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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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)

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 May 10, 2021, 172,999,876 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 (the “SEC”), 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 SEC.

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

TOUCHPOINT GROUP HOLDINGS, INC.

Condensed Consolidated Balance Sheets

March 31, 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 months ended March 31, 2021 and 2020

(in thousands)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

TOUCHPOINT GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Loss

For the three months ended March 31, 2021 and 2020

(in thousands)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

TOUCHPOINT GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

For the three months ended March 31, 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 three months ended March 31, 2021 and 2020

(in thousands)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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: 

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 the three months ended March 31, 2021 the main trading of the Group 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 

Historically, 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 instruments.

The Company may 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 us.

At March 31, 2021, the Company had cash of $318,000. Together with the Company’s new Equity Line with MacRab LLC, and current operational plan and budget, the Company believes that it has the potential to generate positive cash flows in the second half of 2021. 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 U.S. dollar. Assets and liabilities other than those denominated in U.S. dollars, primarily in Singapore, the United Kingdom and China, are translated into U.S. 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.

Cash

Cash and cash equivalents include bank demand deposit accounts and highly liquid short-term investments with maturities of three months or less when purchased. Cash consists of checking accounts held at financial institutions in the U.S. and the United Kingdom which balances may exceed insured limits at times. The Company has not experienced any losses related to these balances, and management believes the credit risk to be minimal.

Accounts Receivable, Concentrations and Revenue Recognition

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 – We recognize 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 March 31, 2021 and December 31, 2020, six customers and five customers respectively, accounted for 100% of the accounts receivable balance. One customer accounted for 100% of the revenue for the three months ended March 31, 2021 and 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 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 months ended March 31, 2021 and 2020, all outstanding warrants were antidilutive because of net losses, and as such, their effect has not been 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 non-owner 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 year. 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, 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. Discontinued Operations

On January 1, 2019 the Company sold its 51% interest in Banana Whale to a third party in return for $1,500,000 in cash, a promissory note in the principal amount of $500,000 (the “Banana Whale Note”) and the return of 295,322 shares of the Company’s common stock issued upon acquisition.

In December 2019, an agreement regarding the remaining amount due on the Banana Whale Note of $500,000 was reached pursuant to which the Company received $250,000 in December 2019. In addition, the balance is payable over the two years ending December 2021 whereby the Company will receive an amount equal to 25% of reported EBITDA each quarter up to a maximum amount of $250,000 in the aggregate. As of March 31, 2021, no payments have been received, and a reserve of $250,000 has been placed against the related receivable.

During the year ended December 31, 2019, the Company decided to sell its interests in its subsidiaries, Love Media House and Browning.

On February 18, 2020, the Company completed the sale of its interest in Browning to William J. Browning, the holder of the remaining Browning shares. Under the Recission Agreement, Browning and Mr. Browning agreed to repay advances totaling $210,000, made to Browning by the Company, over a 24-month period ending January 31, 2022 with an early repayment discount, equal to the amount of payment received during the six months ending August 31, 2020. Commencing September 1, 2020, the then balance outstanding is to be repaid in equal instalments over the remaining 17 months together with interest of 1% per month. As of both March 31, 2001 and December 31, 2020, the Company had a receivable balance totaling $204,000 due from Mr. Browning. The Company has fully provided for this amount and intends to commence legal action against for Mr. Browning for the amounts due.

In June 2020, Mr. Browning returned the 89,334 shares of Company common stock issued under the original acquisition. The shares have now been cancelled by the Company.

. 

The Company’s discontinued operations had no activity during the three months ended March 31, 2021 and 2020.

The balance sheet of discontinued operations as of March 31, 2021 and December 31, 2020 is as follows: (in thousands)

Note 4. Intangible Assets

Intangible assets consist of the following (in thousands):

Note 5. 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, but there can be no guarantee that commercially reasonable terms will agreed upon. As of March 31, 2021, the counterparties had not demanded repayment of the promissory notes.

b) Bespoke Growth Partners Convertible #1

In July 2019, the Company issued a convertible promissory note in the original principal amount of $100,000 to Bespoke Growth Partners. The loan was originally due on January 26, 2020 and bore interest of 20% per annum. During the year ended December 31, 2020 the Company repaid $84,210 of principal and $16,061 of interest on the note by issuing an aggregate of 12,813,123 shares of Company common stock to Bespoke Growth Partners. There has been no repayment during the three months ended March 31, 2021 and the balance owing as of March 31, 2021 was $15,790.

c) Bespoke Growth Partners Convertible #2

In November 2019, the Company issued a convertible promissory note to Bespoke Growth Partners. The note was due on May 21, 2020 with an interest rate of 20% per annum. During the year ended December 31, 2020 the Company received proceeds under the note of $175,000. The balance outstanding as of March 31, 2021, including pro-rata loan discount, was $262,500.

