Touchpoint Group Holdings Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q

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

ACT OF 1934

For the quarterly period ended September 30, 2021

or

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

ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 001-36530

Touchpoint Group Holdings, Inc.  

(Exact name of registrant as specified in its charter)

(305) 420-6640  

(Registrant’s telephone number, including area code)

N/A 

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of November 11, 2021, 266,474,795 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding. 

TABLE OF CONTENTS

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

The statements made in this Report, and in other materials that the Company has filed or may file with the Securities and Exchange Commission, in each case that are not historical facts, contain “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “anticipates,” “expects,” “projects,” “estimates,” “believes,” “seeks,” “could,” “should,” or “continue,” the negative thereof, and other variations or comparable terminology as well as any statements regarding the evaluation of strategic alternatives. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. These risks include, but are not limited to, risks and uncertainties relating to our current cash position and our need to raise additional capital in order to be able to continue to fund our operations; our ability to retain our managerial personnel and to attract additional personnel; competition; our ability to protect intellectual property rights, and any and other factors, including the risk factors identified in the documents we have filed, or will file, with the Securities and Exchange Commission.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this report or in any document incorporated herein by reference might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the respective dates of this report or the date of the document incorporated by reference in this report. We expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by federal securities laws.

These and other matters the Company discusses in this Report, or in the documents it incorporates by reference into this Report, may cause actual results to differ from those the Company describes. The Company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

TOUCHPOINT GROUP HOLDINGS, INC.  

Condensed Consolidated Balance Sheets  

September 30, 2021 and December 31, 2020  

(in thousands, except share data) 

See accompanying notes to unaudited condensed consolidated financial statements. 

TOUCHPOINT GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Operations

For the three and nine months ended September 30, 2021 and 2020 

(in thousands, except per share data)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements. 

TOUCHPOINT GROUP HOLDINGS, INC.  

Condensed Consolidated Statements of Comprehensive Loss

For the three and nine months ended September 30, 2021 and 2020

(in thousands)

(unaudited) 

See accompanying notes to unaudited condensed consolidated financial statements. 

TOUCHPOINT GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Equity 

For the nine months ended September 30, 2021 and 2020 

(in thousands) 

(unaudited) 

See accompanying notes to unaudited condensed consolidated financial statements. 

TOUCHPOINT GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2021 and 2020

(in thousands)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements. 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

Note 1. Description of Business, Organization and Principles of Consolidation

Description of Business

The Company has the following businesses:

The Company is primarily based in the United States of America and the United Kingdom

Interim Period Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for such interim period. The results reported in these interim condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain information and note disclosure normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the SEC’s rules and regulations. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 9, 2021 and as amended.

Current Structure of the Company

The Company has the following subsidiaries: 

 Schedule of Subsidiaries

In addition to the subsidiaries listed above, Suzhou Aishuo Network Information Co., Ltd (“Suzhou Aishuo”) is a limited liability company organized in China and controlled by the Company via various contractual arrangements. Suzhou Aishuo is treated as one of our subsidiaries, with limited operations, for financial reporting purposes in accordance with GAAP. During 2021, there have been limited operations at Suzhou Aishou.

123 Wish, Inc. is considered dormant. All operations have been moved to TGHI.

The Company  has ceased all operations of Love Media House, Inc. in 2020, and as such, it is considered to be discontinued operations.

During the nine months ended September 30, 2021 the main trading is conducted through the Company and no significant activities are undertaken in the subsidiary companies.

All significant intercompany balances and transactions have been eliminated in consolidation. 

Note 2. Summary of Significant Accounting Policies

Liquidity and Capital Resources

The Company has incurred net losses and negative cash flows from operations which raise substantial doubt about the Company’s ability to continue as a going concern. The Company has principally financed these losses from the sale of equity securities and the issuance of debt and convertible debt instruments.

To continue its operations the Company will be required to raise additional funds through various sources, such as equity and debt financings. While the Company believes it is probable that such financings could be secured, there can be no assurance the Company will be able to secure additional sources of funds to support its operations, or if such funds are available, that such additional financing will be sufficient to meet the Company’s needs or on terms acceptable to the Company.

