
change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. |
| 5. | Making minor Codification improvements for income taxes related
to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. |
The Company has adopted
the standard which does not have a significant impact to our consolidated financial statements.
In August 2020,
the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic
815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible
debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those
with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative,
and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial
premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those fiscal years. The Company has adopted the standard which
does not have a significant impact to our consolidated financial statements.
In October 2021,
the FASB issued ASU 2021-08, ASC Subtopic 805 “Business Combinations”. The FASB is issuing this Update to improve the accounting
for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related
to (1) Recognition of an acquired contract liability, (2) Payment terms and their effect on subsequent revenue recognized by the acquirer.
The Company has adopted the standard which does not have a significant impact to our consolidated financial statements.
In March 2022,
the FASB issued ASU 2022-02, ASC Subtopic 326 “Credit Losses”: Troubled Debt Restructurings and Vintage Disclosures. Since
the issuance of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, the Board has provided resources to monitor and assist stakeholders with the implementation of Topic
326. Post-Implementation Review (PIR) activities have included forming a Credit Losses Transition Resource Group, conducting outreach
with stakeholders of all types, developing educational materials and staff question-and-answer guidance, conducting educational workshops,
and performing an archival review of financial reports. The Company has adopted the standard which does not have a significant impact
to our consolidated financial statements.
Note 2 - Going Concern
As of February 28, 2022,
and 2021, the Company had an accumulated deficit of $39.2 million and $1.2 million, respectively. The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going concern.
We have limited financial
resources. As of February 28, 2022, we have working capital of $6.3 million. Our monthly cash requirement is approximately $1.5 million.
We will need to raise additional
capital or borrow loans to support the on-going operation, increase market penetration of our products, expand the marketing and development
of our travel and technology driven products, repay debt obligations, provide capital expenditures for additional equipment and development
costs, payment obligations, and systems for managing the business including covering other operating costs until our planned revenue
streams from all businesses and products are fully implemented and begin to offset our operating costs. Our failure to obtain additional
capital to finance our working capital needs on acceptable terms, or at all, would negatively impact our business, financial condition,
and liquidity. We currently have limited resources to satisfy these obligations, and our inability to do so could have a material adverse
effect on our business and ability to continue as a going concern. As indicated by the increase of the Company’s deferred revenue
balance as of February 28, 2022, $2.1 million, we expect to see an increase in revenue in the next year.
Management’s plans
with regard to this going concern are as follows:
| (i) | the
Company plans to continue to raise funds with third parties by way of public or private offerings, |
|
(ii) |
the Company is working aggressively to increase the viewership of its Fintech and gaming products by promoting it across other mediums; |
|
(iii) |
the Company expects growth in revenue from interest and non-interest income through organic growth and new business initiatives in the finance and technology division; |
| (iv) | the
Company plans to issue tokens under its Longroot entity during the year 2023, which is expected
to result in generating revenues; |
| (v) | the Company is tightening its spending on expenses, which is expected to help in the cost reduction of the operations; and |
| (vi) | In March 2022, the Company created an at-the-market equity program under which the Company may, from time to time, offer and sell shares of its common stock in an aggregate gross offering price of up to $20 million to or through the Agent (the “ATM offering”). |
The ability of the Company
to continue as a going concern is dependent on the Company’s ability to further implement its business plan and generate greater
revenues. Management believes that the actions presently being taken to further implement its business plan and generate additional revenues
provide the opportunity for the Company to continue as a going concern.
Note 3 – Notable Financial Information
Short term investment
As of February 28, 2022 and
2021, NextBank had short-term deposits of $0.3 million with an original maturity in November 2022, interest rate at 0.05% per annum and
$0, respectively.
Accounts Receivable, Net
As of February 28, 2022 and
2021, the Company had accounts receivable of $0.8 million and $0, respectively. As of February 28, 2022 and 2021, the allowance for expected
credit loss was $0 and $0, respectively.
Loans Receivable
Loans receivable related
to the provision of traditional banking services in niche-focused businesses, including commercial and residential real estate and the
origination and sale of loans and receivables financing, among other types of lending services of NextBank. As of February 28, 2022 and
2021, the Company had loans receivable of $17.4 million and $0, respectively, and the allowance for loan losses of $0.1 million and $0,
respectively. The interest rate ranges from 5.5% to 17.9%.
As of February 28, 2022,
all loans were performing, and a general allowance was established at appropriate rate on the principal amount outstanding at year end.
Due to limited outstanding loans, they are analyzed one by one to determine if the general reserve covers the related risk of such loans.
As of February 28, 2022, the Company’s management deemed the reserve as sufficient when compared to the risk assessment.
No loans were required to
be charged off for the year ended February 28, 2022. As of February 28, 2022, there were loans placed on non-accrual loan of $0.04 million.
Unbilled Receivables
As of February 28, 2022 and
2021, the Company had unbilled receivables of $3.3 million and $0, respectively, relating to a software development project. As of February
28, 2022 and 2021, the allowance for expected credit loss was $0 and $0, respectively.
Prepaid Expenses and Other Current Assets
As of February 28, 2022 and
2021, the Company had prepaid expenses of $1.0 million and $0.01 million, respectively. As of February 28, 2022 and 2021, the Company
had other current assets of $0.01 million and $0.2 million, respectively.
Convertible Notes Receivable, Related Party
As of February 28, 2022 and
2021, the Company had Convertible Notes Receivable, related party, net allowance for expected credit loss of $4.6 million and $3.0, respectively,
relating to receivables from Axion. As of February 28, 2022 and 2021, the allowance for expected credit loss was $3.1 and $0, respectively.
Goodwill
As of February 28, 2022 and
2021, the Company had total goodwill of $38.9 million and $0, respectively. The year-over-year increase resulted from the following:
| (i) | the reverse acquisition of HotPlay of $34.8 million; |
| | |
| (ii) | relating to the acquisition of Longroot of $3.0 million; |
| | |
| (iii) | the acquisition of NextBank of $7.9 million; |
| | |
| (iv) | the acquisition of Reinhart of $3.0 million and |
| | |
| (v) | the impairment of goodwill of $10.2 million. |
During the year ended February
28, 2022, the Company performed the impairment assessment and recognized the impairment loss on goodwill from NextMedia and NextTrip unit
totaling to $10.2 million, as reflected in the Consolidated Statements of Operations and Comprehensive Loss as we assessed that the fair
value from expected recoverable selling price was lower than its book value. Outstanding goodwill in each segment and impairment amount
are as follows:
| (i) | NextFintech of $23.7 million; |
| | |
| (ii) | NextMedia of $20.2 million with goodwill impairment of $5.0 million mainly due to a decrease in fair value as expected to recover from potential sale of certain businesses within the segment; and |
| | |
| (iii) | NextTrip of $5.2 million with goodwill impairment of $5.2 million mainly due to a decrease in fair value as expected to recover from potential sale of certain businesses within the segment. |
Computers, Furniture and Equipment
As of February 28,
2022 and 2021, the Company had net computers, furniture and equipment of $0.6 million and $0.03 million, of which $0.2 million and $0.001
million included depreciation expense, respectively for the year end period ended February 28, 2022 and 2021.
Operating Lease Right-to-Use asset and Operating
Lease Liability
The following schedule represents
outstanding balance of operating lease Right-to-Use asset and operating lease liability of the Company as of February 28, 2022:
Operating lease Right-to-Use asset | |
Office | | |
Car | | |
Totals | |
Right-to-Use asset, costs | |
$ | 3,771,702 | | |
$ | 735,479 | | |
$ | 4,507,181 | |
Accumulated depreciation | |
| 352,590 | | |
| 191,994 | | |
| 544,584 | |
Net Carrying Value | |
$ | 3,419,112 | | |
$ | 543,484 | | |
$ | 3,962,596 | |
Operating lease liability | |
Office | | |
Car | | |
Totals | |
Current portion | |
$ | 460,815 | | |
$ | 250,988 | | |
$ | 711,803 | |
Noncurrent portion | |
| 2,833,726 | | |
| 284,221 | | |
| 3,117,947 | |
Totals | |
$ | 3,294,541 | | |
$ | 535,209 | | |
$ | 3,829,750 | |
As of February 28, 2021, the Company had operating lease Right-to-Use
asset and Operating lease liability $0 and $0, respectively. The incremental borrowing cost applied in the lease calculation is 10%.
Accounts Payable and Accrued Expenses
As of February 28, 2022 and
2021, the Company had accounts payable of $4.5 million and $0.08 million, respectively. As of February 28, 2022 and 2021, the Company
had accrued expenses of $4.1 million and $0.3 million, respectively.
Deferred Revenue
As of February 28, 2022 and
2021, the Company had deferred revenue of $2.1 million and $0, respectively, relating to travel and digital media future sales.
Other Liabilities – Customer Demand Deposits Payable
As of February 28, 2022 and
2021, the Company had other current liabilities – customer demand deposits payable of $7.6 million and $0, respectively, relating
to NextBank.
As of February 28, 2022,
the Company had interest and non-interest- bearing deposits received from customers with interest rates ranging from 0% to 4% payable
per annum.
Short Term Note Payable – Related Parties
As of February 28,
2022 and 2021, the Company had a short term note payable – related party of $0.8 million and $1.1 million, respectively, relating
to Tree Roots Entertainment and MQDC. The note payables are unsecured, carrying the interest at 9.00% - 9.75% per annum (2021: 9.00%
-9.75% per annum) and are due at call.
Long Term Note Payable – Related Parties
As of February 28, 2022 and
2021, the Company had a long term note payable – related party of $1.0 million and $0, respectively, mainly related to note payable
of preferred dividends in arrears.
The note payable has interest
rate of 12% per annum, compounded monthly at the end of calendar month, with such interest payable at maturity or upon conversion.
Revenue
Disaggregation of revenue information was as follows:
Type of goods and services | |
2022 | | |
2021 | |
NextMedia | |
$ | | | |
$ | | |
- Sales of third-party software | |
| 1,992,495 | | |
| — | |
- Initial activation of license | |
| 184,013 | | |
| — | |
- Activation of license | |
| 1,303,601 | | |
| — | |
Software maintenance services | |
| 982,942 | | |
| — | |
Product development revenue | |
| 2,003,447 | | |
| — | |
| |
| 6,466,498 | | |
| — | |
NextFintech | |
| | | |
| | |
Interest income | |
| 738,134 | | |
| — | |
Financial services | |
| 843,287 | | |
| — | |
| |
| 1,581,421 | | |
| — | |
NextTrip | |
| | | |
| | |
Travel services | |
| 155,407 | | |
| — | |
Total revenue | |
| 8,203,326 | | |
| — | |
Note 4 – Acquisitions and
Dispositions
Reinhart Interactive TV AG and Zappware N.V. Acquisition
On January 15, 2021,
we entered into a Founding Investment and Subscription Agreement (the “Investment Agreement”) with Reinhart, and Jan
C. Reinhart, the founder of Reinhart (“Founder”).
The Investment Agreement
contemplated the Company acquiring 51% of the ownership of Reinhart, in consideration for 10,000,000 Swiss Francs (approximately $10.7
million US). The closing of the transactions contemplated by the Investment Agreement was to take place on April 1, 2021, or earlier
if the conditions to closing were earlier satisfied. Conditions to closing included the Company paying the required capital contribution,
approval of the transaction by the board of directors of the Company and Reinhart, and certain requirements and confirmations required
by Swiss law. The Investment Agreement included customary representations and warranties of the parties. We also agreed to reimburse
the Founder’s legal fees of up to 30,000 Swiss Francs (approximately $33,670 US) in connection with the transaction. Additionally,
in the event we failed to close the transactions contemplated by the Investment Agreement by April 1, 2021, we agreed to pay the Founder
500,000 Swiss Francs (approximately $560,000 US), as a break-up fee.
We paid the founder
$10.7 million in cash on March 31, 2021; however, the shares of Reinhart were not transferred to the Company until June 23, 2021. As
of June 23, 2021, all the closing conditions had been satisfied and this transaction was completed.
In accordance with
ASC 805, as described in “Note 1 – Summary of Business Operations and Significant Accounting Policies”, the Company
has accounted for this business combination utilizing the following values in connection with the business acquisition of Reinhart as
of June 23, 2021. The business combination accounting is provisionally complete for all assets and liabilities acquired on the acquisition
date and we will continue to evaluate the fair values within the 1-year timeframe as provided in the applicable guidance.
Acquisition of Reinhart TV AG/Zappware |
|
Fair Value of assets acquired | |
| |
Cash | |
$ | 3,086,212 | |
Current assets | |
$ | 8,083,041 | |
Right-of-use assets | |
$ | 2,537,789 | |
Non-current assets | |
$ | 6,681,714 | |
Total assets acquired | |
$ | 20,388,756 | |
| |
| | |
Fair Value of liabilities assumed | |
| | |
Current liabilities | |
$ | 9,931,882 | |
Lease liabilities | |
$ | 2,537,789 | |
Non-current liabilities | |
$ | 302,815 | |
Total liabilities assumed | |
$ | 12,772,486 | |
Net assets acquired | |
$ | 7,616,270 | |
Purchase consideration | |
| | |
Cash | |
$ | 10,707,760 | |
Fair value of total consideration transferred | |
$ | 10,707,760 | |
| |
| | |
Purchase Price Allocation | |
| | |
Fair value of net assets acquired as of 6/23/2021 | |
$ | 7,616,270 | |
Fair value of total consideration transferred | |
$ | 10,707,760 | |
Goodwill arisen from acquiring Reinhart TV AG/Zappware | |
$ | 3,091,490 | |
The Company is in process
of assessing the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, mainly in relation to
its identification and valuation of intangible assets and certain tangible assets, therefore the assets acquired, and liabilities assumed
were provisionally recorded. The assessment is to be completed within a period of one year from the acquisition date, pursuant to the
measurement period allowed under ASC 805. During the measurement period, the Company is to retrospectively adjust the provisional amounts
recognized at the acquisition date, and recognize additional assets or liabilities, if it obtains new information about facts and circumstances
that existed as of the acquisition date.
Reinhart is in the
business of providing a software-based TV and video distribution platform to telecom companies and digital content owners, and providing
services to telecom companies and digital content owners for user interaction design, as well as software development, deployment and
support.
In connection with
our entry into the Investment Agreement, we entered into a Founding Shareholders’ Agreement with the Founder (the “Shareholders’
Agreement”). The Shareholders’ Agreement set forth certain rules for the governance and control of Reinhart. The Shareholders’
Agreement provides: (i) that the board of directors of Reinhart will consist of five members, three of which will be appointed by the
Founder and other shareholders of Reinhart, and two of which will be appointed by the Company, which include William Kerby, the Company’s
Co-Chief Executive Officer, and Mark Vange, the Chief Technology Officer of HotPlay and current Chief Technology Officer of the Company;
(ii) that any material shareholder matters are required to be approved by shareholders holding at least 66 2/3% of the total outstanding
vote of Reinhart; (iii) that in the event Reinhart issues, within five years after the closing date, any equity or convertible equity,
with a price less than the most recent valuation of Reinhart’s shares, the shares held by each director who is appointed by the
Founder are subject to weighted average anti-dilution protection; and (iv) provides for various restrictions on transfers of shares of
Reinhart, including right of first refusal rights, tag-along rights, and drag-along rights, as well as certain rights which would trigger
the right of the other parties to the Shareholders’ Agreement to acquire the shares held by an applicable shareholder, for the
higher of the fair market value and the nominal value of the shares (except in the case of (c) where the purchase price is the lower
of such amounts), if such shareholder (a) commits a criminal act against the interests of another party, Reinhart or its affiliates;
(b) breaches the Shareholders’ Agreement, and fails to cure such breach 20 days after notice thereof is provided; or (c) the employment
of any employed shareholder is terminated for certain reasons.
The Shareholders’
Agreement also provides a right for the Founders to sell their shares to the Company, at which time the Company will be required to purchase
such shares (the “Founder’s Shares”), based on the following schedule:
Date right is triggered | |
Percent of
Founder’s
Shares
eligible to be sold | | |
Required Purchase Price |
January 1, 2024 | |
| 33 | % | |
15 times EBITDA based on audited 2023 Reinhart financials |
January 1, 2025 | |
| 66 | % | |
15 times EBITDA based on audited 2024 Reinhart financials |
December 20, 2025, if the board of directors of Reinhart, together with a majority of the directors appointed by the Company, agree to sell Reinhart to a third party, but the Company and the Founder cannot agree on such sale, by such date | |
| 100 | % | |
Higher of (a) 15 times EBITDA based on audited 2025 Reinhart financials; and (b) the value of a fully-funded acquisition proposal based on audited 2025 Reinhart financials |
January 1, 2026 | |
| 100 | % | |
Lower of (a) 15 times EBITDA based on audited 2025 Reinhart financials; and (b) the value of a fully-funded acquisition proposal based on audited 2025 Reinhart financials |
The Shareholders’
Agreement also allows the parties to file for an initial public offering on any internationally recognized exchange. The Shareholders’
Agreement has a term of 10 years, extendable thereafter for successive five-year periods, unless terminated by either party with 12 months
prior written notice (provided that any such termination shall only be applicable to the terminating shareholder), subject to earlier
termination in connection with certain initial public offerings.
