NextPlay Technologies, Inc. 8-K/A
Exhibit 99.1
Hotplay Enterprise Limited
Consolidated Financial Statements
(Expressed in United States Dollars)
For the period from March 6, 2020 (inception) to February 28 , 2021
TABLE OF CONTENTS
| Report of Independent Registered Public Accounting Firm | F-1 |
| | |
| Consolidated Balance Sheet | F-2 |
| | |
| Consolidated Statement of Comprehensive Loss | F-3 |
| | |
| Consolidated Statement of Changes in Shareholders’ Equity | F-4 |
| | |
| Consolidated Statement of Cash Flows | F-5 |
| | |
| Notes to the Consolidated Financial Statements | F-6 – F-16 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Stockholders and Board of Directors
Hotplay Enterprise Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Hotplay Enterprise Limited (“the Company”) for the period from March 6, 2020 (inception) to February 28, 2021, and the related consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flow for the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of February 28, 2021, and the consolidated results of its operations and its cash flow for the period from March 6, 2020 (inception) to February 28, 2021, in conformity with U.S generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgement. The communication of a critical audit matter does not alter in anyway our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Going Concern Assessment
As described in Note 1 to the financial statements, the Company prepared its financial statements on a going concern basis, and management has concluded that the Company has not generated revenues to sustain its operations. For the period from March 6, 2020 (inception) to February 28, 2021, the Company incurred net losses of USD 1.633 million and used the net cash in operating activities of USD 1.014 million. As of February 28, 2021, the accumulated deficit amounted to USD 1.2 million.
The principal consideration for our determination that performing procedures relating to the Company’s going concern assessment is a critical audit matter is the significant judgment by management related to the Company’s ability to raise funds and continue operations.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing receipt of funds subsequent to the period end. Management’s evaluation of the Company’s going concern also included obtaining a contract to develop software for a related party.
TPS Thayer, LLC
We have served as the Company’s auditor since 2021
Sugar Land, Texas
August 30, 2021
HOTPLAY ENTERPRISE LIMITED
Consolidated Balance Sheet
As of February 28 , 2021
(Expressed in United States Dollars)
| | | February 28 , 2021 | |
| | | | |
| Assets | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 444,920 | |
| Convertible notes receivable – related party | | | 3,000,000 | |
| Prepaid expense and other current assets | | | 235,746 | |
| Total current assets | | | 3,680,666 | |
| | | | | |
| Non-current assets | | | | |
| Property and equipment, net | | | 25,793 | |
| Intangible assets, net | | | 7,759,603 | |
| TOTAL ASSETS | | $ | 11,466,062 | |
| | | | | |
| Liabilities | | | | |
| Current liabilities | | | | |
| Accounts payable and accrued expenses | | $ | 343,941 | |
| Amount due to related parties | | | 38,260 | |
| Notes payable – related parties | | | 1,053,082 | |
| Other current liabilities | | | 11,163 | |
| TOTAL LIABILITIES | | $ | 1,446,446 | |
| | | | | |
| Commitments and contingencies | | | | |
| | | | | |
| Equity | | | | |
| Common stock, $100.00 par value; 144,000 authorized; 144,000 shares issued and outstanding as of February 28 , 2021 | | | 14,400,000 | |
| Additional paid in capital | | | (2,800,019 | ) |
| Accumulated deficits | | | (1,200,309 | ) |
| Accumulated other comprehensive income | | | 10,221 | |
| Total deficit attributable to Hotplay Enterprise Limited | | | 10,409,893 | |
| Non-controlling interests | | | (390,277 | ) |
| TOTAL EQUITY | | | 10,019,616 | |
| | | | | |
| TOTAL LIABILITIES AND EQUITY | | $ | 11,466,062 | |
The accompanying notes are an integral part of these Consolidated financial statements .