At September 30, 2021, the Company had cash of approximately $26,000. Together with the Company’s Equity Line with MacRab LLC, and current operational plan and budget, the Company believes that it has the potential to generate sufficient cash to maintain operations through 2022. However, actual results could differ materially from the Company’s projections.

 Covid-19

The outbreak of the novel strain of coronavirus, specifically identified as “COVID- 19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operations in future periods.

Basis of Accounting and Presentation

These condensed consolidated financial statements have been prepared in conformity with GAAP.

Foreign Currency Translation

The reporting currency of the Company is the United States dollar. Assets and liabilities other than those denominated in U.S. dollars, primarily in the United Kingdom, are translated into United States dollars at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange throughout the period. Gains or losses from these translations are reported as a separate component of other comprehensive income (loss) until all or a part of the investment in the subsidiaries is sold or liquidated. The translation adjustments do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations.

Transaction gains and losses that arise from exchange-rate fluctuations on transactions denominated in a currency other than the functional currency are included in general and administrative expenses.

Accounts Receivable, Revenue Recognition and Concentrations

Performance Obligations - A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under the revenue recognition standard. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s contracts do not typically have variable consideration that needs to be considered when the contract consideration is allocated to each performance obligation.

Revenue Recognition – The Company recognizes revenues from each business segment as described below:

— Continued operations

— Discontinued operations

The Company does not have off-balance sheet credit exposure related to its customers. As of September 30, 2021 and December 31, 2020, seven customers and five customers respectively, accounted for 100% of the accounts receivable balance. Four customers accounted for 100% of the revenue for the nine months ended September 30, 2021, and six customers accounted for 100% of the revenue for the nine months ended September 30, 2020. 

Intangible Assets

Intangible assets include software development costs and acquired technology and are amortized on a straight-line basis over the estimated useful lives ranging from four to five years. The Company periodically evaluates whether changes have occurred that would require revision of the remaining estimated useful life. The Company performs periodic reviews of its capitalized intangible assets to determine if the assets have continuing value to the Company.

Impairment of Other Long-Lived Assets

The Company evaluates the recoverability of its property and equipment and other long-lived assets annually and whenever events or changes in circumstances indicate impairment may have occurred. An impairment loss is recognized when the net book value of such assets exceeds the estimated future undiscounted cash flows attributed to the assets or the business to which the assets relate. Impairment losses, if any, are measured as the amount by which the carrying value exceeds the fair value of the assets.

Income Taxes

Deferred income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, operating loss, and tax credit carryforwards, and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to be recovered or settled. Realization of certain deferred income tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction. The Company records a valuation allowance to reduce deferred income tax assets to amounts that are more likely than not to be realized. The initial recording and any subsequent changes to valuation allowances are based on a number of factors (positive and negative evidence). The Company considers its actual historical results to have a stronger weight than other, more subjective, indicators when considering whether to establish or reduce a valuation allowance.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. Diluted loss per share takes into consideration common shares outstanding (computed under basic loss per share) and potentially dilutive securities. For the three and nine month periods ended September 30, 2021 and 2020, outstanding warrants and shares underlying convertible debt are antidilutive because of net losses, and as such, their effect was not included in the calculation of diluted net loss per share. Common shares issuable are considered outstanding as of the original approval date for purposes of earnings per share computations.

Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss), as defined, includes net income (loss), foreign currency translation adjustment, and all changes in equity (net assets) during a period from nonowner sources. To date, the Company has not had any significant transactions that are required to be reported in other comprehensive income (loss), except for foreign currency translation adjustments. 

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the fiscal period. The Company makes estimates for, among other items, useful lives for depreciation and amortization, determination of future cash flows associated with impairment testing for long-lived assets, determination of the fair value of stock options and warrants, determining fair values of assets acquired and liabilities assumed in business combinations, valuation allowance for deferred tax assets, allowances for doubtful accounts, and potential income tax assessments and other contingencies. The Company bases its estimates on historical experience, current conditions, and other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates and assumptions. 

