NEXTPLAY TECHNOLOGIES INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of
our operations should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this filing. In addition to
historical consolidated financial information, the following discussion contains
forward- looking statements that reflect our plans, estimates and beliefs. These
statements involve risks and uncertainties and our actual results could differ
materially from those discussed below. See "Cautionary Note Regarding
Forward-Looking Statements" above for a discussion of the uncertainties, risks
and assumptions associated with these statements. See also the disclosures under
"Item 1A. Risk Factors", above for additional discussion of such risks.
Recent Significant Funding Transactions
During the 2022 fiscal year, the Company received funding from;
? Cash injection from HotPlay through the reverse acquisition amounted to
million (2021 fiscal year: amounted to
? Public Offering of
offering expenses.
? Loans from Streeterville amounted to
fees. Key Financial Highlights
Key financial highlights for the fiscal year ended ("FYE")
include the following:
? Achieved record annually revenue of
? Consolidated gross profit totaled
to none in the last year.
? As of
acquisitions in
International.
? Cash and cash equivalents as of
and roll out new Fintech and Media activities.
The balance as of
was before the reverse acquisition transaction.
Key Operational Highlights and subsequent period
Key operational highlights for the FYE
? Completed merger with
Technologies.
? Reinhart Interactive TV, a
award-winning Interactive TV provider, Zappware, founded in 2001 by former
employees of Philips Media.
? Acquired controlling interest in
(IFEB), a global financial institution.
? Company's licensed Longroot digital token offering platform engaged to serve as
the financial advisor and underwriter for Ample's proposed security token
offering (STO).
? Entered into an agreement to acquire from
and AI-powered video game development platform of its wholly owned division,
Make It Games™, which was closed subsequent to the fiscal yearend.
? Entered into an agreement with Token IQ to acquire 100% of its
assets, including intellectual property designed to reconcile legal and
regulatory requirements around digital assets, including Know Your Customer,
Anti-money laundering and shareholder rights enforcement, all common pain
points within the crypto markets today, which was closed subsequent to the
fiscal year end.
? In
reinsurance licenses. The licensing enables
unit to establish digital primary insurance and reinsurance operations and to
offer blockchain-delivered products like parametric comprehensive travel
insurance and bank deposit insurance.
51
? Announced the signing of a Memorandum of Understanding with Alphabit
Consulting Pte Ltd to provide deposit accounts and payment cards for
their cryptocurrency exchange users.
? Announced the signing of a Memorandum of Understanding with TruCash
Group of Companies Inc , a leading global payments provider. Through the
proposed partnership, NextBank plans to offer payment services
including Payment Cards, such as Debit and Credit cards, Mobile
Wallets, and Mobile Payments.
? Announced the signing of a preliminary agreement with
Group ("DIG"), a leading global blockchain technology company, to develop and
operate an exclusive fiat payment platform for DIG customers, enabling them to
purchase and monetize DIG assets.
? Acquired goPlay assets including a new-gen game publishing platform featuring a
tournament system, chat, payment, and 37 casual games ranging from arcade to
strategy.
advertising (IGA) technology into the 37 goPlay games by year-end. The Asset
purchase also included a perpetual license to goPay, a payment aggregator that
offers game developers multiple ways to more easily collect and process user
payments through carrier billing, over the counter, e-voucher, bank transfer
and e-wallet transfers.
?
together non-fungible tokens (NFTs), social games, and Metaverse virtual worlds
for major brands, creators, and agencies.
? Announced the
building medical facilities designed to lower the likelihood of infection for
four medical asset classes including primary care, tertiary care, long term
care and resort convalescent facilities.
? Appointed Mark Vange , an industry leader in video game development and
in-game advertising and former chief technology officer of Electronic
Arts Interactive, as chief technology officer of the Company.
? Appointed Andrew Greaves , a senior level executive with experience
leading gaming eSports and digital media companies, as Chief Operating
Officer of the Company.
Results of Operations
Result of operations for the FYE
are as follows:
Revenue
? Total revenue amounted to $8.2 million , compares very favorably to $0
revenue in the last year of HotPlay. Zappware N.V. achieved $4.5
million revenue from subscription services and $2.0 million revenue
from product development as a result from high demand in digital media
content, NextBank International generated $1.6 million revenue from
interest and bank services as a result from increase in real estate and
other commercial loans and NextTrip generated $0.16 million as a result
of global pandemic recovery and travel restriction relief.