HOTPLAY ENTERPRISE LIMITED
Consolidated Statement of Comprehensive Loss
For the period from March 6, 2020 (inception) to February 28 , 2021
(Expressed in United States Dollars)
| Operating Expenses | | | |
| General and administrative | | $ | 784,945 | |
| Salaries and benefits | | | 325,473 | |
| Technology and development | | | 3,180 | |
| Selling and promotions expense | | | 4,702 | |
| Depreciation and Amortization | | | 461,596 | |
| Total Expense | | | 1,579,896 | |
| | | | | |
| Operating Loss | | | (1,579,896 | ) |
| | | | | |
| Other Income (Expense) | | | | |
| Foreign Exchange Loss | | | (2,110 | ) |
| Interest expense - net | | | (51,827 | ) |
| Other income | | | 425 | |
| Total other expense | | | (53,512 | ) |
| | | | | |
| Loss before income taxes | | | (1,633,408 | ) |
| | | | | |
| Net Loss | | | (1,633,408 | ) |
| | | | | |
| Share of non-controlling interests | | | (433,099 | ) |
| | | | | |
| Net (loss) attributable to parent | | | (1,200,309 | ) |
| | | | | |
| Comprehensive loss: | | | | |
| Net loss | | $ | (1,633,408 | ) |
| Other comprehensive income (loss): | | | | |
| Foreign currency translation adjustments | | | 20,859 | |
| Total other comprehensive loss | | | (1,612,549 | ) |
| Comprehensive loss attributable to non-controlling interests | | | (422,461 | ) |
| Comprehensive loss attributable to Hotplay Enterprise Limited | | $ | (1,190,088 | ) |
| | | | | |
| Weighted average number of common shares outstanding | | | | |
| Basic and diluted | | | 120,667 | |
| | | | | |
| Basic and diluted net (loss) per share | | ($ | 9.9473 | ) |
The accompanying notes are an integral part of these Consolidated financial statements .
HOTPLAY ENTERPRISE LIMITED
Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in United States Dollars)
For the period from March 6, 2020 (inception) to February 28 , 2021
| | | Common Stock | | | Additional paid in capital | | | Accumulated deficit | | | Accumulated other comprehensive income | | | Shareholders’ equity | | | Non- controlling interests | | | Total shareholders’ equity | |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance at March 6, 2020 (Date of inception) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Stock issued for cash | | | 5,400,000 | | | | 600,000 | | | | — | | | | — | | | | 6,000,000 | | | | 32,184 | | | | 6,032,184 | |
| Stock issued for Intangible assets | | | 9,000,000 | | | | (3,400,019 | ) | | | — | | | | — | | | | 5,599,981 | | | | — | | | | 5,599,981 | |
| Net loss for the period | | | — | | | | — | | | | (1,200,309 | ) | | | — | | | | (1,200,309 | ) | | | (433,099 | ) | | | (1,633,408 | ) |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | 10,221 | | | | 10,221 | | | | 10,638 | | | | 20,859 | |
| Balance at February 28 , 2021 | | | 14,400,000 | | | | (2,800,019 | ) | | | (1,200,309 | ) | | | 10,221 | | | | 10,409,893 | | | | (390,277 | ) | | | 10,019,616 | |
The accompanying notes are an integral part of these Consolidated financial statements .
HOTPLAY ENTERPRISE LIMITED
Consolidated Statement of Cash Flow
For the period from March 6, 2020 (Date of inception) to February 28 , 2021
(Expressed in United States Dollars)
| CASH FLOWS USED IN OPERATING ACTIVITIES: | | | |
| Net loss | | $ | (1,200,309 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
| Depreciation | | | 1,381 | |
| Amortization of intangible assets | | | 460,215 | |
| Share of non controlling interest | | | (433,099 | ) |
| Effect of currency translation | | | (342 | ) |
| Changes in operating assets and liabilities: | | | | |
| Amounts due to related parties | | | 38,260 | |
| Prepaid expense and other current assets | | | (235,746 | ) |
| Account Payable and accrued expenses | | | 343,941 | |
| Other current liabilities | | | 11,163 | |
| Net cash used in operating activities | | | (1,014,536 | ) |
| | | | | |
| CASH FLOWS USED IN INVESTING ACTIVITIES: | | | | |
| Convertible notes receivable – related party | | | (3,000,000 | ) |
| Additions of intangible assets – related party | | | (2,619,047 | ) |
| Purchases of computer software | | | (790 | ) |
| Purchases of property and equipment | | | (27,174 | ) |
| Net cash used in investing activities | | | (5,647,011 | ) |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
| Proceeds from issuance of ordinary shares – related parties | | | 6,000,000 | |
| Proceeds from issuance of ordinary shares – non controlling interest | | | 32,184 | |
| Proceeds from notes payable – related parties | | | 2,171,982 | |
| Repayment of notes payable – related parties | | | (1,118,900 | ) |
| Net cash generated from financing activities | | | 7,085,266 | |
| | | | | |
| Net Increase in cash and cash equivalents | | | 423,719 | |
| Effect of currency translation | | | 21,201 | |
| Cash and cash equivalents at the end of the period | | $ | 444,920 | |
| | | | | |
| Supplemental disclosures of cash flow information: | | | | |
| Interest paid | | $ | 52,175 | |
| Supplemental disclosures of non-cash activities: | | | | |
| Addition of intangible assets through stock issuance | | | (5,599,981 | ) |
The accompanying notes are an integral part of these Consolidated financial statements.