Recently adopted Accounting Pronouncements

 In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods 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. This update permits the use of either the modified retrospective or fully retrospective method of transition. Effective January 1, 2021, the Company elected to early adopt ASU 2020-06, which did not have a material impact on the consolidated financial statements and related disclosures. 

Note 3. Intangible Assets

Intangible assets consist of the following (in thousands): 

 Schedule of intangible assets

Note 4. Notes payable

a) Promissory notes, related parties

The promissory notes due to Zhanming Wu ($500,000) and the Company’s CEO, Mark White ($500,000), both considered related parties, including accrued interest of 7% per annum from issuance, were due for repayment on August 31, 2019. Such payments were not made and the parties are in negotiations to extend the maturity dates of the promissory notes. There can be no guarantee that commercially reasonable terms will agreed upon. As of September 30, 2021, the counterparties had not demanded repayment of the promissory notes.

Convertible Loans Payable

Note 5. Share Capital

Common Stock

The Company is authorized to issue 750 million shares of common stock, par value of $0.0001.

During the nine months ended September 30, 2021, the Company issued shares of common stock as follows:

Standby Equity Agreement

On March 16, 2021, the Company completed on a Standby Equity Commitment Agreement (“SECA”) with MacRab LLC whereby during the 24 months commencing on the date on which a registration statement covering the sale of the shares to be purchased by MacRab is declared effective, the Company has the option to sell up to $5.0 million of the Company’s common stock to MacRab at a price equal to 90% of the average of the two lowest volume weighted average prices during the eight trading day days following the clearing date associated with the respective put under the SECA. Under the SECA MacRab received 2,272,727 stock purchase warrants with an exercise price of $0.044 upon the signing of the agreement. During the nine months ended September 2021, the Company received proceed of $11,200 for the issuance of 1,241,337 shares of the Company’s common stock. On September 27, 2021 the Company issued 5,000,000 shares of common stock in respect of a put option under SECA. The Company received $90,145 from the sale of the 5,000,000 shares on October 8, 2021.

Note 6. Legal settlement expenses

In 2019 the Company received a claim from the landlord of a property leased by Maham LLC, under which the Company is a guarantor.

In July 2021, the company settled the claim for $290,000 payable over a 12-month period ending in July 2022. As of September 30, 2021 following payments agreed the balance outstanding was $145,000.

In 2020 the Company had been served a claim from the former management of Love Media regarding a claim for unpaid wages. While the Company disputes the validity of this claim in its entirety. It was agreed to settle the claim from employees in a full and final settlement of $50,000. The final settlement remained outstanding as of September 30, 2021.

Note 7. Subsequent events

On November 2, 2021, the Company consummated a Securities Purchase Agreement with Mast Hill Fund, L. P. (“Mast Hill”), whereby the Company issued to Mast Hill a convertible promissory note (“Convertible Note”) in the principal amount of $810,000 and issued to Mast Hill a common stock purchase warrant (the “Warrant”) to purchase 28,065,000 shares of our common stock as additional consideration for Mast Hill’s purchase of the Convertible Note. As a condition to the purchase and sale the Convertible Note and Warrant, the Company issued to Mast Hill 10,855,047 shares (the “Commitment Shares”) of its common stock and entered into a Registration Rights Agreement with Mast Hill pursuant to which the Company is to register for resale under the Securities Act of 1933, as amended, the Commitment Shares and the shares issuable upon conversion of the Note and exercise of the Warrant. In consideration of the Convertible Note and Warrant the Company received $729,000, less $10,800 retained by Mast Hill in reimbursement of its legal fees.

The principal amount of the Convertible Note and all interest accrued thereon is payable on October 29, 2022. The Convertible Note provides for interest at the rate of 12% per annum, payable at maturity, and is convertible into shares of the Company’s common stock at a price of $0.0125 per share, subject to anti-dilution adjustments in the event of certain corporate events as set forth in the Convertible Note. In addition, subject to certain limited exceptions, if at any time while the Convertible Note remains outstanding, the Company grants any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of its common stock or securities or rights convertible into or exercisable for shares of its common stock, at a price below the then conversion price of the Convertible Note, the holder of the Convertible Note shall have the right to reduce the conversion price to such lower price. 