The Company is in negotiation with Bespoke to revise the repayment terms and date on both loans with Bespoke Growth Partners.

d) Geneva Roth Remark Holdings, Inc.

In May 2020, the Company issued a convertible promissory note in the principal amount of $133,000 to Geneva Roth Remark Holdings, Inc. The note is due May 19, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35% of the lowest trading price in the last 15 days. During the year ended December 31, 2020 the Company issued 15,255,651 common shares as full repayment of the $133,000 promissory note.

e) Geneva Roth Remark Holdings, Inc. Note #2

In July 2020, the Company issued a convertible promissory note in the principal amount of $63,000 to Geneva Roth Remark Holdings, Inc. The note is due July 27, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35% of the lowest trading price in the last 15 days. The final balance was repaid in February 2021 by the issue of 7,037,234 shares of common stock.

f) Geneva Roth Remark Holdings, Inc, Note #3

In October 2020, the Company issued a convertible promissory note in the principal amount of $55,000 to Geneva Roth Remark Holdings, Inc. The note is due October 21, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35% of the lowest trading price in the last 15 days. The balance owing as of March 31, 2021 is $55,000. The loan was repaid in full by cash on April 1, 2021.

g) Geneva Roth Remark Holdings, Inc. Note #4

In December 2020, the Company issued a convertible promissory note in the principal amount of $53,500 to Geneva Roth Remark Holdings, Inc. The note is due December 14, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35% of the lowest trading price in the last 15 days. The balance owing as of March 31, 2021 is $53,500.

h Geneva Roth Remark Holdings, Inc. Note #5

In December 2020, the Company issued a convertible promissory note in the principal amount of $45,500 to Geneva Roth Remark Holdings, Inc. The note is due December 30, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35% of the lowest trading price in the last 15 days. The balance owing as of March 31, 2021 is $45,500.

i) Geneva Roth Remark Holdings, Inc. Note #6

On January 13, 2021, the Company issued a convertible promissory note in the principal amount of $55,000 to Geneva Roth Remark Holdings, Inc. The note is due July 12, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35%. The balance owing as of March 31, 2021 is $55,000.

.

j) Geneva Roth Remark Holdings, Inc. Note #7

On February 8, 2021, the Company issued a convertible promissory note in the principal amount of $55,000 to Geneva Roth Remark Holdings, Inc. The note is due August 4, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35%. The balance owing as of March 31, 2021 is $55,000.

k) Firstfire Global Opportunities Fund, LLC. Loan #1

In June 2020, the Company issued a convertible promissory note in the principal amount of $145,000 to Firstfire Global Opportunities Fund, LLC. The note is due June 15, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35% of the lowest trading price in the last 15 days. During the year ended December 31, 2020 the amount of $33,004 was converted to 4,000,000 common shares of the Company. The final balance was repaid during the three months ended March 31, 2021 by the issue of 12,300,000 shares of common stock.

l) Firstfire Global Opportunities Fund, LLC. Loan #2

On February 5, 2021, the Company issued a convertible promissory note in the principal amount of $100,000 to FirstFire Global Opportunities Fund, LLC. The note is due August 1, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a discount of 35%. The balance owing as of March 31, 2021 is $100,000.

m) EMA Financial, LLC

In August 2020, the Company issued a convertible promissory note in the principal amount of $125,000 to EMA Financial, LLC. The note is due October 30, 2021 and has an interest rate of 10% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at the lower of $0.05 per share and a discount of 35% to the average trading price. During the three months ended March 31, 2021 the balance owing of $125,000 was repaid in full by the issuance 10,365,144 shares of common stock. 

n) LGH Investments, LLC

On March 4, 2021, the Company issued a convertible promissory note in the principal amount of $165,000 to LGH Investments, LLC. The note carries an Original Issue Discount (“OID”) of 10% and has an interest rate of 8% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a fixed price of $0.03 per share of common stock. The balance owing as of March 31, 2021 is $165,000.

o) Jefferson Street Capital, LLC

On March 17, 2021, the Company issued a convertible promissory note in the principal amount of $165,000 to Jefferson Street Capital, LLC. The note carries an OID of 10% and has an interest rate of 8% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a fixed price of $0.03 per share of common stock. The balance owing as of March 31, 2021 is $165,000.

p) BHP Capital NY, LLC

On March 24, 2021, the Company issued a convertible promissory note in the principal amount of $165,000 to BHP Capital NY, LLC. The note carries an OID of 10% and has an interest rate of 8% per annum. The promissory note is convertible, at the option of the holder, after 180 days into common shares of the Company at a fixed price of $0.03 per share of common stock. The balance owing as of March 31, 2021 is $165,000.

Note 6. Related Party Transaction

During the year ended December 31, 2020 the Company settled $967,671 owing to certain directors and officers of the Company through the issuance on December 29, 2020 of 59,732,764 common shares of the Company at $0.0162 being the closing price on December 28, 2020.

Note 7. Share Capital

Common Stock

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

During the three months ended March 31, 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 are entitled to 2,272,727 stock purchase warrants with an exercise price of $0.044 upon the signing of the agreement. MacRab retains the rights to the warrants if the agreement is ever terminated. The Company hasn’t yet exercised any option to sell any stock under this agreement.

Note 8. Stock-Based Compensation

On August 6, 2013, the Company’s shareholders approved the 2013 Equity Incentive Plan (“2013 Plan”). The 2013 Plan provides for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents, cash bonuses and other stock-based awards to employees, directors and consultants of the Company.

There were no options issued in the three months ended March 31, 2021 and 2020 and there are no options outstanding as at March 31, 2021.

In March 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) to provide additional incentives to the employees, directors and consultants of the Company to promote the success of the Company’s business. During the three months ended March 31, 2021, no common stock of the Company was issued under the 2018 Plan.

Note 9. Legal Proceedings

In 2019 we received a claim from the landlord of a property leased by Maham LLC, then a possible acquisition target, under which we were a guarantor. Our counsel has responded to the claim, denying the claim and requesting additional information.

In 2019 we received a claim from the former management of Love Media regarding a claim for unpaid wages. Our legal counsel has responded disputing the validity of their claim in its entirety.

We do not believe that the ultimate resolution of these claims will have a material impact on the Company’s financial statements, but actual results could differ from our expectations.

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 months ended March 31, 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, as amended 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

We are engaged in media and digital technology, primarily in sports entertainment and related technologies that bring fans closer to athletes and celebrities.

Current Structure of the Company

Touchpoint Group Holdings, Inc. (we”, “us” the “Company” or “TG”) has the following 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 us via various contractual arrangements. Suzhou Aishuo is treated as one of our subsidiaries for financial reporting purposes in accordance with generally accepted accounting principles in the United States (“GAAP”).

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. 

We are based in the United States of America and the United Kingdom.

Disposal of Discontinued Operations

During the year ended December 31, 2019, we decided to sell our interests in our subsidiaries, Love Media House Inc. (“Love Media”) and Browning.

In February 2020, we concluded the sale of our majority interest in Browning for the following consideration;

Currently, we are looking to negotiate a sale of its ownership interest in Love Media.  

Results of Operations

Comparison of three months ended March 31, 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, unaudited)

Revenue: Revenue decreased by $8,000 to approximately $32,000 in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. This was due to the Touchpoint software license sale which was recognized in 2020. The software license sold in February 2021 to Billy Blanks Jr. was not recognized yet as the installation was not completed as of March 31, 2021 and is currently in deferred revenue

Gross Deficit: Gross deficit for the three months ended March 31, 2021 was approximately $108,000 as compared to $99,000 for the three months ended March 31, 2020, a reduction of approximately $9,000, due to reduced revenue less amortization expense.

Operating Expenses: Operating expenses, including general and administrative expenses and depreciation were approximately $987,000 and $499,000 during the three months ended March 31, 2021 and 2020, respectively. The major increases related to commissions and legal costs incurred in fundraising by the Company in the three months ended March 31, 2021 as compared to the costs incurred in the three months ended March 31, 2020.

Other (expense)income: The Company incurred interest and other costs totaling $87,000 in the three months ending March 31, 2021 compared net other income of $560,000 in the three months ended March 31, 2020. This was primarily attributable to gains on disposal of subsidiaries of $606,000 in the three months ended March 31, 2020 which were not replicated in 2021.

Net Loss: Net loss for the three months ended March 31, 2021 was approximately $1,182,000 as compared to net loss of approximately $38,000 for the same period in 2020.

Liquidity and Capital Resources

Three Months Ended March 31, 2021 and March 31, 2020

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

Net cash used by operating activities was approximately $490,000 for the three months ended March 31, 2021 as compared to net cash used in operating activities of approximately $193,000 for the same period in 2020 an increase of approximately 154%.

No cash was provided by or used in investing activities in either the three months ended March 31, 2021 and 2020, respectively.

Net cash provided by or used in financing activities was approximately $690,000 for the three months ended March 31, 2021 as compared to $54,000 generated for the three months ended March 31, 2020.

At March 31, 2021, we had cash of approximately $318,000.

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 March 31, 2021, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of March 31, 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

The Company has received a claim from the landlord of a property leased by Maham LLC, under which the Company is a guarantor. The Company has taken legal advice and its counsel is liaising with the landlord regarding the claim.

The Company has also been served a claim from the former management of Love Media regarding a claim for unpaid wages. Our Legal Counsel has responded disputing the validity of its claim in its entirety. 

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 filed with the SEC on April 9, 2021, (the “2020 Form 10-K”) which sections are incorporated by reference into this report. 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 SEC before purchasing our securities.

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

During the quarter ended March 31, 2021, we issued (i) 7,037,234 shares of common stock upon conversion of a convertible promissory note in the principal amount of $63,000 issued in July 2020 together with all interest accrued thereon, (ii) 12,300,000 shares upon conversion of the balance of a convertible promissory note in the principal amount of $145,000 together with all interest accrued thereon in respect of which we had issued 4,300,000 shares in the fourth quarter of 2020 and (iii) 10,365,144 shares upon conversion of a convertible promissory note in the principal amount of $125,000 together with all interest accrued thereon.

The issuance of our shares upon conversion of the promissory notes described above was, in each case, exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) as the notes were originally issued in privately negotiated transactions with an accredited investor and not as a result of any public solicitation or advertisement. Further, no consideration was paid upon conversion of the Notes For information regarding shares issued or issuable upon conversion of convertible notes, please see the Notes 5 and 7 to our financial statements included in this Report.

During the first quarter of 2021 we issued an aggregate of 3,750,000 shares of common stock in transactions exempt from registration above under the Securities Act as commitment fees to third parties which purchased our convertible promissory notes. In each case, the issuance was pursuant to a privately negotiated transaction with an accredited investor and an appropriate Securities Act “stop transfer” order was placed against the shares in the records of our transfer agent.

In January 2021, we issued 1,300,000 shares of our common stock to our counsel in satisfaction of accrued legal fees and 6,000,000 shares to a consultant for services rendered. Each of such issuances was exempt from the registration requirements of the Securities Act as the transaction was privately negotiated, the recipient was an accredited investor and the certificate representing the shares had a restrictive legend affixed thereon.

In March 2021, we issued 625,000 shares of our common stock to a third party for an analysis of our shareholder base and 1,500,000 shares to an individual for services to be provided. Each of such issuances was exempt from the registration requirements of the Securities Act as the transaction was privately negotiated and the certificate representing the shares had a restrictive legend affixed thereon in a transaction exempt from the registration requirements of the Securities Act.

On May 15, 2021, the Board of directors awarded grants of 5,000,000 shares of our common stock to each of Mark White and Martin Ward in consideration of their services to our Company.

Except as set forth above or previously disclosed in Exchange Act reports filed with the SEC , we did not issue or sell any unregistered equity securities during the period covered by this Report.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

The above sales were made pursuant to an exemption from registration as set forth in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act.

ITEM 6. EXHIBITS

The following exhibits are filed herewith:

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.