Cost of revenue
? Cost of revenue amounted to $2.3 million in line with the revenue,
compared to $0 cost in the last year of HotPlay. Cost of media
subscription and services amounted to $1.3 million , product development
cost amounted to $0.4 million , interest and bank service cost amounted
to $0.5 million and cost related to travel service amounted to $0.1
million .
Gross profit margin
? Gross profit totaled $5.9 million (71%) compared to $0 of HotPlay in
the last year. For the year ended 28 February 2022 , NextMedia segment
generated gross profits of $4.8 million and NextFinTech segment
generated gross profits of $1.1 million .
Net operating loss
? Net operating loss totaled $20.7 million compared to $1.6 million last
year of HotPlay as some businesses were in pre-operating stage last
year, which amount consisted mainly of employee expenses $5.2 million ,
depreciation and amortization $5.7 million , legal, consulting and
professional fee $6 million .
Net loss
? Net loss totaled $40.4 million compared to $1.6 million last year of
HotPlay, which consistent mainly of certain non-recurring and non-cash
such as impairment loss of asset $11.6 million , allowance for note
receivables $3.1 million and loss from valuation $2.4 million .
In FYE2022 and the subsequent period, the Company completed the reverse
acquisition of
filing date of this Report. Management believes that the acquisition of GoPlay
game portfolio and tournament platform, and subsequent integration with HotPlay
will accelerate the launch of a comprehensive gaming solution that could help
operators and platforms meaningfully increase user engagement while realizing an
alternative revenue stream. In the FinTech division, NextBank has been steadily
growing deposits and access to credit lines, generating revenue via the
origination and selling of loans. As we transition NextBank to a digital bank,
management is determined to develop an integrated FinTech platform that offers
digital banking, investments into alternative assets, and insurance products.
52
Liquidity and Capital Resources
On
an increase of
in cash and cash equivalent was mainly attributed to net proceeds received from
financing activities of
activities of
million
As of
million
million
anticipate that we will satisfy these amounts from proceeds derived from equity
sales, sales of marketable securities, financing, cash and cash equivalent and
revenue generated from sales.
As of
total liabilities, working capital of
deficit of
Net cash used in operating activities increased to
increase was mainly the result of the Company's net loss from operations,
payments relating to prepaid expenses for software, licenses and games along
with increases in assets.
Net cash provided by investing activities increased to
million
business combinations of
Net cash provided by financing activities increased to
increase was primarily due to (i) funds received from the sale of common stock,
amounting to
million
million
Additional information regarding our notes payable, notes receivable,
investments in equity instruments, acquisitions and dispositions and line of
credit can be found under "Item 8. Financial Statements and Supplementary Data"
- "Note 4 - Acquisitions and Dispositions", "Note 5 - Related Party
Transactions", "Note 7 - Notes Receivable" and "Note 16 - Subsequent Events".
We have limited financial resources. As of
capital of
million
We will need to raise additional capital or borrow loans to support our on-going
operations, 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, satisfy payment obligations, and to implement 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
an increase in revenue in next year.
Management's plans with regard to this going concern are as follows:
(i) the Company plans to continue to raise funds 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
FinTech 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, and so long as there
is an effective registration statement covering the shares issuable
thereunder in place, offer and sell shares of its common stock in an
aggregate gross offering price of up to $20 million to or through the
agent pursuant to the ATM Offering.
The Company's registration statement on Form S-3 (SEC File No. 333-257457),
including the accompanying prospectus and any related prospectus supplement, is
subject to the provisions of General Instruction I.B.6 of Form S-3, which
provides that the Company may not sell securities in a public primary offering
with a value exceeding one-third of its public float in any twelve-month period
unless its public float is at least
Company's public float (i.e., the aggregate market value of its outstanding
equity securities held by non-affiliates) was approximately
on the closing price per share of the Company's common stock, as reported on the
Nasdaq Capital Market on
General Instruction I.B.6 of Form S-3. If the Company's public float meets or
exceeds
restrictions set forth in General Instruction I.B.6 of Form S-3, at least until
the filing of its next Section 10(a)(3) update as required under the Securities
Act.
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.