The Warrant is exercisable until October 29, 2023, at a price of $0.02 per share, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the Warrant remains outstanding, the Company grants any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of its common stock or securities or rights convertible into or exercisable for shares of its common stock, at a price below the then exercise price of the Warrant, the holder of the Warrant shall have the right to reduce the exercise price to such lower price. At any time when the Market Price, as defined in the Warrant, is in excess of the exercise price, the holder of the Warrant shall have the right to exercise the Warrant by means of a “cashless exercise” in accordance with the formula provided in the Warrant.

The Commitment Shares and the shares issuable upon conversion of the Convertible Note and exercise of the Warrants are to be registered under the Securities Act for resale by Mast Hill as provided in the Registration Rights Agreement. Mast Hill has agreed to limit sales of the common stock issued upon conversion of Convertible Note, during the period beginning on the date of issuance of the Convertible Note and ending on the maturity date or the date of occurrence of an event of default, to the greater of $5,000 or 15% of the Daily Dollar Volume, as defined in the Note.

Talos Victory Fund, LLC

On November 5, 2021, the Company consummated a Securities Purchase Agreement with Talos Victory Fund, LLC (“Talos”), whereby it issued to Talos a convertible promissory note (“Talos Convertible Note”) in the principal amount of $540,000 and issued to Talos a common stock purchase warrant (the “Talos Warrant”) to purchase 15,810,000 shares of its common stock as additional consideration for its purchase of the Convertible Note. As a condition to the purchase and sale the Convertible Note and Warrant, the Company issued to Talos 10,144,953 shares (the “Talos Commitment Shares”) of its common stock and entered into a Registration Rights Agreement pursuant to which it is to register for resale under the Securities Act of 1933, as amended, the Talos Commitment Shares and the shares issuable upon conversion of the Talos Convertible Note and exercise of the Talos Warrant. In consideration of the Talos Convertible Note and Warrant the Company received $486,000, less $7,200 retained by Talos in reimbursement of its legal fees.

The principal amount of the Talos Convertible Note and all interest accrued thereon is payable on November 3, 2022. The Talos Convertible Note provides for interest at the rate of 12% per annum, payable at maturity, and is convertible into shares of the Company’s common stock at a price of $0.0125 per share, subject to anti-dilution adjustments in the event of certain corporate events as set forth in the Talos Convertible Note. In addition, subject to certain limited exceptions, if at any time while the Talos Convertible Note remains outstanding, the Company grants any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of its common stock or securities or rights convertible into or exercisable for shares of its common stock, at a price below the then conversion price of the Talos Convertible Note, the holder of the Talos Convertible Note shall have the right to reduce the conversion price to such lower price.  

The Talos Warrant is exercisable until November 3, 2023, at a price of $0.02 per share, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the Talos Warrant remains outstanding, the Company grants any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of its common stock or securities or rights convertible into or exercisable for shares of its common stock, at a price below the then exercise price of the Talos Warrant, the holder of the Talos Warrant shall have the right to reduce the exercise price to such lower price. At any time when the Market Price, as defined in the Talos Warrant, is in excess of the exercise price, the holder of the Talos Warrant shall have the right to exercise the Talos Warrant by means of a “cashless exercise” in accordance with the formula provided in the Talos Warrant.

The Commitment Shares and the shares issuable upon conversion of the Talos convertible Note and exercise of the Talos Warrant are to be registered under the Securities Act for resale as provided in the Talos Registration Rights Agreement. Talos has agreed to limit sales of the common stock issued upon conversion of Talos Convertible Note, during the period beginning on the date of issuance of the  Convertible Note and ending on the maturity date or the date of occurrence of an event of default, to the greater of $5,000 or 15% of the Daily Dollar Volume, as defined in the Talos Convertible Note.

