UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

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

For the fiscal year ended December 31, 20162019.

 

OR

¨

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

 

Commission File Number 000-10822001-36530

 

One HorizonTouchpoint Group Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 46-3561419
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

T1-017 Tierney Building, University of
Limerick, Limerick, Ireland.

 4300 Biscayne Blvd, Suite 203,

Miami, FL

 N/A33137
(Address of principal executive offices) (Zip Code)

 

+353-61-5184771 (305) 420-6640

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

Title of each className of each exchange on which
registered
n/an/a

 

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

Common Stock, Par Value $0.0001

(Title of Class) None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨  No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ¨  No þ

 

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 þ  No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

 

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

 

Large accelerated filer ¨Accelerated filer ¨
Non-accelerated filer ¨Smaller reporting company þ
(Do not check if smaller reporting company)Emerging growth company ☐ 

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 7(a)(2)(B) of the Securities Act. ☐

 

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

 

The aggregate market value of the 35,347,283 shares ofregistrant’s voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $ 26.86$2.7 million as of June 30, 2016,28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, based on the last sale price of the registrant’s common stock on such date of $0.76$0.7525 per share, as reported on Nasdaq. the OTCQB Market as adjusted for the 1-for-25 reverse split which took effect on September 26, 2019.

 

As of April 3, 2017, 37,316,71424, 2020, 25,688,386 shares of the registrant’s common stock, par value $0.0001, were outstanding.

  

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

 

   

TABLE OF CONTENTS

 

Item Description Page
  Cautionary Note Regarding Concerning-LookingConcerning Forward-Looking Statements 3ii
     
  Part I  
Item 1 Business 41
Item 1A Risk Factors 5
Item 1B Unresolved Staff Comments 12
Item 2 Properties 2012
Item 3 Legal Proceedings 2012
Item 4 Mine Safety Disclosures 2012
     
  Part II  
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 2113
Item 6 Selected Financial Data 2214
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 2314
Item 7A Quantitative and Qualitative Disclosures about Market Risk 3119
Item 8 Financial Statements and Supplementary Data 3119
Item 9 Changes in and Disagreements withWith Accountants on Accounting and Financial DisclosureDisclosures 31
Item 9A Controls and Procedures 3319
Item 9B Other Information 3420
     
  Part III  
Item 10 Directors, Executive Officers and Corporate Governance 3522
Item 11 Executive Compensation 4227
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 4334
Item 13 Certain Relationships and Related Transactions, and Director Independence 4535
Item 14 Principal Accounting Fees and Services 4636
     
  Part IV  
Item 15 Exhibits, Financial Statement Schedules 4837
Item 16 Form 10-K Summary 42
  Signatures 5243

 

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i

 

  

Introductory Note

 

Unless otherwise noted, references to the “Company” in this Annual Report on Form 10-K include One HorizonTouchpoint Group Holdings, Inc. and all of its subsidiaries.

 

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

The statements made in this Annual Report on Form 10-K, 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, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, both as amended (the “Exchange Act”), 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.  Among theseThese risks include, but are not limited to, risks and uncertainties are the competition we face;relating to our abilitycurrent cash position and our need to adaptraise additional capital in order to rapid changes  in the market for voice and messaging services;be able to continue to fund our operations; our ability to retain customersour managerial personnel and to attract new customers;additional personnel; competition; our ability to establish and expand strategic alliances; governmental regulation and related actions and taxes in our international operations; increased market and competitive risks, including currency restrictions, in our international operations; risks related to the acquisition or integration of future businesses or joint ventures; our ability to obtain or maintain relevantprotect intellectual property rights; intellectual propertyrights, and any and other litigation that may be brought against us; failure to protect our trademarks and internally developed software; security breaches and other compromises of information security; our dependence on third party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; uncertainties relating to regulation of VoIP services; liability under anti-corruption laws; results of regulatory inquiries into our business practices; fraudulent use of our name or services; our ability to maintain data security; our dependence upon key personnel; our dependence on our customers' existing broadband connections; differences between our service and traditional phone services; our ability to obtain additional financing if required; our early history of net losses and our ability to maintain consistent profitabilityfactors, including the risk factors identified in the future. 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K or the date of the document incorporated by reference in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K, or in the documents it incorporates by reference into this Annual Report on Form 10-K, 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.