53
Known Trends or Uncertainties
Although we have not seen any significant reduction in revenues to date, we have
seen some consolidation in our industry during economic downturns. These
consolidations have not had a negative effect on our total sales; however,
should consolidations and downsizing in the industry continue to occur, those
events could adversely impact our revenues and earnings going forward.
As discussed in the Risk Factors section of this Report, the world has been
affected due to the COVID-19 pandemic. Until the pandemic has passed, there
remains uncertainty as to the effect of COVID-19 on our business in both the
short and long-term.
The potential for growth in new markets is uncertain. We will continue to
explore these opportunities until such time as we either generate sales or
determine that resources would be more efficiently used elsewhere.
Inflation
Inflation has increased during the periods covered by this Report, and is
expected to continue to increase for the near future. Inflationary factors, such
as increases in interest rates, overhead costs and transportation costs may
adversely affect our operating results. Although we do not believe that
inflation has had a material impact on our financial position or results of
operations to date, we may experience some effect in the near future (especially
if inflation rates continue to rise) due to supply chain constraints,
consequences associated with COVID-19 and the ongoing conflict between
and
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Contractual Obligations and Commitments
Note Purchase Agreements:
On
Agreement with Streeterville, pursuant to which the Company sold Streeterville
the
of
Note in the amount of
were
debt issuance costs, the Company paid
net proceeds to the Company of
The
evidenced the amount payable by Streeterville to the Company as partial
consideration for the acquisition by the Company of the
Streeterville Note. The
of 10% per annum, payable in full on
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
as both notes have substantially similar terms, and the Investor Note was
provided in consideration for the acquisition of a portion of the
Streeterville Note. The
full in
On
Streeterville Note in the amount of
On
Streeterville the
of
(b) issued the Company the
in consideration for the
total of
fully-funded by Streeterville, which occurred on
2021
million
We made a required equity payment of
2021
underwritten offering, which represented approximately 20% of the funds raised
in such offering. On
balance of the
funds raised through the
On
Agreement with Streeterville, pursuant to which the Company sold Streeterville
the
original principal amount less a
issuance, and a total of
transaction expenses.
54
The
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
events of default (mainly our entry into bankruptcy), the outstanding balance of
the
Upon the occurrence of other events of default, Streeterville may declare the
outstanding balance of the
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
2021
the maximum rate permitted under applicable law. The
Agreement prohibits Streeterville from shorting our stock through the period
that Streeterville holds the
As of
2021
of
On
with Streeterville, pursuant to which the Company sold Streeterville the
2022
Streeterville paid consideration of
principal amount less a
a total of
expenses.
The
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
default (mainly our entry into bankruptcy), the outstanding balance of the
2022
occurrence of other events of default, Streeterville may declare the outstanding
balance of the
time or at any time thereafter. After the occurrence of an event of default (and
upon written notice from Streeterville), interest on the
Note will accrue at a rate of 22% per annum, or if lesser, the maximum rate
permitted under applicable law. The
Streeterville from shorting our stock through the period that Streeterville
holds the
Operating Leases Obligation
The Company entered into an office lease in
approximately 5,279 square feet of office space at
Parkway
office space lease agreement, the Company will be renting the commercial office
space, for a term of almost eight years from
2028
duration of the lease. Additionally, the Company (in some cases indirectly
through its subsidiaries) rents office space located in
rental costs for all such properties amounting to an aggregate of approximately
A 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 Company recorded operating lease Right-to-Use asset amount of
along with operating lease liability amounting to
2022
June 2022 Promissory Notes
On
principal amount of approximately CAD
legal counsel, which notes were issued, along with a CAD
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
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.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with
Generally Accepted Accounting Principles ("GAAP"). The preparation of these
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, costs and
expenses, and related disclosures. On an ongoing basis, we evaluate our
estimates and assumptions. To the extent there are material differences between
these estimates and our actual results, our consolidated financial statements
will be affected.
Our significant accounting policies, methods, estimates and judgments we use in
applying our accounting policies have a significant impact on our results of
operations. We believe that the policies involve the greatest degree of
complexity and judgment by our management and are critical for understanding and
evaluating our financial condition and results of operations. If actual results
significantly differ from the Company's estimates, the Company's financial
condition and results of operations could be materially impacted.
Significant accounting policies, methods, estimates and judgments are described
in "Item 8. Financial Statements and Supplementary Data" - "Note 1 - Description
of Business and Summary of Significant Accounting Policies" to the accompanying
consolidated financial statements.
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