Debt repayments 

A portion of the proceeds to the Company from the sale of our convertible notes and warrants to Mast Hill and Talos used to satisfy certain outstanding promissory notes in the aggregate principal amount of $440,000 plus all interest accrued thereon and the balance will be used for business development purposes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021 and 2020 and notes thereto contained elsewhere in this Report, and our annual report on Form 10-K for the twelve months ended December 31, 2020 including the consolidated financial statements and notes thereto. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Note Concerning Forward-Looking Statements.”

Overview

Summary Description of Core Business

We are a software developer which supplies a robust fan engagement platform designed to enhance the fan experience and drive commercial aspects of the sport and entertainment business.

We bring users closer to the action by enabling them to engage with clubs, favorite players, peers and relevant brands through features, available through the Touchpoint APP and program, that include live streaming, access to limited edition merchandise, gamification (chance to win unique one-off life experiences), user rewards, third party branded offers, credit cards and associated benefits. 

Air Race Limited

On September 20,2021 we acquired we acquired certain rights to the World Championship Air Race (“WCAR”) through an asset purchase agreement. Management and all key operational staff for the WCAR subsequently will join our wholly owned subsidiary, Air Race Limited (Company), under long-term agreements. In addition, all key supplier, participating host city and participating team contracts are to be assumed by the Company.

WCAR  is a race format developed by Red Bull as the Red Bull Air Race.  The Red Bull Air Race was founded in 2003 and has hosted 94 championship series races around the globe. It attracted viewers in 187 countries and has been broadcast to an audience of over 230 million viewers with over 2.3 billion media impressions worldwide in its most recent season. It is the largest live spectator sports event in the world attracting over 1 million spectators to a single air race on multiple occasions in cities such as Porto and Barcelona.  The last Red Bull Air Race was held in

We plan to utilize our expertise in audience engagement through our application development to enhance the audience’s experience, while at the same time creating new revenue generating verticles for the races.

The WCAR will build on the significant legacy that the Red Bull Air Race leaves behind, and is well positioned to deliver one of the world’s most thrilling and pioneering global sporting events – focused on future tech, innovation, clean energy and spectator experience. A video overview of the Air Race is available on You Tube.

The season opener is expected to take place in March 2022 and there are 8 races planned to take place through the remainder of the 2022 season at iconic locations in Egypt, Greece, Portugal, United Kingdom, Russia, Indonesia and the Middle East. Twelve Elite Race Teams have already signed-up for the 2022, 2023 and 2024 race seasons, with twelve further challenger pilots competing in the new second tier Aero Series – including some of the latest and greatest graduates of the Air Race Academy. Red Bull maintains its interest in the Air Race with continued sponsorship of former World Champion Martin Sonka in the Elite series.

WCAR was developed to push the boundaries of modern air racing, by delivering a platform that supports and showcases the latest technological developments in green power and advanced aerial mobility. New race categories to be introduced include electric powered aircraft, EVTOL (vertical take off and landing) and JetPacks. Led by Willie Cruickshank as Race Series Director, the core Company team comes with enormous knowledge and experience, having all been instrumental in the development and running of the Red Bull Air Race. A former Royal Air Force pilot, Willie previously served as Head of Aviation and Sport for Red Bull.

Results of Operations

Comparison of three months ended September 30, 2021 and 2020

The following table sets forth key components of our results of operations for the periods indicated.

(All amounts, other than percentages, in thousands of U.S. dollars)

Revenue:  Our revenue for the three months ended September 30, 2021, decreased by approximately $76,000 over the same period in 2020. The decrease was a result of the reduction in sale of software licenses during the three months ended September 30, 2021.

Gross Profit (Deficit):  Gross deficit for the three months ended September 30, 2021, was approximately $(114,000) as compared to $(38,000) for the three months ended September 30, 2020, due primarily to the decrease in revenue.

Operating Expenses:  Operating expenses incurred during the three months ended September 30, 2021, were approximately $490,000, an increase of approximately $46,000 (10.4%) when compared to the approximate figure of $444,000 incurred in the three months ended September 30, 2020.  