 

Reverse Stock Split and Company Name Change

Following the approval of our stockholders at the Annual Meeting of Stockholders held on December 27, 2018, the Company amended its Certificate of Incorporation, as amended, to reflect a 1-for-25 reverse stock split. This reverse stock split took effect on September 26, 2019. The share amounts presented in this Annual Report on Form 10-K have been adjusted to reflect the reverse stock split.

Also on September 26, 2019, the Company changed its name from One Horizon Group, Inc. to Touchpoint Group Holdings Inc. The Company’s ticker symbol was also changed to “TGHI”.

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ii

 

   

PART I

 

ITEM 1. BUSINESS

 

One Horizon Group, Inc.We are a holding company which, through our operating subsidiaries, is engaged in media and its Subsidiaries (the “Company”) is the inventor of the patented SmartPacketTM Voice over Internet Protocol (“VoIP”) platform. Our software is designeddigital technology, primarily in sports entertainment and related technologies that bring fans closer to capitalize on numerous industry trends, including the rapid adoption of smartphones, the adoption of cloud based Internet services, the migration towards all IP voice networksathletes and the expansion of enterprise bring-your-own-device to work programs.celebrities.

 

The Company designs, develops and sells white label SmartPackettm software and services to large Tier-1 telecommunications operators. Our licensees deliver an operator-branded mobile Internet communication solution to smartphones including VoIP, multi-media messaging, video, and mobile advertising; and the Business to Business (“B2B”) business. Current licensees include some of the world’s largest operators such as Singapore Telecommunications and Philippines Smart Communication.

The SmartPacket™ platform, significantly improves the efficiency by which voice signals are transmitted from smartphones over the Internet resulting in a 10X reduction in mobile bandwidth and reduced battery usage while transmitting a VoIP call on a smartphone. This is of commercial interest to operators that wish to have a high quality VoIP call on congested metropolitan networks and on legacy 2G and 3G cellular networks.

By leveraging its SmartPacketTM solution, the Company is also a VoIP as a Service (“VaaS”) cloud communications leader for hosted smartphone VoIP that run globally on the Microsoft Azure cloud. The Company sells its software, branding, hosting and operator services to smaller telecommunications operators, enterprises, operators in fixed line telephony, cable TV operators and to the satellite communications sector; and the “VaaS” business. Our existing licensees come from around the world including Zimbabwe, Ghana, China, United Kingdom, Singapore, Canada and Hong Kong.

Based on the SmartPacketTM solution, the Company is the sole owner and operator of its own branded retail smartphone VoIP, messaging and advertising service in the People’s Republic of China called AishuoTM; the “Aishuo” business. Since its inception in the second quarter of 2015 Aishuo has been downloaded over 40 million times since 2015 and has produced revenues throughout 2016. Aishuo offers subscribers very competitive telephone call rates and a virtual number rental service plus additional innovative smartphone social media features. Aishuo has been made available to users across 25 Chinese Android app stores and through iTunes. Aishuo subscribers pay for VoIP or can have a free VoIP call sponsored by advertisers. Aishuo supports top-up payment services inside the smartphone app including China UnionPay, Apple In-App Purchases, Alibaba’s Alipay and Tencent’s Wechat Wallet.

Our business model is focused on winning new B2B Tier-1 telecommunications operators, winning new VaaS subscribers and driving Aishuo retail revenues. We are also commercially focused on expanding sales of new and existing licensed products and services to existing customers, and renewing subscriptions and software support agreements. We target customers of all sizes and across a broad range of industries.

We are an ISO 9001 and ISO 20000-1 certified company with assets and operations in Switzerland, Ireland, the United Kingdom, China, India, Russia, Hong Kong and Latin America.

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Current Structure of the Company

 

The Company has the following wholly owned subsidiaries:

·One Horizon Group PLCSubsidiary name% Owned
·Abbey Technology GmbH123Wish, Inc. (considered dormant)51%
·Horizon Globex GmbH
·Global Phone Credit Ltd
·Horizon Globex Ireland Ltd
·One Horizon Hong Kong Ltd100%
·Horizon Network Technology Co. Ltd100%
Love Media House, Inc. (Discontinued Operations)100%
Touchpoint Connect Limited (formed in September 2019)100%
Browning Productions & Entertainment, Inc. (Disposed in February 2020)51%

 

 

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 purposepurposes in accordance with generally accepted accounting principles in the United States (“GAAP”).

 

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Summary Description of Core Business

Touchpoint Connect Limited (“TCL”) is 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.