HOTPLAY ENTERPRISE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Hotplay Enterprise Limited (“HotPlay”), a British Virgin Islands corporation formed on April 14, 2020, is under the common control of Red Anchor Trading Corp. (“RATC”), a British Virgin Island Company by 58% of share. RATC is dominance of Nithinan Boonyawattanapisut and John Todd Bonner (“Bonner family”). The three other Thai shareholders are Tree Roots Entertainment Group Company Limited (“TREG”), T&B Media Global (Thailand) Company Limited (“T&B”) and Dees Supreme Company Limited (“DS”).
Hotplay (Thailand) Company Limited (“HP Thailand”), was established in Thailand on March 6, 2020 by RATC, TREG, T&B, DS and Nithinan Boonyawattanapisut (the CEO of Hotplay and HP Thailand). HP Thailand is structured as an operating affiliate of HotPlay, to create a collaboration between the partners to expand the HotPlay Platform, an In-Game Advertising (IGA) platform which was originated and built by RATC. HotPlay and HP Thailand (collectively “the Company”) believes that the functionality of IGA platform will bridge the gap between advertisers and gamer populations.
The accompanying consolidated financial statements as of February 28, 2021, include the accounts of the Hotplay and HP Thailand. Prior to the acquisition of HP Thailand, 49% or 49,000 shares of HP Thailand’s common stock had been held by RATC on behalf of HotPlay since March 6, 2020. After incorporation and pursuant to the Share Exchange Agreement, HotPlay received 49% shares transfer of HP Thailand’s from RATC on September 17, 2020. As a result, HP Thailand was consolidated HP Thailand as the entity was under common control. All significant transactions and balances among the Company and its subsidiary have been eliminated upon consolidation.
On July 21, 2020, HotPlay and HP Thailand entered into binding definitive Share Exchange Agreements with Monaker Group, Inc, “MKGI”, a technology leader in the travel and vacation rental markets, and shareholders of HotPlay (RTAC, T&B, TREG and DS) relating to the proposed acquisition of 100% of the outstanding shares of HotPlay from the shareholders of HotPlay in exchange of a majority stake in MKGI. Under the terms of the Agreements, upon the closing thereof, the shareholders of HotPlay will become the majority shareholders of MKGI and HotPlay will become a wholly-owned subsidiary of MKGI following the closings.
Going Concern
The company was incorporated in 2020, although the company had a net loss of $1,633,408 in the period, due to initial costs to get the Company operational, the Company has positive equity of $10,019,616, current assets of $3,680,666 and total assets of $11,466,062, where as total liabilities were $1,446,446 and accumulated deficit of $1,200,309. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.
Management’s plans with regard to this going concern are as follows: the Company will continue to raise funds through MKGI by way of public offerings of equity pursuant to the Share Exchange Agreeement, develop an IGA Platform to serve all aspects of commercial requirements, the HotPlay’s management is working aggressively to increase market penetration of IGA platform and continuously driving the activities to create brand awareness and connect with new customers and the strong partnerships which are anticipated to result in generating revenues. Subsequent to the period, the Company entered into software development and licensing agreement with MKGI to develop online travel platform and applications. In addition, the Company has engaged partnership agreements with media advertising exchanges to expand the future collaboration. 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.
Basis of Presentation
The Consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and present the Consolidated balance sheet of HotPlay and its subsidiary, HP Thailand as of February 28, 2021 and the audited Consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for the period from March 6, 2020 (inception) to February 28 , 2021. All significant intercompany balances and transactions among the legal entities were eliminated upon the consolidating of the financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand and deposits with banks. The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
Intangible Assets
The Company recognizes internal use software in accordance with ASC 350-40, Intangibles - Goodwill and Other - Internal Use Software (“ASC 350-40”). Thus, the Company capitalizes software development costs, including Payroll and payroll-related costs, external direct costs of services consumed in developing or obtaining internal-use computer software, beginning when it determines certain factors are present including, among others, that technology exists to achieve the performance requirements and/or buy versus internal development decisions have been made. Capitalized costs are amortized based on the straight-line method over the remaining estimated economic life of the product.
Other intangible assets are acquired through related parties, and mainly consist of In-Game-advertising application and copyright license. The Company records other intangible assets acquired at historical cost on the date invested. Other Intangible assets are carried at cost less accumulated amortization and impairment loss, if any, and amortized using the straight-line method over their estimated useful life.
Impairment of Intangible Assets
In accordance with Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets, the Company assesses the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could trigger an impairment review include the following:
| 1. | Significant underperformance compared to historical or projected future operating results; |
| 2. | Significant changes in the manner or use of the acquired assets or the strategy for the overall business; and |
| 3. | Significant negative industry or economic trends. |
When the Company determines that the carrying value of an intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. Intangible assets that have finite useful lives are amortized over their useful lives.
Foreign Currency Matters — Translation of Financial Statements
Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the period. Any translation adjustments are reflected as a separate component of stockholders’ equity (deficit) and have no effect on current earnings. Gains and losses resulting from foreign currency transactions are included in current results of operations.
During the period ended from March 6, 2020 (inception) to February 28 , 2021, the Company had aggregate foreign currency translation gains of $20,859.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. Under ASC 740, the Company determines deferred tax assets and liabilities based on the temporary difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which it expects the differences to reverse. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely that the net deferred asset will not be realized.
Uncertain tax positions
In order to assess uncertain tax positions, the Company applies a more-likely-than-not threshold and a two step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more-likely- than-not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties, if any, under accrued expenses and other current liabilities on its Consolidated balance sheets and under income tax expenses in its Consolidated statements of operations and comprehensive loss
Earnings per Share
The computation of earnings per share of common stock is based on the weighted average number of shares outstanding during the period. Basic earnings per share are computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing the net income or loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. There are no such common stock equivalents outstanding and no other dilutive securities outstanding as of February 28 , 2021.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from shareholders and distributions to shareholders. Accumulated other comprehensive loss, as presented on the accompanying Consolidated statement of financial position are the cumulative foreign currency translation adjustments.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.
Fair Value of Financial Instruments
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:
Level 1— Inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that management has the ability to access.
Level 2 — Inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.
Level 3 — Inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company has various financial instruments, including cash and cash equivalents, and other current assets, payables, amount due to related parties, notes payable and certain other current liabilities. The carrying value of such financial instruments in the accompanying consolidation as of the balance sheet approximate their fair values due to their 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.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost basis. That model replaces the probable, incurred loss model for those assets and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Through the amendments in this Update, the FASB added Topic 326, Financial Instruments-Credit Losses, and made several consequential amendments to the standard. For public business entities, the amendments in this Update will be effective for fiscal years beginning after December 15, 2020. The Company is in the process of assessing the impact on its consolidated financial statements from the adoption of the new guidance.
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. The Company will adopt the new standard effective March 1, 2021 and do not expect the adoption of this guidance to have a material impact on our Consolidated financial statements.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. The Company currently has no security investment, thus, the Company is anticipating that the there is no material impact from adoption of the new guidance.
NOTE 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
| | | February 28, 2021 | |
| | | | |
| Input Value-Added Taxes | | $ | 209,305 | |
| Other current assets | | | 26,441 | |
| Total | | $ | 235,746 | |
NOTE 4. PROPERTY AND EQUIPMENT, NET
The Company depreciates its property and equipment on a straight-line basis over the assets’ useful lives, which range from 5 to 10 years.
| | | February 28, 2021 | | | Average useful lives | |
| | | | | | | |
| Furniture and fixtures | | $ | 494 | | | | 5-10 years | |
| Office Equipment | | | 510 | | | | 5 years | |
| Computers | | | 26,170 | | | | 5 years | |
| Total | | | 27,174 | | | | | |
| Less: Accumulated depreciation | | | (1,381 | ) | | | | |
| Net | | $ | 25,793 | | | | | |
Depreciation expense was $1,381 for the period from March 6, 2020 (inception) to February 28 , 2021
NOTE 5. INTANGIBLE ASSETS
The Company amortizes its intangible assets on a straight-line basis over the estimated useful lives, which range from 5 to 20 years. No amortization is provided on software under development.
Intangible assets as of February 28 , 2021 consisted of the following:
| | | February 28, 2021 | | | Average useful lives | |
| | | | | | | |
| In-game-advertising application and platform | | $ | 2,126,064 | | | | 6-10 years | |
| Copyright licensing – animated characters | | | 3,473,917 | | | | 10-20 years | |
| Software under development | | | 2,619,047 | | | | — | |
| Computer Software | | | 790 | | | | 5 years | |
| Total | | $ | 8,219,818 | | | | | |
| Less: Accumulated amortization | | | (460,215 | ) | | | | |
| Net | | $ | 7,759,603 | | | | | |
Amortization expense for the intangible assets was $460,215 for the period from March 6, 2020 (inception) to February 28, 2021. Based on the carrying value of definite-lived intangible assets as of February 28, 2021, we estimate our amortization expense for the next five years will be as follows:
| | | | Amortization Expense | |
| | | | | |
| As of February 28, 2021 | | | | |
| 2022 | | | | 532,190 | |
| 2023 | | | | 532,190 | |
| 2024 | | | | 532,190 | |
| 2025 | | | | 532,190 | |
| 2026 onwards | | | | 5,630,843 | |
| Total | | | $ | 7,759,603 | |
NOTE 6. ACCOUNT PAYABLE AND ACCRUED EXPENSES
| | | February 28, 2021 | |
| | | | |
| Accounts Payable - Professional fee | | | 72,667 | |
| Accounts Payable - Other | | | 9,112 | |
| Accrued expenses - Software development | | | 176,062 | |
| Accrued expenses | | | 86,100 | |
| Total | | $ | 343,941 | |
NOTE 7. RELATED PARTIES TRANSACTIONS
| Name of related parties | Relationship with the Company |
| Red Anchor Trading Corporation (“RTAC”) | A shareholder of the Company and controlled by CEO of the Company and a director of the Company |
| Tree Roots Entertainment Group Company Limited (“TREG”) | A shareholder of the Company |
| T&B Media Global (Thailand) Company Limited (“T&B”) | A shareholder of the Company |
| Dees Supreme Company Limited | A shareholder of the Company |
| Hotnow (Thailand) Company Limited (“Hotnow”) | An entity controlled by the CEO of the Company |
| True Axion Interactive Company Limited (“TAI”) | An entity controlled by the CEO of the Company |
Magnolia Quality Development Corporation Limited (“MQDC”) | A shareholder of TREG which is a shareholder of the Company |
| Longroot (Thailand) Limited | An entity controlled by a director of the Company |
| Longroot Holding (Thailand) Limited | An entity controlled by a director of the Company |
| Nithinan Boonyawattanapisut | CEO of the Company, A shareholder of the Company, RTAC, Hotnow and TAI |
| Monaker Group. (“MKGI”) | An entity that the Company entered into binding definitive share exchange agreement |
| b) | Other than disclosed elsewhere, the Company had the following significant related party transactions for the period from March 6, 2020 (inception) to February 28 , 2021. |
| | | | |
| Payment for convertible notes receivable from: | | | | |
| Monaker Group, Inc. | | $ | 3,000,000 | |
| Short-term Loan from: | | | | |
| Magnolia Quality Development Corporation Limited | | | 493,633 | |
| Tree Roots Entertainment Group Co., Ltd | | | 1,678,349 | |
| Interest income of convertible notes receivable: | | | | |
| Monaker Group, Inc. | | | 11,393 | |