Net Loss:  Net loss for the three months ended September 30, 2021 was approximately $691,000 as compared to net loss of approximately $775,000 for the same period in 2020.

Comparison of nine months ended September 30, 2021, and 2020

The following table sets forth key components of our results of operations for the periods indicated.

(All amounts, other than percentages, in thousands of U.S. dollars)

Revenue: Our revenue for the nine months ended September 30, 2021, was approximately $90,000 as compared to approximately $290,000 for the nine months ended September 30, 2020, a decrease of approximately $200,000. The decrease was due to the decrease in license sales.

Cost of Revenue: Cost of revenue was approximately $417,000 for the nine months ending September 30, 2021 as compared to approximately the same amount for the nine months ended September 30, 2020. 

Gross Deficit: Gross deficit for the nine months ended September 30, 2021, was approximately $327,000 as compared to a gross deficit of $126,000 for the nine months ended September 30, 2020, an increase in the deficit of approximately $201,000. The increase was mainly due to the reduction in revenue as set forth above.

Operating Expenses: Operating expenses, including general and administrative expenses, depreciation and acquisition costs for the nine months ended September 30, 2021, were approximately $2,262,000 representing an increase of 34.2% over the charge for the same period in 2020. The increase was due to the charge for the issue of warrants, calculated using Blacks Scholes and the settlement of legal claims.

Net Loss: Net loss for continuing operations for the nine months ended September 30, 2021 was approximately $2,549,000 as compared to loss of approximately $1,811,000 for the same period in 2020. 

Liquidity and Capital Resources

Nine Months Ended September 30, 2021 and September 30, 2020

The following table sets forth a summary of our net cash flows for the periods indicated:

Net cash used by operating activities increased to $1,043,000 for the nine months ended September 30, 2021 from $585,000 for the same period in 2020. The primary reason for the increase was due to settlement of legal claims totaling $340,000.

Net cash used in investing activities was approximately $78,000 in the nine months ended September 30, 2021, as compared to net cash used of $18,000 in the comparative period in 2020.

Net cash generated by financing activities was approximately $1,029,000 for the nine months ended September 30, 2021, as compared to $476,000 for the nine months ended September 30, 2020. The cash generated from financing activities in the nine months ended September 30, 2021, was primarily from the issuance of convertible loans, less repayment of a loan raised in 2020.

At September 30, 2021, the Company had cash of approximately $26,000.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with GAAP. Our significant accounting policies are described in notes accompanying the unaudited consolidated financial statements. The preparation of the unaudited consolidated financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the unaudited financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the unaudited consolidated financial statements apply significant accounting policies described in the notes to our consolidated financial statements.

We consider our recognition of revenues, accounting for the consolidation of operations, accounting for intangible assets and related impairment analyses, the allowance for doubtful accounts and accounting for equity transactions, to be most critical in understanding the judgments that are involved in the preparation of our unaudited consolidated financial statements.

Recent Accounting Pronouncements

See Note 2 to our unaudited condensed financial statements, included in Part I, Item 1., Financial Information of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of September 30, 2021, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 30, 2021, our disclosure controls and procedures were not effective. This was due to certain deficiencies in our controls over financial reporting. In particular a lack of accounting personnel has resulted in an inability to segregate various accounting functions.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In 2019 the Company received a claim from the landlord of a property leased by Maham LLC, under which the Company is a guarantor.

In July 2021, the company settled the claim for $290,000 payable over a 12-month period ending in July 2022. As of September 30, 2021 following payments agreed the balance outstanding was $145,000.

In 2020 the Company had been served a claim from the former management of Love Media regarding a claim for unpaid wages. While the Company disputes the validity of this claim in its entirety. It was agreed to settle the claim from employees in a full and final settlement of $50,000. The final settlement remained outstanding as of September 30, 2021.

ITEM 1A. RISK FACTORS

Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) filed April 9, 2021, which sections are incorporated by reference into this report, as the same may be updated from time to time. Prospective investors are encouraged to consider the risks described in our 2020 Form 10-K, and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities. As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the 2020 Form 10-K. 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2021, the Company issued shares of common stock as follows: