TOUCHPOINT GROUP HOLDINGS, INC. 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 audited consolidated financial statements and notes for the fiscal years endedDecember 31, 2021 and 2020. The following discussion and analysis contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements. See "Cautionary Note Concerning Forward-Looking Statements." You also should specifically consider the various risk factors identified in this Annual Report on Form 10-K that could cause actual results to differ materially from those anticipated in these forward-looking statements. Overview InSeptember 2021 we determined to revitalize the "World Championship AirRace Series ." As part of our effort to restore the WCAR, we engaged key operational staff which planned and staged the races forRed Bull and acquired certain rights to continue the Series. We have entered into agreements to host Air Race World Championships for the 2022 race season in theUnited Kingdom ,Australia ,Malaysia andJakarta and are currently in discussions with two additional cities. To enhance the appeal of the Series, we intend to showcase the latest technological developments in the application of green power in the aerospace industry along with aircraft with the latest advanced forms of mobility. Races will focus on future technologies, innovation, clean energy and lightweight mass market vehicles. New race categories will feature electric powered vehicles, vertical take-off and landing (EVTOL) and jetpacks. Prior to undertaking to promote the WCAR, we were a media and technology software development company engaged in distribution of a robust fan engagement platform, the TP Platform, designed to enhance the fan experience and drive commercial aspects of the sports and entertainment business. Our TP Platform is available as a white label product. The platform provides in-depth analytics that enable marketing teams to ensure that they deliver aligned, strategic messages and campaigns to the right audience at the right time. We will use our TP Platform to provide fans with access to the race teams and host cities, providing for merchandising events, broadcasting opportunities, gamification, ticketing, collectables, pay per view and ongoing subscriptions. Promotion of the WCAR will showcase the features of the TP Platform to other potential users and should accelerate discussions with athletes and celebrities interested in using the TP Platform to engage with their fan bases through content and other features. For the fiscal years endedDecember 31, 2021 and 2020, our continuing operations generated revenues of$91,000 and$174,000 , respectively; and recorded net losses from continuing operations of$5,195,000 and$3,545,000 , respectively, and negative cash flow from continuing operating activities of$2,062,000 and$767,000 , respectively. To date, activities related to the WCAR have required us to spend significant amounts which will be recouped, if at all, once we stage our first race or, possibly, upon the receipt of significant advances from cities interested in hosting a race and sponsors and advertisers. Consequently, we continue to incur substantial losses and have not generated cash flows from operations. 22 Results of Operations
The following table sets forth information from our statements of operations for
the years ended
Comparison of years endedDecember 31, 2021 and 2020 (in thousands) excluding discontinued items. Year to Year For the Years Ended Comparison December 31, Increase/ Percentage 2021 2020 (decrease) Change Revenue$ 91 $ 174 $ (83 ) (47.7 )% Cost of revenue Software and production costs 1 - 1 100.0 %
Amortization of intangible assets 558 555
3 0.5 %
559 555 4 0.7 %
Gross deficit (468 ) (381 ) (87 ) (22.8 )%
Operating Expenses
General and administrative 3,121 2,319 802 34.6 %
Impairment charge 379 500 (121 ) (24.2 )%
Total Operating Expenses 3,500 2,819 681 24.2 %
Loss from Operations (3,968 ) (3,200 ) (768 ) (24.0 )%
Other Income(expense)
Interest expense (940 ) (232 ) (708 ) (305.2 )%
Other Income/(expense) (285 ) 179 (464 ) (259.2 )%
Provision for other receivables - (287 ) 287 100 %
Foreign currency exchange (losses) gains (2 ) (5 ) 3 60 %
(1,227 ) (345 ) (882 ) (255.7 )%
Loss from continuing operations (5,195 ) (3,545 )
(1,650 ) (46.5 )%
Loss from discontinued operations - - N/A Loss from continuing operations$ (5,195 ) $ (3,545 )
(1,650 ) (46.5 )%
23
Revenue: Our revenue for continuing operations for the year endedDecember 31, 2021 was approximately$91,000 as compared to approximately$174,000 for the year endedDecember 31, 2020 , a decrease of approximately$83,000 or 47.7%.
Cost of Revenue: Cost of revenue is primarily the amortization of intangible assets relating to subsidiaries acquired together with our intellectual property.
Gross Deficit: Gross deficit for the year ended
Operating Expenses: Operating expenses including general and administrative expenses, consultancy expenses, depreciation and impairment charges were approximately$3.5 million for the year endedDecember 31, 2021 , as compared to approximately$2.8 million , for 2020, an increase of approximately$0.7 million or 24.2%. Impairment charge: As a result of the current pandemic and its impact on our ability to conduct customer marketing efforts and the inherent uncertainties in the entertainment and software industries within theUnited Kingdom andthe United States , the Company has updated its short-term projections. As a result of these re-evaluations, during the years endedDecember 31, 2021 and 2020, the Company recorded an impairment loss of approximately$0.4 million and$0.5 million , respectively. While the Company believes its estimates and assumptions are reasonable, variations from those estimates could produce materially different results. Other Expense: Net other expense totaled approximately$1.2 million for the year endedDecember 31, 2021 as compared to approximately$0.3 million in the year endedDecember 31, 2020 , an increase of approximately$0.9 million . The increase in net other expense is due primarily to an increase in interest expense charges and other income recognized from increased financing and the disposition of Browning during 2020. Net Loss: Net loss from continuing operations for the year endedDecember 31, 2021 was approximately$5.2 million as compared to a net loss from continuing operations of$3.5 million for the same period in 2020. Going forward, management believes the Company will continue to grow the business and increase profitability through organic growth and acquisitions. Foreign Currency Translation Adjustment: Our reporting currency is theU.S. dollar. Our local currencies, and British pounds, are our functional currencies. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. 24
Years Ended
The following table sets forth a summary of our approximate cash flows for the
periods indicated:
For the Years Ended
December 31
(in thousands)
2021 2020Net cash used in operating activities from continuing operations
(2,062 ) (767 )
Net cash used in investing activities from continuing operations
(449 ) (18 )
Net cash provided by financing activities from continuing operations 2,540 645 Net cash used in operating activities from continuing operations was approximately$2.1 million for the year endedDecember 31, 2021 as compared to approximately$0.8 million for the same period in 2020. The increase in cash used in operating activities from continuing operations is largely due to the increase in cash expenditures in 2021 as compared to 2020 related to activities, including amounts expended to organize the WCAR.
Net cash used in investing activities from continuing operations was
approximately
Net cash provided by financing activities from continuing operations amounted to approximately$2.5 million for 2021 and$0.6 million for 2020. Cash provided by financing activities in 2021 and 2020 was primarily from funds received for convertible loans and shares sold pursuant to the SECA withMacRab, LLC . Going Concern For the fiscal years endedDecember 31, 2021 and 2020, we reported losses from operations of$4.0 million and$3.2 million , respectively, and negative cash flow from operations of$2.1 million and$0.8 million . As ofDecember 31, 2021 , we had an aggregate accumulated deficit of approximately$70.1 million . We have historically funded our losses from operations through the issuance of debt or equity securities and the disposal of businesses we previously acquired. Our long-term success is dependent upon among other things, achieving positive cash flows from operations. Prior to achieving positive cash flow, we will have to continue to fund our operations through the issuances of additional debt or equity. Based upon our current operational plan and budget, subject to the launching of additional clients using our TP Platform and our ability to fund the launch of the WCAR through sponsorships and advances from host cities, we believe that we will not begin to generate positive cash flows from operations prior to the second half of 2022. Pending the achievement of positive cash flows from operations, we are likely to seek to raise additional capital through the issuance of our debt and equity securities, and to issue additional shares of our common stock, or instruments exercisable for or convertible into our common stock, by exercising our right to put shares under the MacRab Equity Line entered into inMarch 2021 , if more advantageous sources of financing are not available. However, we may be unable to raise the capital necessary to successfully launch the WCAR and achieve our goals. Actual results could differ from our estimates and assumptions; accordingly, we may have to continue to fund our operations through debt financing or sales of equity securities beyond 2022 in order to sustain operations until we achieve profitability and positive cash flows, if ever. There can be no assurances, however, that adequate additional funding will be available on favorable terms, or at all. If such funds are not available in the future, we may be required to delay, significantly modify or terminate our operations, all of which could have a material adverse effect
on us. As a result of the foregoing factors, our independent auditors issued an audit opinion with respect to our consolidated financial statements for the two years endedDecember 31, 2021 that indicated that there is significant doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable to fulfill various operational commitments. In addition, the value of our securities, including common stock issued in this offering, would be greatly impaired. Our ability to continue as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional capital and financing, including funds to be raised in this offering. If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources, we may be unable to continue in business even if this offering is successful.
Availability of Additional Funds; Recent Transactions
AtDecember 31, 2021 , we had approximately$147,000 of cash. Apart from the MacRab Equity Credit Line, we do not have any credit agreement or source of liquidity immediately available to us. To fund expenses being incurred in connection with our efforts to launch the WCAR, since the beginning of 2022 we have entered into a number of agreements to raise capital. These have included our sale of an aggregate of 328,000 shares of Series B Preferred Stock toGeneva Roth Remark Holdings, Inc. ("GR") pursuant to four individual Series B Preferred Stock Purchase Agreements datedJanuary 5, 2022 ,February 3, 2022 ,February 7, 2022 andMarch 14, 2022 . Each share of Series B Preferred Stock has a stated value of$1.00 per share. Pursuant to the four Purchase Agreements we received gross proceeds in the aggregate amount of$328,000 , from which we paid the legal fees incurred by GR which amounted to less than$20,000 in total. For a description of the rights and preferences of the Series B Preferred Stock, please see our Report on Form 8-K datedJanuary 7, 2022 , and the Certificate of Designation annexed thereto. In addition, onMarch 29, 2022 , we consummated a Securities Purchase Agreement withMast Hill Fund , L. P. ("Mast Hill"), whereby in consideration of$562,500 , we issued to Mast Hill a senior secured convertible promissory note ("Note") in the principal amount of$625,000 and common stock purchase warrants to purchase 175,000,000 shares of our common stock (the "First Warrant") and 245,000,000 shares of our common stock (the "Second Warrant"), respectively. The principal amount of the Note and all interest accrued thereon is payable onMarch 28, 2023 . The Note provides for interest at the rate of 12% per annum, payable at maturity, and is convertible into shares of our common stock at a price of$0.002 per share, subject to anti-dilution adjustments in the event of certain corporate events as set forth in the Note. In addition, subject to certain limited exceptions, if at any time while the Note remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our common stock or securities or rights convertible into or exercisable for shares of our common stock, at a price below the then conversion price of the Note, the holder of the Note shall have the right to reduce the conversion price to such lower price. Further, if we or one of our subsidiaries issues any security or amends any security outstanding upon issuance of the Note and Mast Hill reasonably believes that such security contains a term in favor of the holder thereof which is more favorable than the terms contained in the Note, such as provisions relating to prepayment, original issue discounts and interest rates, then upon request of Mast Hill, such term shall become part of the transaction documents exchanged with Mast Hill in connection with the sale of the Note. In addition to the obligation to repay the Note at maturity, the Note provides that if at any time prior to repayment or full conversion of the Note we receive cash proceeds from various sources, including payments from customers, Mast Hill has the right to demand that up to 50% of the amount received be applied to the payment of amounts due under the Note. The Note also grants to Mast Hill a right of first refusal to provide financing to us on such terms as might be offered by a third party. Payment of all amounts due under the Note is secured by a lien on substantially all of our assets and those of our subsidiaries in accordance with the terms of the Security Agreement entered into concurrently with the Note. The First Warrant is exercisable untilMarch 28, 2027 , at a price of$0.004 per share, subject to customary anti-dilution adjustments. In addition, subject to certain limited exceptions, if at any time while the First Warrant remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our common stock or securities or rights convertible into or exercisable for shares of our common stock, at a price below the then exercise price of the First Warrant, the holder of the First Warrant shall have the right to reduce the exercise price to such lower price. The First Warrant may also be exercised by means of a "cashless exercise" in accordance with the formula provided in the Warrant. The Second Warrant only becomes exercisable upon the occurrence of an Event of Default (as defined in the Note) and, upon such occurrence, remains exercisable for a period of five years. The price payable upon exercise of the Second Warrant is$0.002 per share, subject to customary anti-dilution adjustments. The Second Warrant may also be exercised by means of a "cashless exercise" in accordance with the formula provided in the Warrant. Concurrently with the issuance of the Note, Mast Hill agreed to amend certain provisions of the transaction documents datedOctober 29, 2021 , entered into in connection with its acquisition of our convertible promissory note in the amount of$810,000 (the "Convertible Note.") Specifically, Mast Hill agreed that in lieu of the leak-out provisions contain in Section 4.17 of the Convertible Note, which provisions were deleted in their entirety, during the period commencing as of the date of such amendment and ending as of the earlier of (i) the maturity date of the Note or (ii) the date that we consummate an offering of our common stock that results in the immediate listing of our common stock on one of a group of designated stock exchanges ("an "Uplist Offering"), the gross dollar amount of the number of shares of our common stock sold by Mast Hill on any trading day shall be limited to the greater of (i) a gross dollar amount of$5,000.00 or (ii) 15% of the daily dollar volume (as defined in this Amendment) on the respective Trading Day. In addition, Mast Hill waived its right under Section 1.10 of the Convertible Note to require that we to it up to 21% of up to$851,000 of cash proceeds received by us after the date of the Amendment, other than amounts received from Mast Hill, Concurrently with the sale of the Note to Mast Hill,Talos Victory Fund, LLC andQuick Capital, LLC agreed to amend certain provisions of the transaction documents datedNovember 3, 2021 andDecember 10, 2021 , whereby Talos acquired a$540,000 convertible note (the "Talos Note") and a warrant to purchase 15,810,000 shares of our common stock (the "Talos Warrant") and Quick acquired a$200,000 convertible note (the "Quick Note") and a warrant to purchase 6,500,000 shares of our common stock (the "Quick Warrant"). The Amendments with Talos and Quick provide that their Notes shall only be convertible into our common stock after the earlier of (i) the respective maturity dates of their Notes (November 3, 2022 , in the case of Talos, andDecember 10, 2022 , in the case of Quick) and (ii) the day we complete an Uplist Offering. The Amendments further provide that Section 4.17, the leak out provisions of each Note, are deleted from the Notes. The Amendments provide for a new leak out period which beganMarch 28, 2022 , and expires on the earlier of the maturity date of the holder's Note and the date of completion of an Uplist Offering. The Talos Amendment calls for payments of$15,000 and$54,000 towards amounts due on the Talos Note on or beforeApril 6 andJuly 29, 2022 , respectively. The Quick Amendment provides for a payment of$20,000 towards amounts due on the Quick Note on or beforeJuly 29, 2022 . The Amendments provide for a prepayment penalty of 15% of the Notes and increases from 21% to 36%, in the case of Talos, and from 5% to 11% in the case of Quick, the amount that Talos or Quick, respectively, has the right to demand be paid to it if prior to repayment or full conversion of its Note we receive cash proceeds from various sources, including payments from customers. In consideration of their agreement to enter into the amendments, we issued to Talos a warrant to purchase 10,000,000 shares of our common stock (the "New Talos Warrant") and to Quick a warrant to purchase 4,000,000 shares of our common stock (the "New Quick Warrant"). The new Warrants are exercisable for a period of five years. The exercise price of the new warrants is initially$0.002 , provided that if we complete an Uplist Offering, the exercise price increases to the price per shares at which the Uplist Offering is concluded. In either event, the exercise price is subject to anti-dilution adjustments in the event of certain corporate events as set forth in the Warrant. In addition, subject to certain limited exceptions, if at any time while the Warrant remains outstanding, we grant any option to purchase, sell or grant any right to reprice, or otherwise dispose of, issue or sell any shares of our common stock or securities or rights convertible into or exercisable for shares of our common stock, at a price below the then exercise price of the Warrant, the holder shall have the right to reduce the exercise price to such lower price.
For a more complete statement of the terms and conditions of the agreements with
Mast Hill, Talos and Quick, please see our see our Report on Form 8-K dated
We will continue to seek to raise the cash necessary to launch the WCAR series and conduct the initial events through the sale of debt or equity instruments, including instruments exercisable for or convertible into our common stock. We do not know what the terms on which such capital would be made available. In addition, any future sale of our equity securities would dilute the ownership of our current shareholders and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. Moreover, if we were to default on any debt obligation, the lender could seek to foreclose on any lien we may grant, in which event our equity securities could become worthless.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. Our significant accounting policies are described in notes accompanying the consolidated financial statements. The preparation of the 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 financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the consolidated financial statements apply critical accounting policies described in the notes to our consolidated financial statements. We consider 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, and determination of going concern considerations, to be most critical in understanding the judgments that are involved in the preparation of our consolidated financial statements. Together with our critical accounting policies set forth below, our significant accounting policies are summarized in Note 2 of our audited financial statements as of and for the year endedDecember 31, 2021 . 25
Recent Accounting Pronouncements
InAugust 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. The Company early adopted this ASU as ofJanuary 1, 2021 and because the beneficial conversion feature is eliminated by this guidance, there were no beneficial conversion features recorded for current year financings.
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