| 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 | |
| | | | | |
| c) | The Company had the following related party balances as of February 28, 2021: |
| | | Nature | | February 28, 2021 | |
| | | | | | |
| Notes receivable: |
| Monaker Group, Inc. | | | | $ | 3,000,000 | |
| Other current assets: | | | | | | |
| Monaker Group, Inc. | | Accrued Interest income | | | 11,393 | |
| Amounts due to related parties: |
| Magnolia Quality Development Corporation Limited | | Accrued Interest expense | | | 3,408 | |
| Monaker Group, Inc. | | Advance | | | 7,500 | |
| Tree Roots Entertainment Group Company Limited | | Other payable | | | 4,523 | |
| | | Accrued Interest expense | | | 4,005 | |
| | | Accrued expense | | | 18,824 | |
| Total | | | | $ | 38,260 | |
| Notes payable: | | | | | | |
| Magnolia Quality Development Corporation Limited | | | | | 493,632 | |
| Tree Roots Entertainment Group Company Limited | | | | | 559,450 | |
| Total | | | | $ | 1,053,082 | |
| | | | | | | |
The Company entered into a convertible promissory note agreements with MKGI. The notes were issued pursuant to the terms of the Share Exchange Agreement dated July 21, 2020 (Note 1). Conditions of the promissory notes includes (a) total
$3,000,000 with an interest rate of 1% per annum; (b) a provision providing for the forgiveness in the event that the share exchange agreement is terminated under certain circumstances and (c) an automatic conversion into restricted MKGI. Common Stock under certain circumstances subject in all cases to the rules and requirements of the Principal Market.
The Company entered into a short term loan with MQDC for $493,632 (15,000,000 Thai Baht) with an accrued interest rate of 9% per annum which is payable on demand and unsecured. Accured interest on this loan was $3,408 as of February 28, 2021.
The Company entered into a short term loan with TREG for $559,450 (17,000,000 Thai Baht) with an accrued interest rate of 9.7% per annum which is payable on demand and unsecured. Accured interest on this loan was $4,005 as of February 28, 2021.
NOTE 8. TAXATION
British Virgin Islands
HotPlay is incorporated in the British Virgin Islands and conducts its primary business operations through the related companies in Thailand. Under the current laws of the British Virgin Islands, HotPlay is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no BVI withholding tax will be imposed.
Thailand
HP Thailand is incorporated in Thailand and is subject to the statutory income tax rate of 20%. Dividends, interests, rent or royalties payable by HP Thailand to non-Thai resident enterprises, and proceeds from any such nonresident enterprise investor's disposition of assets (after deducting the net value of such assets) shall be subject to 10-15% withholding tax, unless the respective non-Thai resident enterprise's jurisdiction of incorporation has a tax treaty or arrangements with Thailand that provides for a reduced withholding tax rate or an exemption from withholding tax.
The reconciliation of tax computed by applying the statutory income tax rate of 20% for the period from March 6, 2020 (inception) to February 28 , 2021 is as follows:
| Loss before income taxes | | $ | (1,633,408 | ) |
| Income tax benefit computed at the Thai statutory income tax rate at 20% | | | 326,682 | |
| Non-deductible expenses | | | (92 | ) |
| Impact of different tax rates in other jurisdictions | | | (492,668 | ) |
| Change in valuation allowance | | | 166,078 | |
| Income tax expense | | | — | |
Deferred Taxes
The significant components of deferred taxes are as follows:
| | | February 28, 2021 | |
| Deferred tax assets: | | | | |
| Tax losses | | | 166,078 | |
| Less: Valuation allowance | | | (166,078 | ) |
| | | | — | |
As of February 28 , 2021, the Company was in cumulative loss position, valuation allowance was provided against deferred tax assets in entities where it was determined it was more likely than not that the benefits of the deferred tax assets will not be realized. As February 28 , 2021, the Company had tax losses of $830,390 derived from HP Thailand, which can be carried forward per tax regulation to offset future taxable income. The Thailand taxable losses will expire beginning in 2026 if not utilized.
The Company adopted the guidance on accounting for uncertainties in income taxes, which prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. Significant judgment is required in evaluating the Company’s uncertain tax positions and determining its provision for income taxes for the period from March 6, 2020 (date of inception) to February 28 , 2021, and the Company did not have any significant interest or penalties associated with uncertain tax positions. As of February 28 , 2021, the Company did not have any significant unrecognized uncertain tax positions and the Company does not believe that its unrecognized tax benefits will change over the next twelve months.
NOTE 9. SHARE CAPITAL
As of April 14, 2020, Hotplay Enterprise Limited (“HotPlay”) was authorized to issue 120,000 shares with US$100 par value per share of a single class of Common stock.
On February 9, 2021, HotPlay registered an additional 24,000 shares of common stock, with the Registrar of Corporate Affairs, Territory of the British Virgin Islands for a total of 144,000 shares at a par value of $100 per share to facilitate the business operations of the Company, which were sold for cash of $3,000,000.
As of February 28 , 2021, Hotplay has 144,000 shares issued and outstanding.
NOTE 10. LOSS PER SHARE
The calculation of basic and diluted loss per share is based on the following data:
| | | For the period from March 6, 2020 (date of inception) to February 28, 2021 | |
| Numerator | | | |
| Loss for the period and loss used in basic and diluted EPS (US$) | | | (1,200,309 | ) |
| | | | | |
Denominator | | | | |
| Weighted average number of ordinary shares used in basic and diluted loss per share | | | 120,667 | |
| | | | | |
| Basic and diluted loss per share (US$) | | | (9.9473 | ) |
Basic net loss per share is computed using the weighted average number of the ordinary shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of ordinary shares and ordinary equivalent shares outstanding during the period. Due to the loss for For the period from March 6, 2020 (date of inception) to February 28 , 2021, approximately 23,000 shares were excluded from the calculation of diluted net loss per share, because the effect would be anti-dilutive.
NOTE 11. LEASE
During the period, the Company entered into a lease agreement with a related party effective from January 1, 2021 to September 30, 2021, for the monthly fee of 286,002 Thai Baht (approximately $18,000).
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain claims and lawsuits typically filed against personal computer and mobiles games companies, alleging primarily professional errors or omissions. While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on its financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters. As of February 28 , 2021, the Company did not have any other significant indemnification claims that were probable or reasonably possible, except the following.
As described in note 1, pursuant to the Share Exchange Agreement, until the earlier of the (a) the termination of the Share Exchange; and (b) the Closing, MKGI and the Company (both for itself and HP Thailand) have agreed to only operate in the ordinary course of business, including: to not enter into any material agreements (other than in the ordinary course of business); to not issue any securities other than securities issued in connection with raising funding which is required as a condition to closing, or increase any compensation payable to any employees; to not amend their organizational documents or amend or terminate any material agreements; to not incur any indebtedness, or pay or settle any claims; to not change any reporting methods, or declare any dividends; to not make any capital expenditures over $100,000, or take certain other actions, with any of the foregoing permitted with written approval as to HotPlay and HP Thailand, and HotPlay as to MKGI, subject to certain exceptions relating to MKGI which have previously been agreed to by HotPlay and the HotPlay Stockholders.
In addition to Share Exchange Agreement, the obligations of HotPlay and the stockholders to close the transaction contemplated therein and perform obligation under the agreement, (a) Immediately prior to Closing, HotPlay shall have available cash of at lease $15,000,000, less any funds advanced to MKGI (b) HotPlay shall have timely loaned all of the funds required to MKGI $1,000,000 (“Initial Bridge Loan”) with the conditions described in note 7(c) and an additional $1,000,000 (each a “Subsquent Loan”, and together with the initial Bridge Loan, the “HotPlay Loans”) to provide funding to support any fees of transactions in connection with the agreement, each on substantially similar terms as the initial Bridge Loan and to be evidenced by promissory notes, (c) HotPlay shall have acquired 49% of HP Thailand’s shares prior to HotPlay obtains grant of a Foreign Business Certificate by Ministry of Commerce (MOC). Accordingly, until such time, HotPlay shall take action for HP Thailand to file an application to the BOI for grant of Investment Promotion, which shall entitle HP Thailand to certain benefits and privileges, including 99.8% foreign ownership of HP Thailand.
On January 8, 2021 and February 1, 2021 HotPlay entered into Note purchase agreement with TREG to loan convertible promissory note in the total of $12,000,000. Conditions of the promissory notes includes (a) the Note shall be solely used for the satisfying the funding obligations of HotPlay to MKGI set forth in the Share Exchange Agreement (b) upon the closing of the Share Exchange Agreement, the outstanding principal amount of the Note shall automatically convert into fully paid in exchange for shares of common stock of MKGI at a price per share equal to the conversion price (c) total principal amount with an interest rate of 5% per annum shall accrued and repaid upon the conversion of the Note.
On January 15, 2021, Axion Ventures, Inc., filed a civil claim in the Supreme Court of British Columbia, against John Todd Bonner, Nithinan Boonyawattanapisut, HotPlay, MKGI, Cern One Limited, RTAC., CC Asia Pacific Ventures Ltd., Longroot, Inc. and certain other parties. The claim alleges that Mr. Bonner and his wife, Ms. Boonyawattanapisut, used their positions as directors and officers of Axion and certain of its subsidiaries, together with the other defendants, to unlawfully take ownership of Axion’s subsidiaries and assets, including its intellectual property. Axions’ 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 MGKIr, 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.
According to the lawsuit, the plaintiff intentionally aims to prosecute an individual, not HotPlay directly, and all defendants filed a jurisdictional response to dispute Axion’s claims. The Company therefore believes that this litigation is without merit.
NOTE 13. SUBSEQUENT EVENTS
In accordance with ASC 855-10, “Subsequent Events”, the Company has analyzed its operations subsequent to February 28, 2021 to August 30, 2021, the date when the financial statements were issued. The Management of the Company determined that there were no reportable events that occurred during that subsequent period that have not been disclosed.
Related party Transactions
Upon the condition set forth in Note purchase agreement with TREG, HotPlay received transfers of loan in amount of
$9,000,000, $1,000,000, and $2,000,000, on March 16, 2021, March 24, 2021, and April 15, 2021 respectively. With the April 15, 2021, HotPlay has loaned from TREG all $12,000,000 of the funds required to be funded pursuant to the Share Exchange Agreement.
Simultaneously, pursuant to the terms of Share Exchange Agreement, HotPlay loaned to MKGI in amount of $9,000,000,
$1,000,000, and $2,000,000, respectively and were evidenced by Convertible Promissory Notes dated effective March 16, 2021, March 24, 2021, and April 15, 2021. With the April 15, 2021, HotPlay has loaned to MKGI all $15,000,000 of the funds required to be funded and the loan conditions were similar to thenote receivable to MKGI as described in note 7(c).
On June 30, 2021, MKGI was able to close the transaction contemplated by the Share Exchange Agreement by issuing 52,000,000 shares of MKGI’s common stock to HotPlay stockholders in exchange for 100% of the outstanding capital shares of HotPlay, making HotPlay a wholly-owned subsidiary of MKGI. Subsequently, MKGI completely changed its name to NextPlay Technologies (“NextPlay”).
Currently, HP Thailand is in process of filing an application to obtain grant of a Foreign Business Certificate by MOC allowing HotPlay hold 99.8% of HP Thailand and HotPlay is in preparation of delivering NextPlay a share certificates of HotPlay.
On March 17, 2021 HotPlay entered into Development and Licensing agreement with MKGI to license software frameworks “HotNow Platform” using the Platform as the foundation, to develop MKGI online traval platform and applications. The service fee and upfront fee are in total of $1,100,000. In addition, on May 20, 2021 HotPlay entered into Development and Licensing agreement with MKGI to expand services in the business of developing traval platform, Game publishing platform and solutions. The upfront retainer fee amounted to $900,000. The payment was made by MKGI on March 26, 2021 and May 24, 2021 respectively.
On March 31, 2021 HP Thailand entered into Asset purchase agreement with Hotnow, a related party, which is also under the same common control of HotPlay to purchase some of the assets, all software used in the business including all rights under licenses and other agreements and employees.
On May 31, 2021, HP Thailand repaid 7,000,000 Thai Baht (approximately $267,000) short-term loan from TREG.