NextBank International (formerly IFEB) Acquisition
On April 1, 2021,
we entered into a Bill of Sale for Common Stock, effective March 22, 2021 (the “Bill of Sale”), with certain third
parties, pursuant to which the Company agreed to purchase 2,191,489 shares (the “IFEB Shares”) of authorized and outstanding
Class A Common Stock of International Financial Enterprise Bank, Inc.,
a Puerto Rico corporation licensed as an Act 273-2012 international financial entity headquartered in San Juan Puerto Rico (“IFEB”),
which IFEB Shares totaled approximately 57.16% of the outstanding Class A Common Stock of IFEB. The purchase price of the IFEB Shares
was $6,400,000, which amount was paid to the sellers on April 1, 2021.
IFEB was incorporated
in 2017 as a corporation under the laws of the Commonwealth of Puerto Rico and received its international financial entity license on
June 18, 2017 from the Office of the Commissioner of Financial Institutions of Puerto Rico, in Spanish, “Oficina del Comisionado
de Instituciones Financieras” or “OCIF”, as license #51. As a result, IFEB is regulated by OCIF.
On May 6, 2021, in
anticipation of the acquisition of the IFEB Shares, and control of IFEB, the Company and IFEB entered into a Preferred Stock Exchange
Agreement, which was amended by a First Amendment to Preferred Stock Exchange Agreement entered into May 10, 2021 and effective May 6,
2021 (as amended by the first amendment, the “Original Preferred Exchange Agreement”), pursuant to which the Company
agreed to exchange 1,950,000 shares of the Company’s common stock for 5,850 shares of cumulative, non-compounding, non-voting,
non-convertible, perpetual Series A Preferred shares of IFEB.
Notwithstanding the
terms of the Bill of the Sale, and the payment by the Company of the aggregate purchase price pursuant thereto, the transfer of the Initial
IFEB Shares to the Company and the Company’s acquisition of control of IFEB was subject to review of the Company’s financial
viability, as well as other matters, by OCIF, which approval of OCIF was received in June 2021, but which acquisition did not close until
July 21, 2021.
Separately, on July
21, 2021, the Company entered into, and closed the transactions contemplated by, a Share Exchange Agreement with various other holders
of shares of Class A Common Stock of IFEB (the “Additional Sellers” and the “IFEB Exchange Agreement”).
Pursuant to the IFEB Exchange Agreement, the Additional Sellers exchanged an aggregate of 1,648,614 of the outstanding Class A Common
Stock of IFEB, representing 42.94% of such outstanding Class A Common Stock of IFEB, in consideration for an aggregate of 1,926,750 restricted
shares of the Company’s common stock (the “IFEB Common Shares”), with each one share of Class A Common Stock
of IFEB being exchanged for 1.168 restricted shares of common stock of the Company, based on an agreed upon value of $2.50 per share
for each share of Company common stock and $2.92 per share for each share of Class A Common Stock of IFEB.
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 | |
$ | 7,039,001 | |
Current assets | |
$ | 7,584,013 | |
Non-current assets | |
$ | 148,842 | |
Net assets acquired | |
$ | 14,771,856 | |
| |
| | |
Fair Value of liabilities assumed | |
| | |
Current liabilities | |
$ | 11,474,443 | |
Non-current liabilities | |
$ | — | |
Net liabilities assumed | |
$ | 11,474,443 | |
| |
| | |
Net assets acquired | |
$ | 3,297,413 | |
Purchase consideration | |
| | |
Cash | |
$ | 6,400,000 | (1) |
Common stock (1,925,581 shares @ $2.50 per share) | |
$ | 4,813,953 | |
Fair value of total consideration transferred | |
$ | 11,213,953 | |
| |
| | |
Purchase Price Allocation | |
| | |
Fair value of net assets acquired as of 7/21/2021 | |
$ | 3,297,413 | |
| |
| | |
Fair value of total consideration transferred | |
$ | 11,213,953 | |
Goodwill | |
$ | 7,916,540 | |
| (1) | The $6.4 million of cash was paid by NextPlay prior to the closing of the Reverse Acquisition and is not presented on the Company’s consolidated statement of cash flows. |
The Company is in process
of assessing the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, therefore the assets
acquired, and liabilities assumed were provisionally recorded. The assessment is to be completed within a period of one year from the
acquisition date, pursuant to the measurement period allowed under ASC 805. During the measurement period, the Company is to retrospectively
adjust the provisional amounts recognized at the acquisition date, and recognize additional assets or liabilities, if it obtains new
information about facts and circumstances that existed as of the acquisition date.
The IFEB Exchange
Agreement required that:
(a) three legacy
board members of IFEB remain on the Board of Directors of IFEB for a period of one year after the closing date of the IFEB Exchange Agreement,
subject to rights of removal if such continued appointment/service as board members would violate the fiduciary duties of any other board
members;
(b) certain outstanding
loans held by one of the legacy board members be extended, and be subject to a further extension;
(c) that Ms. Nithinan
Boonyawattanapisut, Mr. J. Todd Bonner, Mr. Donald P. Monaco and Mr. William Kerby (each a member of the Board of Directors of the Company)
and Mr. Jan Reinhart, the founder of Reinhart, be appointed as members of the Board of Directors of IFEB;
(d) that Mr. Ronald
Poe will be appointed as Vice President of Next Fintech Holdings Inc. (formerly Longroot, Inc.), the Company’s wholly-owned subsidiary,
and be provided a salary of $120,000 per year, pursuant to an employment agreement; and
(e) that Mr. Robert
Fiallo, will be hired by an affiliate of the Company pursuant to an employment agreement, and be paid a base salary of $300,000 per year,
plus a bonus of 3% of the profits from projects he works with or assists in developing.
On September 28, 2021,
the Company entered into a Preferred Stock Exchange Agreement (the “Preferred Exchange Agreement”) with NextBank,
and the Company agreed to exchange 5,070,000 restricted shares of the Company’s common stock (the “Exchanged Common Shares”),
for 10,140 shares of non-cumulative, non-compounding, non-voting, non-convertible, perpetual Series A preferred stock of NextBank (the
“NextBank Preferred Shares”). The NextBank Preferred Shares have an aggregate face value of $10,140,000. The NextBank
Preferred Shares are non-redeemable; however, NextBank may, by the vote of the holders of a majority of its common stock, call and redeem
the NextBank Preferred Shares in exchange for the Exchanged Common Shares plus accrued interest at the time of any such redemption. Additionally,
the NextBank Preferred Shares include a change of control provision, whereby upon a change of control (as defined in the Preferred Exchange
Agreement), the Company may cause NextBank to repurchase the NextBank Preferred Shares in exchange for the Exchanged Common Shares, plus
accrued interest.
The Preferred Exchange
Agreement included customary representations, covenants and warranties of the parties, and closing conditions which would be customary
for a transaction of this type. The transactions contemplated by the Preferred Exchange Agreement closed on October 1, 2021.
Longroot Purchase Price Allocation completion
The Company acquired
Longroot on November 16, 2020 and provisionally recognized the fair value of the assets acquired and the liabilities assumed at the time
of acquisition. During the year ended February 28, 2022 the Company finalized the Purchase Price Allocation (PPA) that was completed
by an independent appraiser and the Company recorded the fair value of assets and liabilities as of February 28, 2022, as a result, goodwill
increased in amount $3,437,521
Summary of changes
in fair value allocation resulted below:
| |
Amount | |
Goodwill increased | |
$ | 3,437,521 | |
| |
| | |
Net other assets decreased | |
| (188,479 | ) |
Intangible assets decreased | |
| (1,748,702 | ) |
Non-controlling interest increased | |
$ | (1,500,340 | ) |
Note 5 – Related Party
Transactions
Parties are considered
to be related to the Company if the Company has the ability, directly or indirectly, to control or joint control the party or exercise
significant influence over the party in making financial and operating decisions, or vice versa.
Name
of related parties |
|
Relationship with the
Company |
Red Anchor Trading Corporation (“RATC”) |
|
A shareholder of the Company and controlled by a Co-CEO of the Company and a director of the Company |
Tree Roots Entertainment Group Company Limited (“TREG”) |
|
A significant shareholder of the Company |
Axion Ventures Inc. (“Axion”) |
|
An entity shareholding by a Co-CEO of the Company |
Axion Interactive Inc. (“AI”) |
|
A subsidiary of Axion |
HotNow (Thailand) Company Limited (“HotNow”) |
|
An entity controlled by a Co-CEO of the Company |
True Axion Interactive Company Limited (“TAI”) |
|
An entity shareholding by a Co-CEO of the Company |
Magnolia Quality Development Corporation Limited (“MQDC”) |
|
A significant shareholder of TREG, which is a significant shareholder of the Company |
Nithinan Boonyawattanapisut |
|
Co-CEO of the Company, and a shareholder of the Company, RATC, HotNow, Axion and TAI |
Immediate Family Member |
|
Immediate family member with executive officer of the Company |
Other than disclosed elsewhere, the Company
had the following significant related party transactions for the year ended February 28, 2022.
Payment of marketing expense: | |
| | |
Immediate Family Member | |
$ | 234,200 | |
Payment of consulting expense: | |
| | |
Immediate Family Member | |
$ | 110,000 | |
Payment of salary expense: | |
| | |
Immediate Family Member | |
$ | 105,217 | |
Purchase of intangible asset: | |
| | |
HotNow (Thailand) Company Limited | |
$ | 955,934 | |
Purchase of equipment: | |
| | |
HotNow (Thailand) Company Limited | |
$ | 123,577 | |
True Axion Interactive Company Limited | |
$ | 14,714 | |
General and admin expense: | |
| | |
HotNow (Thailand) Company Limited | |
$ | 23,540 | |
Operating expense: | |
| | |
HotNow (Thailand) Company Limited | |
$ | 212,085 | |
Interest expense of loan from: | |
| | |
Magnolia Quality Development Corporation Limited | |
$ | 41,622 | |
Tree Roots Entertainment Group Company Limited | |
$ | 65,717 | |
HotNow (Thailand) Company Limited | |
| 6,510 | |
Rental expense: | |
| | |
Tree Roots Entertainment Group Company Limited | |
$ | 61,724 | |
HotNow (Thailand) Company Limited | |
$ | 12,625 | |
Payment of contract cost: | |
| | |
HotNow (Thailand) Company Limited | |
$ | 743,889 | |
| |
| | |
The Company had the following related party
balances as of February 28, 2022 as follows:
| |
Nature | |
February 28, 2022 | |
Amounts due from related parties: | |
| |
| |
Hotnow (Thailand) Company Limited | |
Other receivable | |
$ | 155,425 | |
Total | |
| |
$ | 155,425 | |
| |
| |
| | |
Amounts due to related parties: | |
| |
| | |
Magnolia Quality Development Corporation Limited | |
Accrued interest expense | |
$ | 3,169 | |
Tree Roots Entertainment Group | |
Accrued interest expense | |
| 32,700 | |
HotNow (Thailand) Company Limited | |
Other liability | |
| 393 | |
Red Anchor Trading Corporation | |
Account payable | |
| 395,782 | |
Total | |
| |
$ | 432,044 | |
Notes payable: | |
| |
| | |
Magnolia Quality Development Corporation Limited | |
| |
$ | 459,024 | |
Tree Roots Entertainment Group | |
| |
| 306,016 | |
Immediate Family Member | |
| |
| 966,314 | |
Total | |
| |
$ | 1,731,354 | |
The comparative figure for the year ended
February 28, 2021 represents significant related party transactions of Hotplay Enterprise Ltd. as follow:
Short-term Loan from: | |
| |
Magnolia Quality Development Corporation Limited | |
$ | 493,633 | |
Tree Roots Entertainment Group Co., Ltd | |
$ | 1,678,349 | |
Repayment of Short-term Loan: | |
| | |
Tree Roots Entertainment Group Co., Ltd | |
$ | 1,118,900 | |
Interest expense of loan from: | |
| | |
Magnolia Quality Development Corporation Limited | |
$ | 40,612 | |
Tree Roots Entertainment Group Company Limited | |
$ | 22,706 | |
Initial intangible assets for stock issuance: | |
| | |
Red Anchor Trading Corporation | |
$ | 2,582,064 | |
T&B Media Global (Thailand) Company Limited | |
$ | 618,009 | |
Tree Roots Entertainment Group Co., Ltd | |
$ | 2,399,908 | |
Cash receipt from issuance of ordinary shares: | |
| | |
Red Anchor Trading Corporation | |
$ | 3,000,000 | |
T&B Media Global (Thailand) Company Limited | |
$ | 500,000 | |
Tree Roots Entertainment Group Co., Ltd | |
$ | 1,900,000 | |
Dees Supreme Company Limited | |
| 600,000 | |
Cash receipt from issuance of ordinary shares – non controlling interest: | |
| | |
T&B Media Global (Thailand) Company Limited | |
$ | 6,311 | |
Tree Roots Entertainment Group Co., Ltd | |
$ | 22,087 | |
Dees Supreme Company Limited | |
| 3,155 | |
Nithinan Boonyawattanapisut | |
$ | 631 | |
Rental expense: | |
| | |
Tree Roots Entertainment Group Co., Ltd | |
$ | 18,365 | |
Payment of loan interest: | |
| | |
Magnolia Quality Development Corporation Limited | |
$ | 37,287 | |
Tree Roots Entertainment Group Co., Ltd | |
$ | 14,888 | |
Payment of contract cost – Related party: | |
| | |
Hotnow (Thailand) Company Limited | |
$ | 2,114,909 | |
True Axion Interactive Company Limited | |
$ | 535,920 | |
Payment of utilities expense: | |
| | |
Hotnow (Thailand) Company Limited | |
$ | 6,342 | |
The Company had the following related
party balances as of February 28, 2021 as follows:
| |
Nature | |
February 28, 2021 | |
Amounts due to related parties: | |
| |
| |
Magnolia Quality Development Corporation Limited | |
Accrued interest expense | |
$ | 3,408 | |
Tree Roots Entertainment Group Company Limited | |
Other payable | |
| 4,523 | |
| |
Accrued interest expense | |
| 4,005 | |
| |
Accrued expense | |
| 18,824 | |
Monaker (prior to merging) | |
Advance | |
| 7,500 | |
Total | |
| |
$ | 38,260 | |
Notes payable: | |
| |
| | |
Magnolia Quality Development Corporation Limited | |
| |
$ | 493,632 | |
Tree Roots Entertainment Group Company Limited | |
| |
| 559,450 | |
Total | |
| |
$ | 1,053,082 | |
Significant agreements with related
parties
On March 31, 2021,
HotPlay Thailand entered into an asset purchase agreement with HotNow, a related party, which is also under the same common control of
HotPlay Thailand, to purchase certain of the assets of HotNow, including all software used in the business and including all rights under
licenses and other agreements and employees, for the aggregate price of 19.5 million Thai Baht (inclusive of 7% value added tax (VAT))
(approximately $624,000 US). On April 30, 2021, HotPlay Thailand made an advanced payment to HotNow in the amount of 5.0 million Thai
Baht (approximately $149,533 US). On June 7, 2021, HotPlay Thailand paid the remaining cost of the asset purchase to HotNow in the amount
of 14.5 million Thai Baht (approximately $474,467 US) pursuant to the terms of the asset purchase agreement.
On March 24, 2021,
HotPlay Thailand entered into a short-term loan with MQDC for $480,000 (15.0 million Thai Baht) with an interest rate of 9% per annum,
which is payable on demand and unsecured. Accrued interest on this loan was $6,338 as of February 28, 2022.
During June and July
2020, HotPlay Thailand entered into a short-term loan with TREG for the aggregate principal amount of $543,000 (17.0 million Thai Baht)
with an interest rate of 9.75% per annum, which is payable on demand and unsecured. Accrued interest on this loan was $4,578 as of February
28, 2022. On May 31, 2021, HotPlay Thailand repaid 7.0 million Thai Baht (approximately $223,000 US) in connection with the short-term
loan from TREG.
Next Bank International currently
holds a $705,000 loan that was purchased in 2020 at a discounted purchase price of $647,776, when the Bank was not partially or wholly
owned by NextPlay Technologies, Inc. The borrower is an entity affiliated with a current member of the Bank’s Board of Directors.
The Loan bears interest at an annual rate of 10%. As of February 28, 2022, the outstanding balance was $725,000.
Management compensation
On April 7, 2021,
the board of directors of the Company ratified the current compensation payable to members of the board of directors, which provides
that each non-executive member of the Board be paid the following:
| (a) | compensation
of 20,000 shares of Company common stock per year; |
| (b) | compensation of 5,000 shares of Company common stock per year, if they are the chairperson of any committee of the board of directors; and |
| (c) | compensation of 10,000 shares of Company common stock per year, to the Chairman of the Board (collectively, the “Board Compensation Terms”); provided that all shares due to the directors serving as of March 1, 2021, for the fiscal year ending February 28, 2022, were issued up front and were fully-vested/earned on the date of grant, instead of vesting over time, as previously awarded. |
In total, an aggregate
of 165,000 shares of common stock were issued to the non-executive directors on April 8, 2021, for fiscal 2022 compensation (such shares,
the “Fiscal 2022 Board Compensation Shares”). The Fiscal 2022 Board Compensation Shares were issued under the Company’s
Amended and Restated 2017 Equity Incentive Plan (the “Plan”).
On April 7, 2021,
the Company entered into a Lock-Up Agreement with each of the non-executive members of the board of directors. Pursuant to the Lock-Up
Agreements, each non-executive director agreed not to transfer, sell, pledge, or assign any of their applicable Fiscal 2022 Board Compensation
Shares until March 1, 2022.
On April 7, 2021,
the board of directors of the Company, consistent with the employment agreement of Mr. William Kerby, the Co-Chief Executive Officer
of the Company, which provides for Mr. Kerby to receive a base salary of $400,000 per year, and an annual bonus, payable at the discretion
of the board of directors, of up to 100% of his base salary (50% based on meeting short term goals and 50% based on meeting long-term
goals), and other bonuses which may be granted from time to time in the discretion of the board of directors, agreed to award Mr. Kerby
a discretionary bonus for fiscal 2021 of $400,000, which was payable in cash or shares of common stock, at Mr. Kerby’s option,
under the Plan, with a price of $3.02 per share, the closing sales price of the Company’s common stock on the date the board of
directors approved such bonus. On April 7, 2021, April 28, 2021, and May 16, 2021, Mr. Kerby elected to receive cash in connection with
the bonus of $100,000, $150,000, and $150,000, respectively.
On April 7, 2021,
the Company declared dividends in arrears of $1,102,068 on previously outstanding Series A Preferred Stock, that were converted into
common stock with the Series A Preferred Stock being redeemed. These dividends were payable when and if declared by the board of directors.
The dividends were owed to an entity controlled by Donald P. Monaco, our Co-Chairman at that time, William Kerby, our Co- Chief Executive
Officer and a director, and Warren Kettlewell, a former board member.
On April 8, 2021,
the Company entered into an Exchange Agreement with William Kerby, its Co-Chief Executive Officer and director, and Monaco Investment
Partners II, LP (“MI Partners”), of which Donald P. Monaco, the then Co-Chairman of the board of directors of the
Company, is the managing general partner (the “Exchange Agreement”). Pursuant to the Exchange Agreement, the terms
of which were approved by the board of directors of the Company, Mr. Kerby and MI Partners exchanged their right to an aggregate of $1,016,314
in accrued dividends (the “Accrued Dividends”), which had accrued on the Company’s outstanding Series A Preferred
Stock, which had been held by Mr. Kerby and MI Partners prior to the conversion of such Series A Preferred Stock into common stock of
the Company in August 2017, for Convertible Promissory Notes. Specifically, Mr. Kerby exchanged rights to $430,889 of accrued dividends
on the Series A Preferred Stock for a Convertible Promissory Note with a principal balance of $430,889 and MI Partners exchanged rights
to $585,425 of accrued dividends on the Series A Preferred Stock for a Convertible Promissory Note with a principal balance of $585,425
(the “Convertible Promissory Notes”).
The Convertible Promissory
Notes accrue interest at the rate of 12% per annum, compounded monthly at the end of each calendar month, with such interest payable
at maturity or upon conversion. The principal and accrued interest owed under the Convertible Promissory Notes is convertible, at the
option of the holders thereof, into shares of the Company’s common stock, at any time beginning seven days after the closing date
of the HotPlay Exchange Agreement (which closed on June 30, 2021) and prior to the payment in full of such Convertible Promissory Notes
by the Company, at a conversion price equal to the greater of (i) the closing consolidated bid price of the Company’s common stock
on April 8, 2021 (which was $3.02); and (ii) the five-day volume weighted average price of the Company’s common stock for the five
trading days following the date that the HotPlay Exchange Agreement closes (which was below the $3.02 per share minimum conversion price).
The Convertible Promissory Notes are unsecured, have a maturity date of April 7, 2022, and include standard and customary events of default.
On August 27, 2021, $50,000 cash was drawn by Mr. Kerby against his Convertible Promissory Note. As of February 28, 2022 the outstanding
balance of the convertible promissory notes were in amount of $966,314 which was subsequently paid in March 2022.
On September 16,
2021, the Company’s board of directors approved an updated compensation plan setting forth compensation payable to the non-executive
members of the board of directors. Pursuant to the updated compensation plan, each non-executive member of the board of directors will
receive:
| (a) | compensation of $60,000 per year; |
| | |
| (b) | additional compensation of $15,000 per year for chairpersons of each committee of the board of directors; and |
| | |
| (c) | additional consideration of $30,000 per year to each co-chairman of the board of directors. |
The compensation is
earned and payable on a pro-rata, quarterly basis, with a total of 70% of the compensation payable in shares of Company common stock,
based on the closing price of the Company’s common stock on the last day of each fiscal quarter during which consideration is earned,
and 30% accrued and paid in cash at such time as the Company has had at least two consecutive profitable quarters. The compensation is
payable retroactive to July 1, 2020. Notwithstanding the above, the compensation payable to Mr. Donald P. Monaco, our previous Co-Chairman
of the board of directors, is to be reduced by the amount he has already been paid in fiscal 2022. Finally, in addition to the above,
non-executive members of the board are eligible for yearly bonuses as approved by the board of directors. All shares issued pursuant
to the above will be issued under the Plan and subject thereto.
Significant agreements with managements of the Company
| a) | On June 9, 2021, GLM Consulting Ltd (the “Consultant”), of which Andrew Greaves, the Company’s Chief Operating Officer, serves as the sole officer and director, entered into a Consulting Agreement with the Company to assist the Company in growing a connected subscriber base and ecosystem across all devices: Digital TV, Set Top Box, Streaming Devices, PC, Laptop, Tablet and Smartphones, by providing a range of operational expertise. The term of the agreement started on July 6, 2021 and is effective until June 30, 2022, provided that the agreement may be terminated at any time, by either party, with two weeks written prior notice. The Company agreed to pay the Consultant a daily consulting fee of $1,000, for each day of service up to a maximum amount of 20 days per month unless previously agreed in writing with the Company. Each day of service shall include a minimum of 8 hours. The Consulting Agreement included confidentiality obligations of the parties and customary work for hire language. |
| b) | On July 15, 2021, the Company entered into an Employment Agreement with Mark Vange, its Chief Technology Officer, which agreement has an effective date of July 15, 2021. The Company agreed to pay Mark Vange an annual salary of $300,000 payable on a bi-weekly basis. 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 defined in the Events of Termination in the Agreement. |
| c) | On
September 16, 2021, the Company entered into an Employment Agreement with Nithinan “Jess”
Boonyawattanapisut, its Co-Chief Executive Officer and member of its board of directors,
which agreement has an effective date of October 1, 2021. The agreement remains in effect
(renewing automatically on a month-to-month basis), until either party provides the other
at least 30 days prior written notice of its intent to terminate the agreement, or until
terminated as discussed below. |
The agreement includes
a non-compete provision, prohibiting Ms. Boonyawattanapisut from competing against the Company during the term of the agreement and for
a period of 12 months after termination thereof (subject to certain exceptions described below), in any state or country in connection
with (i) the commercial sale of products sold by the Company during the six (6) months preceding the termination date; and (ii) any services
the Company commercially offered during the six (6) months prior to the termination date (collectively, the “Non-Compete”).
During the term of
the agreement, Ms. Boonyawattanapisut is to receive (i) a base salary of $400,000 per year, which may be increased at any time at the
discretion of the Compensation Committee of the board of directors of the Company without the need to amend the agreement; (ii) an annual
bonus payable at the discretion of the Compensation Committee; (iii) other bonuses which may be granted/approved from time to time in
the discretion of the Compensation Committee; (iv) $200,000 in cash and 25,000 shares of common stock issued as a sign-on bonus under
the terms of the Plan; (v) up to four weeks of annual paid time off, which can be rolled-over year to year, or which in the discretion
of Ms. Boonyawattanapisut, can be required to be paid in cash at the end of any year or the termination of the agreement; and (vi) a
car allowance equal to an equivalent of $1,500 per month, during the term of the agreement.
The agreement provides
Ms. Boonyawattanapisut with the option of receiving some or all of the base salary and/or any bonus in shares of the Company’s
common stock, with the value of such shares being based on the higher of (i) the closing sales price per share on the trading day immediately
preceding the determination by Ms. Boonyawattanapisut to accept shares in lieu of cash; and (ii) the lowest price at which such issuance
will not require stockholder approval under the rules of the stock exchange where the Company’s common stock is then listed or
Nasdaq ((i) or (ii) as applicable, the “Share Price” and the “Stock Option”), provided that Ms.
Boonyawattanapisut is required to provide the Company at least five business days prior written notice if she desires to exercise the
Stock Option as to any payment of compensation, unless such time period is waived by the Company.
The issuance of the
shares described above is subject to the approval of the stock exchange where the Company’s common stock is then listed or Nasdaq,
and where applicable, stockholder approval, and in the sole discretion of the board of directors, may be issued under, or outside of,
a stockholder approved stock plan.
The agreement includes
standard provisions relating to the reimbursement of business expenses, indemnification rights, rights to Company property and inventions
(which are owned by the Company), dispute resolutions, tax savings, clawback rights and provisions entitling Ms. Boonyawattanapisut to
receive any fringe benefits offered by the Company to other executives (subsidized in full by the Company) including, but not limited
to, family coverage for health/medical/dental/vision, life and disability insurance.
The agreement terminates
upon Ms. Boonyawattanapisut’s death and can be terminated by the Company upon her disability (as described in the agreement), by
the Company for Cause (defined below) or by Ms. Boonyawattanapisut for Good Reason (defined below). For the purposes of the agreement,
(i) “Cause” means (A) Ms. Boonyawattanapisut’s gross and willful misappropriation or theft of the Company’s or
any of its subsidiary’s funds or property, or (B) Ms. Boonyawattanapisut’s conviction of, or plea of guilty or nolo contendere
to, any felony or crime involving dishonesty or moral turpitude, or (C) Ms. Boonyawattanapisut materially breaches any obligation, duty,
covenant or agreement under the agreement, which breach is not cured or corrected within thirty (30) days of written notice thereof from
the Company (except for certain breaches which cannot be cured), or (D) Ms. Boonyawattanapisut commits any act of fraud; and (ii) “Good
Reason” means (A) without the consent of Ms. Boonyawattanapisut, the Company materially reduces Ms. Boonyawattanapisut’s
title, duties or responsibilities, without the same being corrected within ten (10) days after being given written notice thereof; (B)
the Company fails to pay any regular installment of base salary to Ms. Boonyawattanapisut and such failure to pay continues for a period
of more than thirty (30) days; or (C) a successor to the Company fails to assume the Company’s obligations under the agreement,
without the same being corrected within thirty (30) days after being given written notice thereof.
In the event of termination
of the agreement for death or disability by Ms. Boonyawattanapisut without Good Reason, or for Cause by the Company, Ms. Boonyawattanapisut
is due all consideration due and payable to her through the date of termination. In the event of termination of the agreement by Ms.
Boonyawattanapisut for Good Reason or the Company for any reason other than Cause (or if Ms. Boonyawattanapisut’s employment is
terminated other than for Cause within 6 months before or 24 months following the occurrence of a Change of Control (defined in the agreement)
of the Company), Ms. Boonyawattanapisut is due (i) all consideration due and payable through the date of termination; (ii) a lump sum
payment equal to 12 months of base salary; (iii) continued participation in all benefit plans and programs of the Company for 12 months
after termination (or at the option of the Company, reimbursement of COBRA insurance premiums for substantially similar coverage as the
Company’s plans); and (iv) the Non-Compete will not apply to Ms. Boonyawattanapisut.
The terms of the agreement
were approved by the Company’s Compensation Committee and Audit Committee, each consisting solely of ‘independent’
members of the Company’s board of directors.
| c) | On
August 19, 2021, the Company entered into an Intellectual Property Purchase Agreements with
Fighter Base Publishing Inc. (“Fighter Base”) and Inc. (“Token
IQ”), and together with Fighter Base, the “IP Sellers”), dated
as of the same date (each an “IPP Agreement”, and together the “IPP
Agreements”). Pursuant to the IPP Agreements, the Company agreed to acquire certain
intellectual property owned by Fighter Base (relating to the games industry) and by Token
IQ (relating to the distributed ledger industry), both of which entities are owned and controlled
by Mark Vange, the Chief Technology Officer of the Company. |
Pursuant to the Fighter
Base IPP Agreement, the intellectual property to be acquired thereunder has a mutually agreed upon value of $5 million, which will be
paid by the Company by way of the issuance to Fighter Base of 1,666,667 restricted shares of Company common stock (valued at $3 per share
of common stock).
Pursuant to the Token
IQ IPP Agreement, the intellectual property to be acquired thereunder has a mutually agreed upon value of $5 million, which will be paid
by the Company by way of the issuance to Fighter Base of 1,250,000 restricted shares of Company common stock (valued at $4 per share
of common stock).
Pursuant to the IPP
Agreements, in the event that the shares of Company common stock issued in connection with the foregoing transactions are still restricted
after closing of such transactions, the Company shall file a registration statement with the SEC to register such shares for resale by
their respective owners (Token IQ and Fighter Base, as applicable).
The Token IQ IPP Agreement
includes the right for Token IQ to license the intellectual property purchased thereunder to third parties, with the approval of the
Company, which shall not be unreasonable withheld, provided that any licenses are non-transferable, non-sublicensable and non-exclusive,
and that the licenses will not compete with the Company. Any consideration received by Token IQ from such licenses will be split 50/50
between the Company and Token IQ.
The shareholders’
meeting approved these IPP Agreements on January 28, 2022, and the acquisitions both closed on May 2, 2022, and pursuant to the terms
of the respective Intellectual Property Purchase Agreements with FBP and TIQ, the Company issued FBP and TIQ 1,666,667 and 1,250,000
shares of Company common stock, respectively.
Note 6 – Investments in Unconsolidated
Affiliates
We assess the potential
impairment of our equity method investments when indicators such as a history of operating losses, negative earnings and cash flow outlook,
and the financial condition and prospects for the investee’s business segment might indicate a loss in value.
Note 6.1 – Advances for investments
Letter of Intent to Acquire Axion Shares
On October 28, 2020,
the Company entered into a non-binding Letter of Intent (as amended by the first amendment thereto dated March 10, 2021, the “Letter
of Intent”) with Radiant Ventures Limited, which manages Radiant VC1 Limited and Radiant PV 1 Limited, two stockholders of
Axion Ventures, Inc. (“Axion”). As discussed below, the Company acquired approximately 33.85% of Axion (provided that
such ownership of Axion has not been formally transferred to the Company to date) on November 16, 2020 pursuant to the Axion Exchange
Agreement (as defined in Note 7, below).
Pursuant to the Letter
of Intent, the Company agreed, subject to certain condition precedents, including regulatory approvals and the entry into material agreements
with the sellers, to acquire approximately 12,000,000 shares of Axion, equal to 5.7% of Axion’s outstanding shares, from certain
of its stockholders for approximately $2,000,000, payable in a combination of stock and cash. In connection with our entry into the Letter
of Intent, we paid the sellers a $500,000 non-refundable deposit towards the cash purchase price of the shares in or around October 2020
(representing 25% of such purchase price). We also issued the sellers 235,000 shares of Company common stock in March 2021, representing
an additional 25% of the purchase price. Both payments are non-refundable. A final payment of 50% of the purchase price is due 10 days
after the British Columbia Securities Commission (“BCSC”) lifts a cease trade order on Axion’s shares and is
payable at the option of the sellers in cash or shares of the Company’s common stock, based on a 20% discount to the Company’s
stock price at the time the election to take such final payment in shares is made, provided that such stock price valuation will not
be less than $2.00 per share and not more than $3.00 per share. The Letter of Intent was to be terminated if the final payment had not
been made by the earlier of June 30, 2021 and 15 days after the BCSC lifts the Axion no trade order; however, the parties have verbally
agreed to extend such date. The purchase is also contingent on the sellers granting the Company a proxy to vote the shares of Axion to
be purchased through closing. The purchase remains subject to the negotiation of, and entry into, a definitive purchase agreement with
the sellers, as well as other closing conditions, which have not been entered into and/or which have not been completed, to date.
As of February 28,
2022, total payment of cash and shares already paid by the Company to the sellers was $937,117. The Company plans to make the final payment
of 50% of the purchase price after the BCSC lifts a cease trade order on Axion’s shares, provided that the Company cannot estimate
when, or if, such cease trade order will be lifted. There is no further update as of February 28, 2022 and the recoverable amount was
$937,117.
Go Game Asset Purchase Agreement
On June 30, 2021,
the Company entered into a Securities Purchase Agreement (the “Go Game SPA”) with David Ng, an individual (the “Seller”).
Pursuant to the Go Game SPA, the Company agreed to acquire a 37% interest in the capital stock of Go Game Pte Ltd, a Singapore private
limited company (“Go Game”), a mobile game publisher and technology company, representing an aggregate of 686,868
shares of Go Game’s Class B Preferred shares (the “Initial Go Game Shares”). The Go Game SPA also includes an
option whereby the Company can acquire additional shares of Go Game, as described in greater detail below. Pursuant to the Go Game SPA,
the aggregate consideration to be paid for the Initial Go Game Shares is: (i) 6,100,000 shares of Series D Preferred Stock (representing
$6.1 million of value, based on an aggregate liquidation preference of $6.1 million), and (ii) $5 million in cash, with $1.25 million
paid on June 30, 2021, $1.25 million payable on or before July 31, 2021, and $2.5 million payable on or before September 30, 2021.
Pursuant to the Go
Game SPA, the Company was also granted an option (the “Go Game Option”), to purchase up to an additional 259,895 shares of
Go Game’s Class B Preferred shares from the Seller (the “Option Shares”) (representing 14% of Go Game’s outstanding
Class B Preferred shares, or 51% with the Initial Go Game Shares). The Go Game Option is subject to the Seller’s acquisition of
the Option Shares subsequent to the date of the Go Game SPA. The Go Game Option is exercisable from time to time after the date that
the shareholders of the Company have approved the issuance of shares of common stock upon conversion of the Series D Preferred Stock
and in connection with the Go Game Option (the “Approval Date”), and prior to January 1, 2022. The per share consideration
due in connection with an exercise of the Go Game Option is equal to $70 million, divided by the then number of outstanding shares of
Go Game ($37.71 per share at the time the agreement was entered into) (the “Call Option Price”). The Call Option Price is
to be satisfied by the issuance of shares of Company common stock valued based on the greater of (a) $2.35 per share and (b) 85% of the
average of the closing prices of the Company’s common stock for the prior thirty days (the “30-Day Average”). The Seller
agreed not to transfer the Option Shares from the date acquired through the exercise or expiration of the Go Game Option. Upon issuance
of any shares of common stock upon exercise of the Go Game Option, the Seller agreed to enter into a lock-up agreement restricting any
sales or transfers of any shares of common stock of the Company for a period of 18 months following the issuance date.
We agreed pursuant
to the Go Game SPA, that upon our purchase of the Initial Go Game Shares, that we would appoint the Seller to the board of directors
of the Company, and that we would continue to nominate the Seller as a board nominee for appointment on the board of directors at each
subsequent shareholder meeting of the Company, subject to certain exceptions, until the earlier of (i) Seller’s death; (ii) Seller’s
resignation from the board of directors; (iii) the date that Seller is no longer qualified to serve as a member of the board of directors;
(iv) the date the board of directors, acting in good faith, determines that the continued appointment of Seller to the board of directors
would violate the fiduciary duties of such members of the board of directors; (v) the third anniversary of the acquisition of the Initial
Go Game Shares; and (vi) the date that the Seller holds less than 2 million shares of Company common stock (including shares of common
stock issuable upon conversion shares of Series D Preferred Stock held by Seller). The consideration paid as of February 28, 2022 was
in amount $1,250,000.
On March 30, 2022,
the Company, Go Game and the Seller entered into an asset purchase agreement (the “Asset Purchase Agreement”) which amends
and restates in its entirety the Go Game SPA disclosed previously whereby Go Game agreed to sell and assign to the Company, and the Company
agreed to purchase and assume from Go Game substantially all the assets and certain liabilities related to the goPlay platform (the “Go
Game Assets”), together with a perpetual license to the goPay payment gateway (the “goPay License”).
The consummation of
the transactions contemplated by the Asset Purchase Agreement (the “Closing”) occurred on April 4, 2022, following the execution
of the Asset Purchase Agreement on March 30, 2022.
As consideration for
the Go Game Assets and the receipt of the goPay License, the Company agreed to pay $5,000,000 (the “Purchase Price”) as follows:
| (i) | A cash payment of $1,250,000
which was paid previously by the Company to Go Game/Seller following the execution of the
Go Game SPA; |
| (ii) | A cash payment of
$1,500,000 at closing by wire transfer of immediately available funds; and |
| (iii) | A cash payment of $2,250,000 which shall be payable monthly by the Company to Go Game with simple interest thereon at the rate of 12.0% per annum until March 31, 2023. |
No stock consideration
of Go Game or the Company is being exchanged as was previously contemplated under the Go Game SPA.
In the event the Company
defaults on its monthly cash payment obligations under (iii) above, the Company agrees that the Seller shall be given the absolute right
to demand for the return by way of assigning, transferring, and delivering to Seller all of Purchaser’s right, title, ownership
and interest in certain games and source code for goPay (without taking away the perpetual licensing right).
For a period of six
months following the closing, Go Game will provide transitional assistance to the Company to integrate the goPlay platform and associated
game titles, together with the goPay payment gateway, at no additional charge.
The goPay License
allows the Company to exploit the goPay payment gateway to enhance the products and service offerings of the Company. The goPay License
does not allow the Company to exploit and sublicense the goPay technology as a stand-alone product.
Prior to the Closing,
Go Game was engaged in discussions with potential customers of the goPlay platform. At the Closing, the Company and Go Game entered into
a revenue share agreement (the “Revenue Share Agreement”) pursuant to which Go Game shall refer such potential customers
and any other potential customers to the Company, in exchange for a right to receive fifty percent (50%) of net revenues attributable
to such sales.
In addition, the Company
and the Seller entered into a restrictive covenant agreement (the “Restrictive Covenant Agreement”) whereby Seller will agree
to refrain from competing with the Company and soliciting the Company’s employees at the time of the closing and for a period of
time thereafter in order to protect the Company’s legitimate business interests and goodwill in connection with the Asset Purchase
Agreement.
Letter of Intent of Potential acquisition of 100% of a
Bank Holding Company
On November 1, 2021,
the Company signed a non-binding Letter of Intent to acquire 100% of the capital stock of a bank holding company which is the 100% owner
of a community bank. In connection with the execution of the non-binding Letter of Intent, on November 10, 2021, the Company made a non-refundable
deposit of $1,000,000 on behalf of itself and other parties to the acquisition (as discussed below), which shall be credited against
the purchase price at closing, if completed. The acquisition, if completed, will be made with other parties, to be named subsequently,
and it is expected that no individual party will acquire more than 24.9% of said bank holding company. There is no legal obligation between
the parties with respect to the acquisition unless and until the parties enter into a definitive agreement with respect thereto. Closing
of the transaction will be subject to regulatory approvals, amongst other things. The balance as of February 28, 2022 was in amount
$1,000,000.
Note 6.2 – Investment in Unconsolidated Affiliates
Soma Innovation Lab Joint Venture
On March 8, 2021, the Company
entered into a Joint Venture Agreement with Soma Innovation Lab (“Soma”). Pursuant to the agreement, the parties agreed to
form a joint venture for designing hyper-personalized experiences for targeted gamers. The agreement requires the Company to provide
Soma the use of the HotPlay technology, assuming the Company acquire ownership of such technology as a result of the closing of the Company’s
pending Share Exchange (as defined below), with HotPlay (as defined below), which technology is owned by HotPlay, and that the Company
would issue the principals of Soma 72,000 shares of restricted common stock (valued at $180,000), of which $45,000 was earned immediately
and the remaining shares will be earned at the rate of 6,000 per month. Pursuant to the agreement, Soma agreed to provide the Company
use of an email client list and other services. The joint venture is owned 50/50 between us and Soma, with net profits/revenues paid
pursuant to the same 50/50 split. In the event the joint venture achieves revenue in excess of expenses and the Company recovers the
$180,000 value of the shares, then the Company agreed to issue Soma a bonus of 50,000 shares of restricted common stock. The joint venture
(and agreement) each have a term of two years. The Company also agreed to use Soma for certain work to be performed on its websites and
travel magazine, and agreed to pay Soma $75,000 per month ($225,000 in aggregate) for such work, payable by way of the issuance of 90,000
shares of restricted common stock. As of February 28, 2022, no development and activity has been started.
6,142,856 shares of Bettwork Industries
Inc. Common Stock (OTC Pink: BETW)
On July 2, 2018, three
Secured Convertible Promissory Notes aggregating $5,250,000, evidencing amounts we were owed by Bettwork Industries Inc. (“Bettwork”),
were exchanged for 7,000,000 shares of Bettwork’s common stock at $0.75 per share, for a fair value of $5,250,000 as of July 2,
2018. Bettwork’s common stock had a readily determinable fair value in the market under the symbol “BETW.”
On February 28, 2022,
the 6,142,856 shares of Bettwork’s common stock held by the Company were trading at $0.0003 per share, valued at an aggregate of
$1,843. Any change in fair value is recognized in net loss as other income, valuation loss, net for the year ended February 28, 2022.
Recruiter.com Group, Inc. formerly
Truli Technologies Inc (OTCQB: RCRT).
On August 31, 2016,
the Company entered into a Marketing and Stock Exchange Agreement with Recruiter.com (“Recruiter”). The agreement
required the Company to issue to Recruiter 75,000 shares of the Company’s common stock in exchange for 2,200 shares of Recruiter
common stock. The Company issued to Recruiter an additional 75,000 shares of Company common stock for as a prepayment for marketing and
advertising within the Recruiter platform. Recruiter was at that time a private company with a platform that companies and individuals
use for employment placements.
On January 15, 2019,
pursuant to an Agreement and Plan of Merger / Merger Consideration, Truli Technologies Inc., which subsequently changed its name to Recruiter.com
Group, Inc. (OTCQB: RCRT) (“Recruiter.com”), acquired Recruiter and Monaker exchanged its 2,200 shares in Recruiter for 139,273
shares of Recruiter.com common stock.
During the year ended
February 28, 2022, the Company sold in open market transactions 68,083 shares of Recruiter.com common stock. The sale of these shares
resulted in a realized gain of $28,028 for the year ended February 28, 2022.
The Company owned
3,461 shares of Recruiter’s common stock as of February 28, 2022. As of February 28, 2022, each share of Recruiter’s common
stock was valued at $2.52 per share, which changed the fair value of the 3,461 shares of Recruiter common stock to $8,722. The net change
in the fair value is recognized in net income as other income as of February 28, 2022.
The Company owned
3,461 shares of Recruiter’s common stock as of February 28, 2022. As of February 28, 2022, each share of Recruiter’s common
stock was valued at $2.52 per share, which changed the fair value of the 3,461 shares of Recruiter common stock to $8,722. The net change
in the fair value is recognized in net income as other income as of February 28, 2022.
Acquisition of Axion Shares
The investment in
affiliate of $4,856,825 as of February 28, 2021., represents the Company’s acquisition of approximately 33.85% of Axion on November
16, 2020. Pursuant to the Axion Exchange Agreement (as defined in Note 7, below), which closed on November 16, 2020, the Axion Stockholders,
exchanged ordinary shares of Axion equal to approximately 33.85% of the outstanding common shares of Axion, in consideration for 10,000,000
shares of Series B Convertible Preferred Stock of the Company, which automatically converted into 7,417,700 common shares of the Company
on June 30, 2021. During the year ended February 28, 2022, the Company recognized the loss on valuation of $2.4 million to Consolidated
Statements of Operations and Comprehensive Loss due to the change in the market price of Axion shares, the outstanding amount of this
investment as of February 28, 2022 was $4,415.
Also pursuant to the
Axion Exchange Agreement, which closed on November 16, 2020, the Company granted a warrant to Cern One Limited (one of the Axion Stockholders),
to purchase 1,914,250 shares of the Company’s common stock, with an exercise price of $2.00 per share. The warrants vest on the
earlier of (i) the date the Axion debt is fully repaid by Axion or (ii) the date that the Company obtains 51% or more of the voting control
of, and economic rights to, Axion, provided that such vesting date must occur before November 16, 2021 or the warrants will terminate.
Because the vesting conditions had not been satisfied as of November 16, 2021, the warrants terminated automatically on such date pursuant
to their terms. Accordingly, as of February 28, 2022, these warrants are no longer outstanding.
See Note 7, below,
for additional information regarding this transaction.
Note 7 – Notes Receivable
Non-Current
$7.7 million Convertible Notes
- Axion Debt Share Exchanges
On July 23, 2020,
the Company entered into a Share Exchange Agreement (as amended from time to time, the “HotPlay Exchange Agreement”
and the transactions contemplated therein, the “HotPlay Share Exchange”) with HotPlay and the stockholders of HotPlay
(the “HotPlay Stockholders”). The transactions contemplated by the HotPlay Exchange Agreement were subject to certain
closing conditions, including, the approval of the listing of the combined company’s common stock on the Nasdaq Capital Market
following the closing.
On November 12, 2020,
the Company entered into an Amended and Restated Share Exchange Agreement (as amended by the first amendment thereto dated January 6,
2021, the “Axion Exchange Agreement”) with certain stockholders holding shares of Axion Ventures, Inc. (“Axion”
and the “Axion Stockholders”) and certain debt holders holding debt of Axion (the “Axion Creditors”)
(the “Axion Share Exchange,” and collectively with the HotPlay Exchange Agreement, the “Exchange Agreements”
and the transactions contemplated therein, the “Share Exchanges”). The transactions contemplated by the Axion Exchange
Agreement closed on November 16, 2020, by Monaker Group, Inc
Pursuant to the Axion
Exchange Agreement, (a) the Axion Stockholders (including Cern One Limited (“Cern One”)), exchanged ordinary shares
of Axion equal to approximately 33.85% of the then outstanding common shares of Axion, in consideration for 10,000,000 shares of Series
B Convertible Preferred Stock of the Company (the “Series B Preferred Stock”); and (b) the Axion Creditors exchanged
debt of Axion in the aggregate amount of $7.7 million (the “Axion Debt”), for (i) 3,828,500 shares of Series C Convertible
Preferred Stock of the Company (the “Series C Preferred Stock”); and (ii) a warrant, granted to Cern One, to purchase
1,914,250 shares of the Company’s common stock (the “Creditor Warrants”), which is only exercisable upon the
occurrence of certain events (described below). Although the Axion Share Exchange closed on November 16, 2020, the Company has yet to
formally complete the transfer of the ownership of the Axion shares into its name, due to a Cease Trade Order issued by the BCSC, which
impacts Axion.
The closing of the
HotPlay Exchange Agreement on June 30, 2021 triggered the automatic conversion of the Company’s outstanding Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock into common stock of the Company. Specifically, effective June 30, 2021, the
10,000,000 shares of outstanding Series B Convertible Preferred Stock and 3,828,500 shares of outstanding Series C Convertible Preferred
Stock automatically converted into 7,417,700 and 3,828,500 shares of common stock of the Company, respectively, in accordance with the
terms of such preferred stock (the “Preferred Conversion”).
The Creditor Warrants
had cashless exercise rights, an exercise price of $2.00 per share and, a term of two years, beginning on the Vesting Date (defined below).
The Creditor Warrants were scheduled to vest on the earlier of:
| (i) | The date the Axion Debt is fully repaid by Axion, and |
| (ii) | the date that the Company obtains 51% or more of the voting control of, and economic rights to, Axion, provided that such vesting date must occur before November 16, 2021, or the Creditor Warrants will terminate (as applicable, the “Vesting Date”). All of the Creditor Warrants were granted to Cern One. |
Because the vesting
conditions had not been satisfied as of November 16, 2021, the warrants terminated automatically on such date pursuant to their terms.
Accordingly, as of February 28, 2022, these warrants are no longer outstanding.
On August 20, 2021,
our counsel sent a demand letter for payment to Axion Ventures Inc. As of November 30, 2021, there has been no response in related to
the demand letter.
On September 1, 2021,
the Company filed a claim in the Supreme Court of British Columbia demanding payment of $7.7 million.
In November 2021,
the Company commenced a new claim for the debt claimed to reflect the difference between what was owed and what the Company is claiming
to avoid double-claiming.
In February 2022,
the court was receptive to loans related evidence (e.g. loan agreements, bank statements, board resolutions, etc.), and determined that
it will be further resolved together with other Axion issues in the next trial. The summary trial judge has advised that he wishes to
take case management over this and several related proceedings, he advised further that the initial four weeks of trial planned for June
2022 might be insufficient. While the June trial dates have not yet officially been adjourned, it anticipated that the trial of this
action would be reset for 12 weeks sometime in 2023 or early 2024. Document and oral discovery are ongoing, which will be necessary for
the parties to make full disclosure on all issues. During fiscal year 2022, the Company recorded an allowance for credit losses for the
principal amounted to $3.1 million and for the accrued interest receivable amounted to $0.2 million.
Note 8 – Intangible Assets
The following table
sets forth the intangible assets, both acquired and developed, including accumulated amortization as of February 28, 2022:
| |
Useful Life | |
Cost | | |
Impairment | | |
Accumulated Amortization | | |
Net Carrying Value | |
Software development costs | |
3.0 - 5.0 years | |
$ | 10,828,889 | | |
$ | 1,415,746 | | |
$ | 2,764,643 | | |
$ | 6,648,500 | |
Trademark & License | |
6.0 - 20.0 years | |
| 6,048,213 | | |
| — | | |
| 1,178,331 | | |
| 4,869,882 | |
Others | |
1.0 - 3.0 years | |
| 2,211,851 | | |
| — | | |
| 1,105,237 | | |
| 1,106,614 | |
CIP – Software development | |
— | |
| 5,036,680 | | |
| — | | |
| — | | |
| 5,036,680 | |
| |
| |
$ | 24,125,633 | | |
$ | 1,415,746 | | |
$ | 5,048,211 | | |
$ | 17,661,676 | |
Intangible assets
are amortized on a straight-line basis over their expected useful lives, which is estimated to be 1-20 years. The expected useful lives
are determined as to reflect the expected pattern of consumption of the future economic benefits embedded in the assets.
During the year,
the Company recognized the impairment loss for software development costs amounting to $1.4 million due to the decrease in recoverable
amount from potential sale of certain assets.
Amortization expense
related to website development costs and intangible assets, excluding amortization of debt issuance costs, was $3.9 million and $0.5
million for the year/period ended February 28, 2022 and 2021, respectively.
Based on the carrying
value of definite-lived intangible assets as of February 28, 2022, we estimate our amortization expense for the next five years will
be as follows:
As of February 28, 2022 | |
Amortization Expense | |
2022 | |
$ | 4,264,343 | |
2023 | |
| 5,903,837 | |
2024 | |
| 5,564,215 | |
2025 | |
| 1,929,281 | |
2026 | |
| — | |
| |
$ | 17,661,676 | |
Note 9 – Notes Payable
Description | |
As of February 28, 2022 | | |
As of February 28, 2021 | |
Streeterville Capital, LLC | |
$ | 4,053,737 | | |
$ | — | |
ING Belgium | |
| 2,475,779 | | |
| — | |
Business Brokers, LLC | |
| 725,000 | | |
| — | |
Belfius bank | |
| 346,991 | | |
| — | |
Others | |
| 326,312 | | |
| — | |
Total | |
| 7,927,819 | | |
| — | |
Less:
Debt issuance cost | |
| (315,265 | ) | |
| | |
Line of Credit and Notes Payable, net | |
| 7,612,554 | | |
| — | |
Less: Current
portion of Line of Credit and Notes Payable | |
| (7,341,745 | ) | |
| — | |
Line of Credit and Notes Payable Long Term, net | |
$ | 270,809 | | |
$ | — | |
Note Purchase Agreements: Streeterville Capital, LLC
November 2020 Note Purchase Agreement
On November 23, 2020,
the Company entered into a Note Purchase Agreement (the “November 2020 Note Purchase Agreement”) with Streeterville
Capital, LLC (“Streeterville”), pursuant to which the Company sold Streeterville a Secured Promissory Note in the
original principal amount of $5,520,000 (the “November 2020 Streeterville Note”). Streeterville paid consideration
of an initial cash purchase price of $3,500,000 for the note and issued the Company a promissory note in the amount of $1,500,000 (the
“November 2020 Investor Note”). The associated debt issuance costs of the note were $370,000 for total amount due
$3,870,000. In addition to the $370,000 of debt issuance costs, the Company paid $245,000 for advisory fees, resulting in net proceeds
to the Company of $3,255,000.
The November 2020
Streeterville Note bore interest at a rate of 10% per annum and was scheduled to mature 12 months after the date of the note (i.e., on
November 23, 2021). From time to time, beginning 6 months after issuance, Streeterville had the right to redeem a portion of the November
2020 Streeterville Note, not to exceed $0.8 million if the November 2020 Investor Note had not been funded and $1.25 million if the November
2020 Investor Note had been funded. In the event we did not pay the amount of any requested redemption within three trading days, an
amount equal to 25% of such redemption amount was to be added to the outstanding balance of the November 2020 Streeterville Note. Under
certain circumstances the Company could defer the redemption payments up to three times, for a duration of 30 days each, provided that
upon each such deferral the outstanding balance of the November 2020 Streeterville Note would increase by 2%. Subject to the terms and
conditions set forth in the November 2020 Streeterville Note, the Company had the right to prepay all or any portion of the outstanding
balance of the November 2020 Streeterville Note at any time subject to a prepayment penalty equal to 10% of the amount of the outstanding
balance to be prepaid. For so long as the November 2020 Streeterville Note remained outstanding, the Company agreed to pay to Streeterville
20% of the gross proceeds that the Company received from the sale of any of its common stock or preferred stock, which payments were
to be applied towards, and would reduce, the outstanding balance of the November 2020 Streeterville Note, which percentage was to increases
to 30% upon the occurrence of, and continuance of, an event of default under the November 2020 Streeterville Note (each an “Equity
Payment”). Each time that we failed to pay an Equity Payment, the outstanding balance of the November 2020 Streeterville Note
would automatically increase by 10%. Additionally, in the event we were to fail to timely pay any such Equity Payment, Streeterville
had the right to seek an injunction which would prevent us from issuing common or preferred stock until or unless we paid such Equity
Payment.
The November 2020
Streeterville Note provided that if any of the following events had not occurred on or before April 30, 2021, the then outstanding balance
of the note (including accrued and unpaid interest) would increase by an amount equal to 25% of the then-current outstanding balance
thereof (the “April 2021 Note Increase”):
| (a) | HotPlay
must have become a wholly-owned subsidiary of the Company; |
| (b) | during the period beginning on July 21, 2020, and ending on the date that the HotPlay Share Exchange is consummated, HotPlay must have raised at least $15,000,000 in cash through equity investments; |
| (c) | upon
consummation of the HotPlay Share Exchange, all outstanding debt owed by the Company to HotPlay
must have either been forgiven by HotPlay or converted into the Company’s common stock; |
| (d) | HotPlay
must have become a co-borrower on the November 2020 Streeterville Note; and |
| (e) | the
Company must have paid off all outstanding debt obligations to the Donald P. Monaco Insurance
Trust and National Bank of Commerce, in full (collectively, the “November 2020 Note
Transaction Conditions”). |
Pursuant to the November
2020 Streeterville Note, we provided Streeterville a right of first refusal to purchase any promissory note, debenture or other debt
instrument which we proposed to sell, other than sales to officers or directors of the Company and/or sales to the government. Each time,
if ever, that we provided Streeterville such right, and Streeterville did not exercise such right to provide such funding, the outstanding
balance of the November 2020 Streeterville Note would increase by 3%. Each time, if ever, that we failed to comply with the terms of
the right of first refusal, the outstanding balance of the November 2020 Streeterville Note would increase by 10%. Additionally, upon
each major default described in the November 2020 Streeterville Note (i.e., the failure to pay amounts under the November 2020 Streeterville
Note when due or to observe any covenant under the November 2020 Note Purchase Agreement (other than the requirement to make Equity Payments))
the outstanding balance of the November 2020 Streeterville Note would automatically increase by 15%, and for each other default, the
outstanding balance of the November 2020 Streeterville Note would automatically increase by 5%, provided such increase could only occur
three times each as to major defaults and minor defaults, and that such aggregate increase could not exceed 30% of the balance of the
Streeterville Note immediately prior to the first event of default.
In connection with
the November 2020 Note Purchase Agreement and the November 2020 Streeterville Note, the Company entered into a Security Agreement with
Streeterville (the “Security Agreement”), pursuant to which the obligations of the Company were secured by substantially
all the assets of the Company, subject to a priority lien and security interest in the collateral of the Company.
The November 2020
Investor Note, in the principal amount of $1,500,000, evidenced the amount payable by Streeterville to the Company as partial consideration
for the acquisition by the Company of the November 2020 Streeterville Note. The November 2020 Investor Note accrued interest at the rate
of 10% per annum, payable in full on November 23, 2021, subject to a 30-day extension exercisable at the option of Streeterville and could
be prepaid at any time. The amount of the Investor Note has been offset against the amount of the November 2020 Streeterville Note in
the balance sheet as of February 28, 2021, as both notes have substantially similar terms, and the Investor Note was provided in consideration
for the acquisition of a portion of the November 2020 Streeterville Note. The November 2020 Investor Note was subsequently funded in full
in January 2021.
March 2021 Note Purchase Agreement
On March 22, 2021,
we entered into a Note Purchase Agreement dated March 23, 2021 (the “March 2021 Note Purchase Agreement”) with
Streeterville, pursuant to which the Company sold Streeterville a Secured Promissory Note in the original principal amount of $9,370,000
(the “March 2021 Streeterville Note”). Streeterville paid consideration of (a) $7,000,000 in cash; and (b) issued
the Company a promissory note in the amount of $1,500,000 (the “March 2021 Investor Note”), in consideration for the
March 2021 Streeterville Note, which included an original issue discount of $850,000 (the “OID”) and reimbursement
of Streeterville’s transaction expenses of $20,000. A total of $700,000 of the OID was fully earned upon issuance and the remaining
$150,000 was not fully earned until the March 2021 Investor Note was fully-funded by Streeterville, which occurred on May 26, 2021.
The March 2021
Streeterville Note bears interest at a rate of 10% per annum and matures 12 months after its issuance date (i.e., on March 23, 2022).
From time to time, beginning six months after issuance, Streeterville may redeem a portion of the March 2021 Streeterville Note, not to
exceed $2.125 million. In the event we do not pay the amount of any requested redemption within three trading days, an amount equal to
25% of such redemption amount is added to the outstanding balance of the March 2021 Streeterville Note. Under certain circumstances, the
Company may defer the redemption payments up to three times, for 30 days each, provided that upon each such deferral the outstanding balance
of the March 2021 Streeterville Note is increased by 2%. Subject to the terms and conditions set forth in the March 2021 Streeterville
Note, the Company may prepay all or any portion of the outstanding balance of the March 2021 Streeterville Note at any time subject to
a prepayment penalty equal to 10% of the amount of the outstanding balance to be prepaid. For so long as the March 2021 Streeterville
Note remains outstanding, the Company has agreed to pay to Streeterville 20% of the gross proceeds that the Company receives from the
sale of any of its common stock or preferred stock, which payments will be applied towards and will reduce the outstanding balance of
the March 2021 Streeterville Note, which percentage increases to 30% upon the occurrence of, and continuance of, an event of default under
the March 2021 Streeterville Note (each an “Equity Payment”). Each time that we fail to pay an Equity Payment, the
outstanding balance of the March 2021 Streeterville Note automatically increases by 10%. Additionally, in the event we fail to timely
pay any such Equity Payment, Streeterville may seek an injunction which would prevent us from issuing common or preferred stock until
or unless we pay such Equity Payment.
The March 2021 Streeterville Note provides
that if any of the following events have not occurred on or before June 30, 2021, the then outstanding balance of the note (including
accrued and unpaid interest) increases by an amount equal to 25% of the then-current outstanding balance thereof: (a) HotPlay
must have become a wholly-owned subsidiary of the Company; (b) during the period beginning on July 21, 2020, and ending on the date
that the HotPlay Share Exchange is consummated, HotPlay must have raised at least $15,000,000 in cash or debt through equity investments
(which has been completed); (c) upon consummation of the HotPlay Share Exchange, all outstanding debt owed by the Company to HotPlay
must have either been forgiven by HotPlay or converted into the Company’s common stock; and (d) HotPlay must have become a
co-borrower on the March 2021 Streeterville Note (collectively, the “March 2021 Note Transaction Conditions”).
The March 2021
Note Purchase Agreement required that we complete the purchase of the Reinhart (the “Reinhart Interest”), within 10
days of the date of the sale of the March 2021 Streeterville Note, and that the Company pledge the Reinhart Interest to Streeterville
pursuant to a pledge agreement thereafter, both of which were timely completed.
Also on May 26,
2021, Streeterville funded the March 2021 Investor Note (in the amount of $1.5 million) in full.
We made a required
equity payment of $1,857,250 to Streeterville under the March 2021 Streeterville Note on May 26, 2021, with funds raised through a May
2021 underwritten offering, which represented approximately 20% of the funds raised in such offering.
We failed to timely
meet the November 2020 Note Transaction Conditions; however, on June 1, 2021, Streeterville agreed to defer 50% of the April 2021 Note
Increase which was otherwise to occur due to the Company’s failure to timely meet all of the November 2020 Note Transaction Conditions.
As such, a total of $506,085 was capitalized into the outstanding balance of the November 2020 Streeterville Note effective as of April
30, 2021, and the remaining $506,085 of the April 2021 Note Increase would only be added to the balance of the November 2020 Streeterville
Note if the Company failed to meet the November 2020 Transaction Conditions by June 30, 2021. Separately, if the Company did not meet
the March 2021 Note Transaction Conditions by June 30, 2021, the March 2021 Streeterville Note would be subject to the June 2021 Note
Increase. The Company completed the acquisition of HotPlay effective as of June 30, 2021, and as such the November 2020 Transaction Conditions
and the March 2021 Note Transaction Conditions were satisfied.
On June 22, 2021,
the Company entered into an Exchange Agreement with Streeterville, pursuant to which Streeterville exchanged $600,000 of a June 2021 requested
redemption of $1.25 million under the November 2020 Streeterville Note (which amount was partitioned into a separate promissory note)
for 300,000 shares of the Company’s common stock.
As of June 30,
2021, the remaining principal balance of Streeterville Notes is $ 10,247,676, accrued interest of $417,012 and accumulated unamortized
debt issuance cost of $1,554,924.
On July 21, 2021,
the Company entered into an Exchange Agreement with Streeterville, whereby Streeterville exchanged $400,000 owed under a November 2020
promissory note (which amount was partitioned into a separate promissory note) for 200,000 shares of the Company’s common stock.
On September 1,
2021, the Company entered into an Exchange Agreement with Streeterville, whereby Streeterville exchanged $270,000 owed under a November
2020 promissory note (which amount was partitioned into a separate promissory note) for 135,000 shares of the Company’s common stock.
On October 22,
2021, the Company entered into the Note Purchase Agreement (the “October 2021 Note Purchase Agreement”) with Streeterville,
pursuant to which the Company sold Streeterville a Secured Promissory Note in the original principal amount of $1,665,000 (the “October
2021 Streeterville Note”). Streeterville paid consideration of $1,500,000, which represents the original principal amount less
a $150,000 original issue discount, which was fully earned upon issuance, and a total of $15,000 to cover Streeterville’s professional
fees and transaction expenses.
The October 2021
Streeterville Note bears interest at a rate of 10% per annum and matures 12 months after its issuance date (i.e., on October 22, 2022).
From time to time, beginning six months after issuance, Streeterville may redeem any portion of the October 2021 Streeterville Note, up
to a maximum amount of $375,000 per month. In the event the Company fails to pay the amount of any requested redemption within three trading
days, an amount equal to 25% of such redemption amount is added to the outstanding balance of the October 2021 Streeterville Note. Under
certain circumstances, the Company may defer the redemption payments up to three times, for 30 days each, provided that upon each such
deferral, the outstanding balance of the October 2021 Streeterville Note is increased by 2%. Subject to the terms and conditions set forth
in the October 2021 Streeterville Note, the Company may prepay all or any portion of the outstanding balance of the October 2021 Streeterville
Note at any time subject to a prepayment penalty equal to 10% of the amount of the outstanding balance to be prepaid. For so long as the
October 2021 Streeterville Note remains outstanding, the Company has agreed to pay to Streeterville 20% of the gross proceeds that the
Company receives from the sale of any of its common stock or preferred stock within ten days of receiving such amount, which payments
will be applied towards and will reduce the outstanding balance of the October 2021 Streeterville Note, which percentage increases to
30% upon the occurrence of, and continuance of, an event of default under the October 2021 Streeterville Note (each an “Equity
Payment”). Each time that the Company fails to pay an Equity Payment, the outstanding balance of the October 2021 Streeterville
Note automatically increases by 10%. Additionally, in the event the Company fails to timely pay any such Equity Payment, Streeterville
may seek an injunction which would prevent the Company from issuing common or preferred stock until or unless the Company paid all past-due
Equity Payments.
The October 2021
Streeterville Note provides that by November 21, 2021 (the “Deadline”), HotPlay must become a co-borrower on (a) the
October 2021 Streeterville Note, (b) the November 2020 Streeterville Note, and (c) and the March 2021 Streeterville Note (collectively,
the “Streeterville Notes”). If HotPlay has not become a co-borrower on the Streeterville Notes by the Deadline, the
outstanding balance on the October 2021 Streeterville Note automatically increases by an amount equal to 25% of the then-current outstanding
balance, provided such failure is not deemed an event of default under the October 2021 Streeterville Note.
Pursuant to the
October 2021 Streeterville Note, the Company provided Streeterville a right of first refusal to purchase any promissory note, debenture,
or other debt instruments which the Company proposes to sell, other than sales to officers or directors of the Company and/or sales to
the government. Each time, if ever, that the Company provides Streeterville such right, and Streeterville does not exercise such right
to provide such funding, the outstanding balance of the October 2021 Streeterville Note increases by 3%, unless the proceeds from such
sale(s) are used to repay the October 2021 Streeterville Note in full. Each time, if ever, that the Company fails to comply with the terms
of the right of first refusal, the outstanding balance of the October 2021 Streeterville Note increases by 10%. Additionally, upon each
major default described in the October 2021 Streeterville Note (i.e., the failure to pay amounts under the October 2021 Streeterville
Note when due or to observe any covenant under the Note Purchase Agreement (other than the requirement to make Equity Payments)), the
outstanding balance of the October 2021 Streeterville Note may be increased, at Streeterville’s option, by 15%, and for each other
default, the outstanding balance of the October 2021 Streeterville Note may be increased, at Streeterville’s option, by 5%, provided
such increase can only occur three times each as to major defaults and minor defaults, and that such aggregate increase cannot exceed
30% of the balance of the October 2021 Streeterville Note immediately prior to the first event of default.
The October 2021
Note Purchase Agreement and the October 2021 Streeterville Note contain customary events of default, including if the Company undertakes
a fundamental transaction (including consolidations, mergers, and certain changes in control of the Company), without Streeterville’s
prior written consent. As described in the October 2021 Streeterville Note, upon the occurrence of certain events of default (mainly our
entry into bankruptcy), the outstanding balance of the October 2021 Streeterville Note will become automatically due and payable. Upon
the occurrence of other events of default, Streeterville may declare the outstanding balance of the October 2021 Streeterville Note immediately
due and payable at such time or at any time thereafter. After the occurrence of an event of default (and upon written notice from Streeterville),
interest on the October 2021 Streeterville Note will accrue at a rate of 22% per annum, or if lesser, the maximum rate permitted under
applicable law. The Note Purchase Agreement prohibits Streeterville from shorting our stock through the period that Streeterville holds
the October 2021 Streeterville Note.
On November 3,
2021, the Company closed a registered direct offering of its securities, resulting in gross proceeds to the Company of approximately $30
million. This offering triggered the provisions of the Streeterville Notes requiring the Company to pay to Streeterville 20% of the gross
proceeds that the Company receives from the sale of any of its common stock or preferred stock within ten days of receiving such amount,
which payments must be applied towards and reduce the outstanding balance of each of the outstanding Streeterville Notes, however, the
condition to pay 20% of the gross proceeds from the sale of any stock were negotiated with the lender and waived in November 2021.
On November 4,
2021, the Company completely paid off the November 2020 Streeterville Note in the amount of $3,100,807 and paid down the outstanding balance
of the March 2021 Streeterville Note in the amount of $6,000,000.
As of February
28, 2022, the remaining principal balance of Streeterville Notes is $4,053,737, accrued interest of $653,587 and accumulated unamortized
debt issuance cost of $315,265.
HotPlay Convertible Notes
On September 1,
2020, September 18, 2020, September 30, 2020, on or around November 2, 2020, on November 24, 2020, on around December 28, 2020 and on
and around January 6, 2021, HotPlay advanced NextPlay Technologies, Inc. $300,000, $700,000, $1,000,000, $400,000, $100,000, $450,000,
and $50,000 respectively, under the terms of the HotPlay Exchange Agreement. The advances were evidenced by convertible promissory notes
(“HotPlay Convertible Notes”) in the amount of each advance, and an effective date as of the date of each advance.
The HotPlay Convertible Notes totaled $3.0 million as of February 28, 2021.
On January 8, 2021,
HotPlay obtained the loan of $12 million from Tree Roots Entertainment Group Co., Ltd. (“Tree Roots Notes") The loan was solely
for the purpose of funding obligation to the Company pursuant to the HotPlay Exchange Agreement. The loan carried interest at 5% per
annum. The interest shall accrue until closing date. The principal and interest shall be converted to shares upon closing date. The interest
before HotPlay’s approving date of the reverse acquisition is payable at call.
Subsequently, on
March 16, 2021, March 19, 2021, and April 15, 2021, HotPlay loaned the Company $9 million, $1 million and $2 million, respectively. The
loans were made pursuant to the terms of the HotPlay Exchange Agreement and were evidenced by Convertible Promissory Notes dated effective
March 16, 2021, March 19, 2021, and April 15, 2021, in the amount of $9,000,000, $1,000,000, and $2,000,000, respectively. With the April
15, 2021 loan, HotPlay had loaned the Company all $15 million of the funds required to be funded pursuant to the terms of the HotPlay
Exchange Agreement.
The advances, and the entry
into the HotPlay Convertible Notes, were required conditions to the HotPlay Exchange Agreement.
The HotPlay Notes together
with principal and interest after HotPlay’s approving date of the reverse acquisition under Tree Roots Notes were automatically
forgiven as inter-company loans upon the closing of the HotPlay Exchange Agreement which occurred on June 30, 2021.
Hudson Bay’s Warrant Exchange Agreement
On September 22,
2021, the Company entered into an Exchange Agreement (the “Hudson Exchange Agreement”) with Hudson Bay Master Fund
Ltd. (the “Holder”), a holder of warrants to purchase 322,000 shares of the Company’s common stock with an exercise
price $2.00 per share (the “Warrants”) originally purchased from the Company on September 28, 2018. Pursuant to the
terms of the Warrants, the Holder had the right, upon closing of our acquisition of HotPlay, 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 Hudson Exchange Agreement, the Holder agreed to exchange the Warrant
(and thereby release the Company from the obligation to pay the Black Scholes Value) for a promissory note in the principal amount of
$900,000 (the “Hudson Note”). The Hudson Exchange Agreement included customary representations and warranties of the
parties; a restriction prohibiting the Company from undertaking a variable rate transaction for so long as the Hudson Note remains outstanding;
and a favored nations provision, relating to subsequent amendments, modifications, waivers or exchanges of any warrant to purchase common
stock of the Company, which applies until the first anniversary of the repayment of the Hudson Note. The Company also agreed to pay $15,000
of the legal fees of the Holder pursuant to the Hudson Exchange Agreement.
The Hudson Note
is payable by the Company, in four equal payments of $225,000 each, with payments due on October 22, 2021, November 22, 2021, December
22, 2021, and on maturity, January 22, 2022. We can prepay any amount due under the Hudson Note without penalties, provided we provide
the Holder five days prior written notice. The amount due under the Hudson Note does not accrue interest, unless an event of default occurs
thereunder, at which time the amount owed under the Hudson Note will accrue interest at 18% per annum, until paid in full. The Hudson
Note contains customary restrictions (including future payments of indebtedness while the Hudson Note is outstanding and in default),
covenants and events of default, including if a change of control of the Company occurs, and upon the occurrence of an event of default,
the Holder can declare the entire balance of the Hudson Note immediately due and payable, together with a redemption premium of 25% (i.e.,
the Holder can require the Company to pay 125% of the amount due under the Hudson Note). The Hudson Note also includes certain rights
which accrue to the Holder upon a fundamental transaction.
On October 22,
2021, the Company paid the first installment of $225,000. On November 4, 2021, the Company paid off the remaining balance of $675,000.
Loan agreement with ING
During the year 2015 and
2021, a subsidiary entered into loan agreements with ING Belgium to obtain the credit facilities. The loans carry interest at 1.8% per
annum and EURIBOR plus 1.3% per annum. The terms of the loans were between 12 - 84 months for which final installments are in March 2023.
As of February 28, 2022, the loans had outstanding balance of $2.5 million.
Loan agreement with Business Brokers, LLC
Effective November 1st of
2021, a subsidiary obtained a credit facility of $ 0.725 million from Business Brokers, LLC to which it engages regularly in the issuance of construction
and commercial loans. The facility is guaranteed by notes receivable. The facility carries a blended interest of 14.05% per annum
and is repayable upon the collection of the notes that guarantees it, or the Company decision to repay it in full, whichever comes first,
with interest only monthly payments requirement. As of February 28, 2022, the loans had outstanding balance of $0.725 million.
Loan agreement with Belfius bank
During the year 2017
and 2021, a subsidiary entered into loan agreements with Belfius Bank to obtain the credit facilities. The loans carry interest at 0.65%
- 1.88% per annum. The terms of the loans are between 12 - 66 months for which final installments are due in 2022 and to be repay on
a monthly basis. As of February 28, 2022, the loans had outstanding balance of $0.3 million and classified as current portion.
Note 10 – Stockholders’ Equity
Preferred stock
The aggregate number
of shares of preferred stock that the Company is authorized to issue is up to One Hundred Million (100,000,000), with a par value of $0.00001
per share (the “Preferred Stock”), with the exception of Series A Preferred Stock shares having a par value of $0.01
per share. The Preferred Stock may be divided into and issued in one or more series. The board of directors of the Company is authorized
to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the
shares thereof from the shares of all other series and classes. The board of directors of the Company is authorized, within any limitations
prescribed by law and the articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations
and terms of the shares of any series of Preferred Stock.
Series A Preferred Stock
The Company has
authorized and designated 3,000,000 shares of Preferred Stock as Series A 10% Cumulative Convertible Preferred Stock, par value $0.01
per share (the “Series A Preferred Stock”). The holders of record of shares of Series A Preferred Stock shall be entitled
to vote on all matters submitted to a vote of the shareholders of the Company and shall be entitled to one hundred (100) votes for each
share of Series A Preferred Stock.
Dividends in arrears
on the previously outstanding Series A Preferred Stock shares totaled $0 and $1,102,068 as of February 28, 2022 and February 28, 2021,
respectively. These dividends will only be payable when and if declared by the Company’s board of directors. On April 7, 2021, the
board approved the dividends to be paid.
The Company had
0 shares of Series A Preferred Stock issued and outstanding as of February 28, 2022 and February 28, 2021.
Series B Preferred Stock
The Company has
authorized and designated 10,000,000 shares of Preferred Stock as Series B Convertible Preferred Stock, which shares were issued to certain
Axion stockholders in exchange for their ordinary shares of Axion equal to approximately 33.85% of the outstanding common shares of Axion
pursuant to the Axion Exchange Agreement (see “Note 6 – Investment in Unconsolidated Affiliates”). Each share of Series
B Preferred Stock automatically, and without any required action by any holder, converted into 0.74177 shares of Company common stock
upon the closing of the HotPlay Share Exchange on June 30, 2021.
As of February
28, 2022 and February 28, 2021, the Company had 0 and 10,000,000 shares of Series B Preferred Stock issued and outstanding, respectively.
Series C Preferred Stock
The Company has
authorized and designated 3,828,500 shares of Preferred Stock as Series C Convertible Preferred Stock. The Series C Preferred Stock was
issued to certain debt holders of Axion who are party to the Axion Share Exchange Agreement and who agreed to exchange certain debt owed
to such debt holders by Axion for shares of Series C Preferred Stock pursuant to the Share Exchange Agreement. Each share of Series C
Preferred Stock automatically, and without any required action by any holder, converted into one share of the Company’s common stock,
upon the closing of the HotPlay Share Exchange on June 30, 2021.
As of February
28, 2022 and February 28, 2021, the Company had 0 and 3,828,500 shares of Series C Preferred Stock issued and outstanding, respectively.
Series D Preferred Stock
On July 21, 2021,
the Company designated Series D Convertible Preferred Stock (“Series D Preferred Stock”), by filing a Certificate of
Designation of such Series D Preferred Stock with the Secretary of State of Nevada (the “Series D Designation”). The
Series D Designation, which was approved by the board of directors of the Company on July 15, 2021, designated 6,100,000 shares of Series
D Preferred Stock, $0.00001 par value per share. The Series D Designation provides that the Series D Preferred Stock has a liquidation
preference which is (a) pari passu with respect to the Company’s common stock; and (b) junior to all current and future
senior indebtedness and securities of the Company. If the Company determines to liquidate, dissolve or wind-up its business and affairs,
the Company will prior to or concurrently with the closing, effectuation or occurrence of any such action, pay the holders of the Series
D Preferred Stock, pari passu with the holders of the common stock, an amount equal to the Liquidation Preference per share of Series
D Preferred Stock. The “Liquidation Preference” per share of the Series D Preferred Stock is equal to $1.00 per share,
or $6,100,000 in aggregate. Each share of Series D Preferred Stock is automatically convertible on the fifth business day after the date
that the shareholders of the Company, as required pursuant to applicable rules and regulations of NASDAQ, has approved the issuance of
the shares of common stock upon conversion of the Series D Preferred Stock, and such other matters as may be required by NASDAQ or SEC
rules and requirements to allow the conversion of the Series D Preferred Stock, into that number of shares of common stock as equal the
Conversion Rate multiplied by the then outstanding shares of Series D Preferred Stock. For the purposes of the following sentence: “Conversion
Rate” equals 0.44 shares of Company common stock for each share of Series D Preferred Stock converted, which equals (i) the
Liquidation Preference ($1.00 per share of Series D Preferred Stock), divided by (ii) $2.28, the average of the closing sales prices for
the Company’s common stock on the Nasdaq Capital Market for the 30 days prior to July 15, 2021, rounded to the nearest hundredths
place, subject to equitable adjustment for stock splits and combinations.
The Company had
0 shares of Series D Preferred Stock outstanding as of February 28, 2022 and February 28, 2021.
Common Stock
The Company issued
the initial payment of $500,000 to IDS as per the settlement agreement during the year ended February 28, 2022 in consideration for the
first transfer of 344,400 shares to be repurchased. As of the filing date, the transfer of shares has been completed.
On
November 1, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain
institutional investors (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a registered
direct offering (the “Offering”), an aggregate of 18,987,342 shares (the “Shares”) of the Company’s
common stock, together with warrants to purchase an aggregate of 14,240,508 shares of Company common stock (the “Warrants”),
at a combined price of $1.58 per Share and accompanying three quarters of a Warrant.
The
Offering closed on November 3, 2021. The Shares, Warrants and shares of common
stock issuable upon exercise of the Warrants were offered pursuant to a prospectus supplement, filed with the SEC on November
3, 2021, to the Company’s effective shelf registration statement on Form S-3 (File No.
333-257457) (the “Registration Statement”), which was initially filed with the Commission on June 25, 2021,
was amended on September 24, 2021 and October 27, 2021, and was declared effective on October 29, 2021.
The
Offering resulted in gross proceeds to the Company of approximately $30.0 million, before deducting the placement agent fees and related
offering expenses, and excluding proceeds to the Company, if any, that may result from the future exercise of Warrants issued in the Offering.
The net proceeds to the Company from the Offering, after deducting the placement agent’s fees and expenses and estimated offering
expenses (excluding proceeds to the Company, if any, from the future exercise of the Warrants) were approximately $27.85 million.
During the year ended February 28, 2022, the following
shares of common stock were issued:
| - | 87,100,403 shares of common stock related to the reverse acquisition of HotPlay valued at $70,223,429. |
| | |
| - | 258,594 shares of common stock for compensation valued at $419,228. |
| | |
| - | 97,500 shares of common stock for consulting valued at $127,750. |
| | |
| - | 335,000 shares of common stock for related redemption on a loan valued at $670,000. |
| | |
| - | 1,925,581 shares of common stock pursuant to an Exchange agreement valued at $4,813,952. |
| | |
| - | 18,987,342 shares issued for public offering valued at $27,850,001. |
| | |
| | During the year ended February 28, 2022, the Company repurchased 344,400 shares pursuant to an Amendment agreement to the Intellectual Property Purchase Agreement, which are classified as treasury stock valued at $771,456. |
On May 2,
2022, and pursuant to the terms of the respective Intellectual Property Purchase Agreements with FBP and TIQ, the Company issued FBP and
TIQ 1,666,667 and 1,250,000 shares of Company common stock, respectively.
The Company had 500,000,000
shares of common stock, $0.00001 par value, authorized for issuance; and 108,360,020 and 62,400,000 shares of common stock issued and
outstanding as of February 28, 2022 and 2021, respectively.
Common Stock warrant
The following table
sets forth common stock purchase warrants outstanding as of February 28, 2022 and 2021, and changes in such warrants outstanding for the
year ending February 28, 2022:
| |
Warrant | | |
Weighted Average Exercise | |
Outstanding, February 28, 2021 | |
| 3,045,921 | | |
$ | 2.50 | |
Warrants granted | |
| 161,900 | | |
$ | 4.59 | |
Warrants exercised/forfeited/expired | |
| (225,400 | ) | |
$ | 4.61 | |
Outstanding, June 30, 2021 – Reverse acquisition date | |
| 2,982,421 | | |
$ | 2.45 | |
Warrants granted | |
| 14,402,408 | | |
$ | 1.97 | |
Warrants exercised/forfeited/expired | |
| (2,411,250 | ) | |
$ | 2.06 | |
Outstanding, February 28, 2022 | |
| 14,811,679 | | |
$ | 2.05 | |
Common stock issuable upon exercise of warrants | |
| 14,811,679 | | |
$ | 2.05 | |
Warrants outstanding
at February 28, 2021 were of Monaker, however as HotPlay merged and became NextPlay, hence such warrants are presented in comparison as
part of NextPlay.
On January 28, 2022, the
Company held a Special Meeting of Stockholders (the “Special Meeting”) in a virtual format. Stockholders did not approve
an amendment to the exercise price provisions of those warrants (the “Warrants”) issued in connection with a registered direct
offering of the Company’s securities pursuant to that Stock Purchase Agreement entered into by and among the Company and certain
investors on November 1, 2021, and specifically to remove the $1.97 floor price (the “Floor Price”) of the Warrants such
that the exercise price of the Warrants may be reduced below the Floor Price in the event that the Company issues or enters into any
agreement to issue securities for consideration less than the then current exercise price of the warrants (the “Warrant Amendment”).
On February 28, 2022, there
were warrants outstanding to purchase 14,811,679 shares of common stock with a weighted average exercise price of $2.05 and weighted
average remaining life of 0.88 year. The warrants issued on November 1, 2021 of 14,402,408 warrants may be exercised commencing
six months after the issuance date, therefore as of February 28, 2022, they were not eligible for exercising.
During the year ended February 28, 2022, the Company
granted:
| ● | warrants to purchase 14,402,408
shares of common stock in connection with subscriptions for shares of common stock. |
As
discussed above, on November 1, 2021, the Company issued Warrants to purchase an aggregate of 14,240,508 shares of Company common stock
in connection with the Offering. Each whole Warrant sold in the Offering will be exercisable for one share of common stock at an initial
exercise price of $1.97 per share (the “Initial Exercise Price”), the closing sales price of the Company’s common
stock on October 29, 2021 (the last trading day prior to the date that the Purchase Agreement was entered into). The Warrants may be exercised
commencing six months after the issuance date (the “Initial Exercise Date”) and terminating on the fifth anniversary
of the Initial Exercise Date. The Warrants are exercisable for cash; provided, however that they may be exercised on a cashless exercise
basis if, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the
issuance or resale of the shares of Common Stock issuable upon exercise of the Warrants. The exercise of the Warrants will be subject
to a beneficial ownership limitation, which will prohibit the exercise thereof, if upon such exercise the holder of the Warrants, its
affiliates and any other persons or entities acting as a group together with the holder or any of the holder’s affiliates would
hold 4.99% (or, upon election of a purchaser prior to the issuance of any shares, 9.99%) of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of the Warrant held by the applicable
holder, provided that the holders may increase or decrease the beneficial ownership limitation (up to a maximum of 9.99%) upon 61 days
advance notice to the Company, which 61 day period cannot be waived.
The
Warrants also include certain anti-dilution rights, which provide that if at any time the Warrants are outstanding, the Company issues
or enters into any agreement to issue, or is deemed to have issued or entered into an agreement to issue (which includes the issuance
of securities convertible or exercisable for shares of Common Stock), securities for consideration less than the then current exercise
price of the Warrants, the exercise price of such Warrants will be automatically reduced to the lowest price per share of consideration
provided or deemed to have been provided for such securities; provided, however, that unless and until the Company has received stockholder
approval to reduce the exercise price of the Warrants below $1.97 per share (the “Floor Price”), no such adjustment to the
exercise price may be made. Pursuant to the Purchase Agreement, the Company has agreed to use its reasonable best efforts to obtain stockholder
approval within 90 days from the date of the prospectus supplement to remove the Floor Price of the Warrants. In the event that such stockholder
approval is not obtained within 90 days of the date of the prospectus supplement, the Company has agreed to hold a special meeting of
its stockholders every three months thereafter, for so long as the Warrants remain outstanding, to obtain such stockholder approval.
If the Company
fails for any reason to deliver shares of Common Stock upon the valid exercise of the Warrants, subject to its receipt of a valid exercise
notice and the aggregate exercise price, by the time period set forth in the Warrants, the Company will be required to pay the applicable
holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of shares subject to such exercise (as calculated in the
Warrant), $10 per trading day (increasing to $20 per trading day on the third trading day after such liquidated damages begin to accrue)
for each trading day that such shares are not delivered. The Warrants also include customary buy-in rights in the event the Company fails
to deliver shares of Common Stock upon exercise thereof within the time periods set forth in the Warrant.
Note 11
– Commitments and Contingencies
The Company entered into
an office lease in Sunrise, Florida where we leased approximately 5,279 square feet of office space at 1560 Sawgrass Corporate Parkway,
Suite 130, Sunrise, Florida 33323. In accordance with the terms of the office space lease agreement, the Company will be renting the
commercial office space, for a term of almost eight years from March 1, 2021, through July 31, 2028. Additionally, the Group rents office
space located in Puerto Rico, Thailand, Belgium, and Switzerland with lease terms ranging from five to nine years.
The subsidiary of the Company
entered into several car operating leases for employees with a term of 24 to 62 months from April, 2022, through July, 2025.
The following schedule represents obligations
and commitments on the part of the Company:
| |
Current | | |
Long Term | | |
| |
| |
FYE 2023 | | |
FYE 2024 | | |
Totals | |
Office Leases | |
$ | 611,168 | | |
$ | 3,091,132 | | |
$ | 3,702,300 | |
Car Leases | |
| 325,524 | | |
| 244,143 | | |
| 569,667 | |
Insurance and Other | |
| 140,472 | | |
| 7,200 | | |
| 147,672 | |
Totals | |
$ | 1,077,164 | | |
$ | 3,342,475 | | |
$ | 4,419,639 | |
Legal Matters
The Company is involved, from
time to time, in litigation, other legal claims and proceedings involving matters associated with or incidental to our business, including,
among other things, matters involving breach of contract claims, intellectual property, employment issues, and other related claims and
vendor matters. The Company believes that the resolution of currently pending matters could, individually or in the aggregate, have a
material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal
claims could change considering the discovery of facts not presently known to the Company or by judges, juries or other finders of fact,
which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.
IDS Settlement
On August 15, 2019,
the Company entered into an Intellectual Property Purchase Agreement with IDS Inc. (“IDS” and the “IP Purchase
Agreement”). Pursuant to the agreement, the Company purchased certain proprietary technology from IDS for the reservation and
booking of air travel, hotel accommodations, car rentals, and ancillary products, services, and amenities, integration of the same with
the providers of such products and services, associated functions, including website addresses, patents, trademarks, copyrights and trade
secrets relating thereto, and all goodwill associated therewith (collectively, the “IP Assets”). In consideration for
the purchase, the Company issued IDS 1,968,000 restricted shares of Company common stock (the “IDS Shares”) valued
at $2.50 per share, or $4,920,000 in the aggregate.
On April 27, 2020,
the Company filed a verified complaint for injunctive relief against IDS and TD Assets Holding, LLC (“TD Asset”), Navarro
McKown, Aaron McKown and Ari Daniels, which parties are affiliated with IDS, in the Circuit Court of the Seventeenth Judicial Circuit
in and for Broward County, Florida (Case No. CACE-20-007088). Pursuant to the complaint, the Company alleged causes of action against
the defendants, including IDS, based on among other things, fraud, conspiracy to commit fraud, aiding and abetting fraud, rescission,
and breach of contract, and sought a temporary and permanent injunction against the defendants, requiring such persons to return the 1,968,000
IDS Shares issued pursuant to the terms of the IP Purchase Agreement and preventing such persons from selling or transferring any IDS
Shares, sought damages from the defendants, rescission of the IP Purchase Agreement, attorneys fees and other amounts. The defendants
subsequently filed various counterclaims against the Company.
On April 29, 2020,
the Company filed a Verified Motion for Temporary Injunction (the “Injunction Motion”). Defendants IDS, TD Assets,
and Ari Daniels filed an answer, affirmative defenses, and counterclaims (the “Answer and Counterclaim”). The Answer
and Counterclaim included alleged breach of contract and tort claims against the Company. On September 17, 2020, the Company moved to
strike the affirmative defenses and dismiss the counterclaims. On October 15, 2020, defendants IDS, TD Assets, and Ari Daniels filed an
amended Answer and Counterclaim, including alleged breach of contract, tort, and federal securities claims against the Company, Mr. William
Kerby, our Co-Chief Executive Officer and an employee of the Company.
On July 27, 2020,
the Company entered into a confidential settlement agreement with certain of the defendants in the IDS matter, Navarro Hernandez, P.L.,
Aaron M. McKown, and Jeffery S. Bailey. The settlement provided for mutual releases of the parties and amounts payable from such parties
to the Company in four tranches, in consideration for such settlement, of which all such payments have been timely paid pursuant to the
terms of the settlement.
The remaining parties
to the litigation subsequently attempted to mediate their claims pursuant to a court ordered mediation in February 2021.
Effective on May
18, 2021, the Company, IDS, TD Asset and Ari Daniels, the principal of IDS, entered into an Amendment to Intellectual Property Purchase
Agreement (the “IP Purchase Amendment”). Pursuant to the IP Purchase Agreement, the parties amended the IP Purchase
Agreement, with the Company agreeing to make a payment to IDS in the amount of $2,850,000 (the “Payment”), payable
by way of an initial payment of $500,000, and twelve monthly payments of approximately $195,833 (collectively, the “Required
Payments”), with such monthly payments beginning 30 days after the initial payment, which is due seven days after the date of
the IP Purchase Amendment. Such monthly payments may be pre-paid at any time without penalty. At the Company’s option, any portion
of the amount due may be paid to IDS by a party separate from the Company (either a related party of the Company or a third-party) (a
“Paying Party”), for the benefit of the Company, which shall be treated for all purposes as a payment by the Company. As consideration
for such Paying Party making such payment on behalf of the Company, IDS agreed to transfer the Paying Party a number of the IDS Shares
equal to the amount of the cash payment(s) made by a Paying Party multiplied by 0.6888 as to the first $500,000 payment, and 0.691 as
to the monthly payments (as applicable, the “Applicable Portion” of the IDS Shares). Upon each payment of amounts due
to IDS pursuant to the terms of the IP Agreement Amendment as discussed above by the Company (instead of a Paying Party), IDS agreed to
transfer the portion of the IDS Shares equal to the Applicable Portion, to the Company.
Pursuant
to the IP Purchase Amendment, on May 19, 2021, the Company made the initial payment of $500,000. Thereafter, the first 344,400 shares
of common stock repurchased by the Company were returned to treasury and cancelled.
On September 27,
2021, the Court entered the Agreed Order. The Court ordered that:
| (i) | the Company resume the monthly
payment on or before September 28, 2021 (which payment has not been made due to failure of IDS to provide required documents); |
| (ii) | $24,583.33 shall be paid monthly
to one of IDS’s counsel and the balance of each payment shall be paid to the IDS Defendants; and |
| (iii) | $20,000 of the 12th
monthly payments shall be withheld pending further order of the court; and |
| (iv) | NextPlay/(formerly Monaker)
was awarded its fees and costs associated with the filing of the Motion. |
As of February
28, 2022, IDS still has not provided any of the necessary documents in order make the stock transfers.
Litigation between Axion and NextPlay
On January 15,
2021, Axion filed a civil claim in the Supreme Court of British Columbia (Action No. S-209245), against J. Todd Bonner, Chairman of the
Company’s board of directors, Nithinan Boonyawattanapisut, our Co-Chief Executive Officer and director, the Company, William Kerby,
our Co-Chief Executive Officer, Cern One Limited, Red Anchor Trading Corp., CC Asia Pacific Ventures Ltd., HotPlay, HotPlay (Thailand)
Ltd., Next Fintech Holdings, Inc. (formerly Longroot, Inc.). and certain other parties. The claim alleges that Mr. Bonner and his wife,
Ms. Boonyawattanapisut, used their positions as directors and officers of Axion and certain of its subsidiaries, together with the other
defendants, to unlawfully take ownership of Axion’s subsidiaries and assets, including its intellectual property. Axion’s
claim includes causes of action for conspiracy and fraud; theft of Axion intellectual property and ownership of Longroot; an investor
scheme; breaches of fiduciary duty by Mr. Bonner and Ms. Boonyawattanapisut and others; negligence; knowing assistance of breach of fiduciary
duty; collective trust; knowing receipt of trust property; knowing assistance in dishonest conduct; unjust enrichment; and breach of honest
performance. The claim seeks general and special damages for conspiracy, damages for breaches of fiduciary duties, accountings and repayments
of amounts alleged improperly paid, including to the Company, interim, interlocutory and permanent injunctions, rescission of the issuance
of shares of Longroot Cayman; restitution; the return of Axion’s intellectual property; and other accountings, damages, punitive
damages, interest and special costs.
On April 9, 2021,
the Company, on behalf of itself, Mr. Kerby and Next Fintech Holdings, Inc. (formerly Longroot, Inc.), filed a response to Axion’s
claim whereby all such parties disputed Axion’s claims and argued all such transactions involving the Company, Mr. Kerby and Next
Fintech which are the subject of Axion’s claims were legitimate and pleading various other defenses. The Company, Mr. Kerby and
Next Fintech dispute Axion’s claims and continue to vigorously defend themselves against the allegations made.
The lawsuit states
that J. Todd Bonner, Nithinan ‘Jess’ Boonyawattanapisut, Cern One Limited, and Red Anchor Trading Corp. made loans totaling
USD $9,141,372 to the defendants at various times between March 2018 and June 2020. Mr. Bonner is the Co-Chairman of NextPlay, and a past
CEO and Director of Axion. His wife, Ms. Boonyawattanapisut, is the Co-CEO of NextPlay. On or about July 21, 2020, the Company and the
lenders entered into a share exchange agreement whereby the lenders transferred rights to repayment of USD $7,657,023 of the debt owed
by defendants plus interest to the Company, in exchange for Company stock or warrants. On or about August 23, 2021, counsel for NextPlay
demanded repayment of the debts owed by the defendants, and defendants have not paid any portion of the amounts due.
On September 1,
2021, the Company filed a lawsuit in the Supreme Court of British Columbia (Action No. S-217835) under the Canadian Foreign Money Claims
Act (R.S.B.C. 1996, c. 155). The defendants are Axion; Axion Interactive Inc., a wholly-owned subsidiary of Axion; and Ying Pei Digital
Technology (Shanghai) Company Ltd., a Chinese wholly-owned subsidiary of Axion. NextPlay owns approximately 33.85% of the outstanding
shares of Axion.
The Company alleges
debts that the defendants refuse to pay totaling USD $7,657,023, under various promissory notes and loan agreements acquired by the Company
in July 2020. The Company also seeks interest on the past-due amounts and costs associated with collection.
In November 2021,
the Company commenced a new claim for the debt claimed to reflect the difference between what was owed and what the Company is claiming
to avoid double-claiming.
In February 2022,
the court was receptive to loans related evidence (e.g. loan agreements, bank statements, board resolutions, etc.), and that it will be
further resolved together with other Axion issues in the next trial. The summary trial judge has advised that he wishes to take case management
over this and several related proceedings, he advised further that the initial four weeks of trial plan in June 2022 might be insufficient.
While the June trial dates have not yet officially been adjourned, it is anticipated that the trial of this action would be reset for
12 weeks sometime in 2023 or early 2024. Document and oral discovery are ongoing, which will be necessary for the parties to make full
disclosure on all issues.
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) Media Division, which consists of HotPlay and Reinhart/Zappware, (ii) FinTech Division, which
consists of Longroot and NextBank, and (iii) Travel Division, which includes NextTrip holdings and Extraordinary Vacations USA. The Company’s
chief operating decision makers are considered to be the Co-Chief Executive Officers. The chief operating decision makers allocate resources
and assesses performance of the business and other activities at the single operating segment level.
Schedule of segments
For the year ended February 28, 2022 | |
NextMedia | | |
NextFinTech | | |
NextTrip | | |
Total | |
Revenue | |
| 6,466,498 | | |
| 1,581,421 | | |
| 155,407 | | |
$ | 8,203,326 | |
Cost of Revenue | |
| 1,718,286 | | |
| 490,911 | | |
| 137,170 | | |
| 2,346,367 | |
Gross Profit | |
| 4,748,212 | | |
| 1,090,510 | | |
| 18,237 | | |
$ | 5,856,959 | |
For the period ended February 28, 2021* | |
NextMedia | | |
NextFinTech | | |
NextTrip | | |
Total | |
Revenue | |
| — | | |
| — | | |
| — | | |
$ | — | |
Cost of Revenue | |
| — | | |
| — | | |
| — | | |
| — | |
Gross Profit | |
| — | | |
| — | | |
| — | | |
$ | — | |
| * | Due to the reverse acquisition with
HotPlay, the year-ago results incorporated only HotPlay’s financials. |
There were no reconciling or inter-company items between
segments.
Schedule of geographic information
Revenue | |
For
year ended February 28,
2022 | | |
For
period ended February 28,
2021 | |
United States and Puerto Rico | |
$ | 1,736,828 | | |
$ | — | |
Europe | |
| 6,466,498 | | |
| — | |
Thailand | |
| — | | |
| — | |
| |
$ | 8,203,326 | | |
$ | — | |
Long-lived Assets | |
February 28, 2022 | | |
February 28, 2021 | |
United States and Puerto Rico | |
$ | 44,128,496 | | |
$ | — | |
Europe | |
| 11,913,658 | | |
| — | |
Thailand | |
| 9,951,343 | | |
| 7,785,396 | |
| |
$ | 65,993,497 | | |
$ | 7,785,396 | |
Note 13 – Fair Value Measurements
The Company
has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring
fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The
fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions
(unobservable inputs).
The hierarchy consists of three levels:
| ● | Level 1 - Quoted prices in active markets for identical assets
or liabilities. |
| ● | Level 2 - Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 - Unobservable inputs that are supported by little
or no market activity and that are significant to the fair value of the assets or liabilities. |
Our assessment
of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific
to the asset or liability.
As of February
28, 2022, the Company had the assets and liabilities that were measured at fair value or for which fair value was disclosed using different
levels of inputs as follows:
| |
As of February 28, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Financial assets | |
| | |
| | |
| | |
| |
Cash | |
| | | |
| — | | |
| 6,618,951 | | |
| 6,618,951 | |
Short Term Investment | |
| — | | |
| — | | |
| 304,509 | | |
| 304,509 | |
Accounts Receivable | |
| — | | |
| — | | |
| 766,793 | | |
| 766,793 | |
Loans receivable | |
| — | | |
| — | | |
| 17,355,163 | | |
| 17,355,163 | |
Unbilled receivable | |
| — | | |
| — | | |
| 3,277,408 | | |
| 3,277,408 | |
Other Receivable | |
| — | | |
| — | | |
| 343,681 | | |
| 343,681 | |
Other Receivable, related party | |
| — | | |
| — | | |
| 155,425 | | |
| 155,425 | |
Advance for investment | |
| — | | |
| — | | |
| 3,227,117 | | |
| 3,227,117 | |
Investments in unconsolidated affiliates | |
| 14,980 | | |
| — | | |
| — | | |
| 14,980 | |
Convertible Notes Receivable, related Party | |
| — | | |
| — | | |
| 4,594,214 | | |
| 4,594,214 | |
Operating lease right-of-use asset | |
| — | | |
| — | | |
| 3,962,596 | | |
| 3,962,596 | |
Security Deposits | |
| — | | |
| — | | |
| 264,373 | | |
| 264,373 | |
| |
| | | |
| | | |
| | | |
| | |
Financial liabilities | |
| | | |
| | | |
| | | |
| | |
Line of Credit and Notes Payable, net | |
| — | | |
| — | | |
| 7,612,554 | | |
| 7,612,554 | |
Accounts payable & accrued Expense | |
| — | | |
| — | | |
| 8,595,064 | | |
| 8,595,064 | |
Other current liabilities | |
| — | | |
| — | | |
| 392,684 | | |
| 392,684 | |
Operating lease liability | |
| — | | |
| — | | |
| 3,829,750 | | |
| 3,829,750 | |
Other liabilities | |
| — | | |
| — | | |
| 7,608,279 | | |
| 7,608,279 | |
Note payable long term, related parties | |
| — | | |
| — | | |
| 1,731,354 | | |
| 1,731,354 | |
Other long term liability | |
| — | | |
| — | | |
| 34,847 | | |
| 34,847 | |
As of February
28, 2021, there was none.
Other financial
instruments of the Company are short-term in nature or carrying interest at rates close to the market interest rates, their fair value
is not expected to be materially different from the amounts presented in the Consolidated Balance Sheet.
Fair value of financial instruments
The methods and assumptions
used by the Grouping estimating the fair value of financial instruments are as follows:
a) For financial assets and liabilities which
have short-term maturities, including cash and cash equivalents, short term investment, accounts receivable, loans receivable,
unbilled receivables, other receivables, line of credit and notes payable and accounts payable, the carrying amounts in the balance
sheets approximate their fair value.
b) The
fair value of investment in unconsolidated affiliates is generally derived from quoted market prices, or based on generally accepted
pricing models when no market price is available.
Note 14 – Income Taxes
NextPlay follows
the guidance of ASC 740, “Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary differences
between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and
(b) net operating loss carry- forwards. No net provision for refundable Federal income tax has been made in the accompanying statement
of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward
has been recognized, as it is not deemed likely to be realized.
Overseas subsidiaries
Corporate income
tax of the overseas subsidiaries has been calculated by applying the applicable statutory rates of the relevant countries.
The provision for income taxes
consists of the following components for the year/periodended February 28, 2022 and 2021:
| |
2022 | | |
2021 | |
Current | |
$ | 16,876 | | |
$ | — | |
Deferred | |
| — | | |
| — | |
| |
$ | 16,876 | | |
$ | — | |
The components of deferred income tax
assets and liabilities for the years ended February 28, 2022 and 2021, are as follows:
| |
2022 | | |
2021 | |
Net operating loss carry-forwards | |
$ | 21,642,536 | | |
$ | 16,856,859 | |
Impairment loss | |
| 1,580,367 | | |
| — | |
Investment valuation | |
| 606,940 | | |
| — | |
Other | |
| 5,735 | | |
| 581,529 | |
Total deferred assets | |
$ | 23,835,578 | | |
$ | 17,438,388 | |
Valuation allowance | |
| (23,835,578 | ) | |
| (17,438,388 | ) |
| |
$ | — | | |
$ | — | |
The income
tax provision differs from the expense that would result from applying statutory rates to income before income taxes principally because
of the valuation allowance on net deferred tax assets for which realization is uncertain.
The effective tax
rates for years ended February 28, 2022 and February 28, 2021 were computed by applying the federal and state statutory corporate tax
rates as follows:
| |
2022 | | |
2021 | |
Statutory Federal income tax rate | |
| -21.0 | % | |
| -21.0 | % |
State taxes, net of Federal | |
| -4.5 | % | |
| -4.5 | % |
Permanent difference | |
| -1.0 | % | |
| -1.0 | % |
Change in valuation allowance | |
| 26.5 | % | |
| 26.5 | % |
| |
| 0 | % | |
| 0 | % |
The net operating
loss (“NOL”) carry-forward balance as of February 28, 2022 is approximately $86.0 million, the majority of which do
not have an expiration date. Management has reviewed the provisions of ASC 740 regarding assessment of their valuation allowance on deferred
tax assets and based on that criteria determined that it does not have sufficient taxable income to offset those assets. Therefore, management
has assessed the realization of the deferred tax assets and has determined that it is more likely than not that they will not be realized
and has provided a full valuation allowance against these assets. The utilization of the NOL’s may be limited by Internal Revenue
Code Section 382 which restricts annual utilization following a greater than 50% change in ownership.
At the adoption
date the Company applied ASC 740 to all tax positions for which the statute of limitations remained open. As a result of the implementation
of ASC 740, the Company did not recognize a material increase in the liability for uncertain tax positions as of February 28, 2022.
Note 15 – Earnings Per Share
The following
table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per-share computations for each of
the past two fiscal years:
| |
Net Loss attributable to common
shareholders (Numerator) | | |
Weighted
Average Shares (Denominator) | | |
Per Share Amount | |
For the year ended February 28,
2022: | |
| | |
| | |
| |
Basic earnings | |
$ | (37,972,770 | ) | |
| 94,513,747 | | |
$ | (0.40 | ) |
Effect of dilutive securities | |
| — | | |
| — | | |
| — | |
Dilutive earnings | |
$ | (37,972,770 | ) | |
| 94,513,747 | | |
$ | (0.40 | ) |
| |
| | | |
| | | |
| | |
For the period from March 6, 2020
(date of inception) to February 28, 2021: | |
| | | |
| | | |
| | |
Basic earnings | |
$ | (1,200,309 | ) | |
| 62,400,000 | | |
$ | (0.02 | ) |
Effect of dilutive securities | |
| — | | |
| — | | |
| — | |
Dilutive earnings | |
$ | (1,200,309 | ) | |
| 62,400,000 | | |
$ | (0.02 | ) |
Basic earnings
per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year/period.
Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during each year/period. Diluted earnings per common share is not presented because it
is anti-dilutive.
Note 16 – Subsequent Events
ATM Offering
On March 4, 2022,
NextPlay Technologies, Inc. entered into an At The Market Offering Agreement (the “Agreement”) with H.C. Wainwright &
Co., LLC (the “Agent”), to create an at-the-market equity program under which the Company may, from time to time, offer and
sell shares of its common stock, par value $0.00001 per share, having an aggregate gross offering price of up to $20 million (the “Shares”)
to or through the Agent (the “ATM Offering”).
Subsequent events related to Agreements with
Streeterville
Standstill agreement
On April 29, 2022, the Company
entered into the Standstill Agreement with Streeterville, pursuant to the October 2021 Streeterville Note, original principal amount
of $1,665,000, with a condition amendment that lender will not seek to redeem any portion of the October 2021 Streeterville Note until
September 18, 2022 and increased the outstanding balance of the note by $87,639.33 (the “Standstill Fee”), as a result, the
outstanding balance of the note is $1,840,912.84 (including outstanding interest).
May 2022 Note Purchase Agreement
On May 5, 2022, the Company
entered into the Note Purchase Agreement (the “May 2022 Note Purchase Agreement”) with Streeterville, pursuant
to which the Company sold Streeterville a Secured Promissory Note in the original principal amount of $2,765,000 (the “May 2022
Streeterville Note”). Streeterville paid consideration of $2,500,000, which represents the original principal amount less a
$250,000 original issue discount, which was fully earned upon issuance, and a total of $15,000 to cover Streeterville’s professional
fees and transaction expenses.
The May 2022 Streeterville
Note bears interest at a rate of 10% per annum and matures 12 months after its issuance date (i.e., on May 5, 2023). From time to time,
beginning six months after issuance, Streeterville may redeem any portion of the May 2022 Streeterville Note, up to a maximum amount
of $625,000 per month. In the event the Company fails to pay the amount of any requested redemption within three trading days, an amount
equal to 25% of such redemption amount is added to the outstanding balance of the May 2022 Streeterville Note. Under certain circumstances,
the Company may defer the redemption payments up to three times, for 30 days each, provided that upon each such deferral, the outstanding
balance of the May 2022 Streeterville Note is increased by 2%. Subject to the terms and conditions set forth in the May 2022 Streeterville
Note, the Company may prepay all or any portion of the outstanding balance of the May 2022 Streeterville Note on or before the date that
is 6 months from the Effective Date subject to a prepayment penalty equal to 5% of the amount of the outstanding balance, and after 6
months from the Effective Date will be subject to 10%. For so long as the May 2022 Streeterville Note remains outstanding, the Company
has agreed to pay to Streeterville 20% of the gross proceeds that the Company receives from the sale of any of its common stock or preferred
stock within ten days of receiving such amount, which payments will be applied towards and will reduce the outstanding balance of the
May 2022 Streeterville Note. Each time that the Company fails to pay an Equity Payment, the outstanding balance of the May 2022 Streeterville
Note automatically increases by 10%. Additionally, in the event the Company fails to timely pay any such Equity Payment, Streeterville
may seek an injunction which would prevent the Company from issuing common or preferred stock until or unless the Company paid all past-due
Equity Payments.
Until all of the Company’s
obligations under the Note are paid and performed in full, the Company has to comply with covenants below
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i) |
so long
as Investor beneficially owns the Note and for at least twenty (20) Trading Days (as defined in the Note) thereafter, Company will
timely file on the applicable deadline all reports required to be filed with the SEC pursuant to Sections 13 or 15(d) of the
1934 Act, and will take all reasonable action under its control to ensure that adequate current public information with respect to
Company, as required in accordance with Rule 144 of the 1933 Act, is publicly available, and will not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such
termination; |
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ii) |
the Common
Stock shall be listed or quoted for trading on any of (a) NYSE, (b) NASDAQ, (c) OTCQX, or (d) OTCQB; |
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iii) |
trading
in Company’s Common Stock will not be suspended, halted, chilled, frozen, reach zero bid or otherwise cease trading on Company’s
principal trading market; |
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iv) |
the Company
will make a payment on the Note equal to twenty percent (20%) of the gross proceeds Company receives from the sale of any of its
Common Stock or preferred stock, within ten (10) days of receiving such an amount; |
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v) |
the Company
will not enter into any financing transaction with John Kirkland or any entity owned by or affiliated with John Kirkland; |
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vi) |
the Company
will not make any Variable Security Issuances (as defined below) without Investor’s prior written consent, which consent may
be granted or withheld in Investor’s sole and absolute discretion; and |
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vii) |
the Company
hereby grants to Investor a participation right, whereby Investor shall have the right to participate in Investor’s discretion
in up to twenty percent (20%) of the amount raised in any equity or debt financing. In furtherance thereof, should Company seek to
raise capital via any transaction covered by the foregoing participation right it shall provide Investor written notice of such proposed
transaction, along with copies of the proposed transaction documents. Investor shall then have up to five (5) calendar days to elect
to purchase up to twenty percent (20%) of securities proposed to be issued in such transaction on the most favorable terms and conditions
offered to any other purchaser of the same securities. The parties agree that in the event Company breaches the covenant set forth
in this agreement, Investor’s sole and exclusive remedy shall be to receive, as liquidated damages, an amount equal to twenty
percent (20%) of the amount Investor would have been entitled to invest under the participation right, which may be added to the
Outstanding Balance of the Note if not otherwise paid in cash by Company. For purposes hereof, the term “Variable Security
Issuance” means any issuance of any Company securities that (A) have or may have conversion rights of any kind, contingent,
conditional or otherwise, in which the number of shares that may be issued pursuant to such conversion right varies with the market
price of the Common Stock, or (B) are or may become convertible into Common Stock (including without limitation convertible debt,
warrants or convertible preferred stock), with a conversion price that varies with the market price of the Common Stock, even if
such security only becomes convertible following an event of default, the passage of time, or another trigger event or condition,
but shall not include an Exempt Issuance. For avoidance of doubt, the issuance of Common Stock under, pursuant to, in exchange for
or in connection with any contract or instrument, whether convertible or not, is deemed a Variable Security Issuance for purposes
hereof if the number of Common Stock to be issued is based upon or related in any way to the market price of the Common Stock, including,
but not limited to, Common Stock issued in connection with a Section 3(a)(9) exchange, a Section 3(a)(10) settlement, or any other
similar settlement or exchange. For purposes hereof “Exempt Issuance” means (a) securities issued upon the exercise or
exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities or
to extend the term of such securities, and (b) securities issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities”
(as defined in Rule 144), have no variable rate terms or components and carry no registration rights that require or permit the filing
of any registration statement in connection therewith, and provided that any such issuance shall only be to a Person (or to the equity
holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities. |
On June 2 2022, the Company
entered into the Global amendment to address the conditions in the Note October 2021 and the Note May 2022 that HotPlay becomes a co-borrower
on the Notes and jointly and severally assumes all of the obligations and duties of Borrower under those Notes, shall now jointly refer
to HotPlay and NextPlay.
June 2022 Promissory Notes
On June 13, 2022, the Company
entered into two promissory notes, each in the principal amount of approximately CAD $231,121 (USD $178,234), with its former legal counsel,
which notes were issued, along with a CAD $10,000 (USD $7,712) in lieu of immediate payment of outstanding amounts payable to such counsel
for legal services previously rendered to the Company. The first note will mature on July 31, 2022, and the second note will mature on
September 1, 2022; provided, however, that if the Company fails to repay the first note in full on or before its maturity date, then the
second note will automatically become immediately due and payable. Both notes are unsecured and accrue interest at a rate of 18% per annum.
Other matters
In April 2022, the Board of
directors has approved consideration of potential sale of certain businesses.
Subsequent information
about acquisition of IP Fighter base, TokenIQ, GoPlay and GoPay are disclosed in the respective notes.