 

Current Business OperationsTCL brings users closer to the action by enabling them to engage with clubs, favourite players, peers and relevant brands through features 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.

TCL is available to a broad audience 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.

The Company is based in the United States of America, Hong Kong, China and the United Kingdom. 


Our Growth Strategy

 

In 2015,addition to growing the customer base of TCL, the Company will look at growth through the following methods:

Growing through acquisitions:We believe that the highly fragmented content creation media industry, which is comprised primarily of small-to-medium-sized private companies, provides us with significant opportunities to grow our business through acquisitions. We intend to pursue acquisitions that provide services within our current core product offerings, extend our geographic reach and expand our product offerings.

Cross-selling services:    Our ability to produce diverse, engaging content across various media platforms allows us to offer clients a one-stop-shop for all of their content needs. We intend to cross-sell our various capabilities to drive additional revenue from existing clients and to seek to win new clients.

Expanding our geographic presence:    We believe that by expanding our physical presence into select international regions, we announcedwill be better able to attract and retain internationally based brands as clients. With a physical presence outside of the rollout ofU.S., we believe we can provide better customer service and offer local talent who can work more intimately with internationally based brands than we can from our platform in China, brand namedAishuo(http://www.ai-shuo.cn/). This rollout entailed multiple strategies including advertisements, search engine optimization, press releases, event marketing, business-traveler direct marketing, as well as on and off-line promotions and leveraging the brand new One Horizon Sponsored-Call platform.  Based on the SmartPacketTM solution, we are the owner and operator of this retail smartphone VoIP, messaging and advertising serviceoffices in the People’s Republic of China.U.S.

 

Since its commercial availability in the second quarter of 2015, Aishuo hasExpanding our talent roster:    We intend to date, been downloaded over 43 million times. Aishuo offers subscribers very competitive telephone call ratescontinue to seek to attract and a virtual number rental service plus lots of innovative smartphone social media features. Aishuo has been made availableretain world-class creative and technical talent, thereby increasing our ability to users across 25 Chinese Android app storeswin jobs and build brand equity through iTunes. Aishuo subscribers pay for VoIP or can have a VoIP call sponsored by advertisers. Aishuo supports top-up payment services inside the smartphone app including China UnionPay, Apple In-App Purchases, Alibaba’s Alipayadditional high quality creative content. We believe that our reputation and Tencent’s Wechat Wallet.our client base will allow us to continue to attract top creative talent.

  

Aishuo is operated by, Suzhou Aishuo Network Information Co., Ltd. a Chinese company controlled by us and headquartered in Nanjing, China.

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 CORPORATE HISTORY

 

Figure 1. Aishuo Retail

AtWe were initially incorporated in Pennsylvania in 1972 as Coratomic, Inc. We changed our name six times thereafter, with the end of Q1 2017,last name change in 2019 to Touchpoint Group Holdings, Inc.In addition, we announced the rollout ofchanged our VoIP as a Service “VaaS” platform on the Microsoft Azure cloud. We sell our software, branding, hosting and operator servicesdomicile from Pennsylvania to smaller telecommunications operators, enterprises, operatorsDelaware in fixed line telephony, cable TV operators and to the satellite communications sector. The Company was showcased by Microsoft Corp. for its Azure technology (https://customers.microsoft.com/en-us/story/onehorizon).

 

Figure 2. VaaS Hosted Offering

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Figure 3. Cloud-based Secure, Fault Tolerant and Low Latency Architecture

 

Figure 4. Microsoft Showcases One Horizon Group Inc.2013.

 

OurB2B platform authorized capital is being used200,000,000 shares of common stock, par value $0.0001 per share, and 50,0000,000 shares of preferred stock, par value $0.0001 per share. The designation of rights including voting powers, preferences, and restrictions shall be determined by the Board of Directors before the issuance of any shares. As of April 24, 2020, 25,688,386 shares of our common stock are issued and outstanding and no preferred stock is issued and outstanding.


Disposal of a pre-paid VoIP Smartphone application launched by different carriers respectively, some of which are listed as follows:

·Smart Communications, Inc, (“Smart”). Smart is the Philippines' leading wireless services provider with 62.8 million subscribers on its GSM network as of December 2016.

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·Singapore Telecommunications (“Singtel”). Singtel is the Singapore’s leading wireless services provider with a combined mobile subscriber base of 600 million customers from its own operations and regional associates in 25 countries at end of July 2016.

 Controlling Interest in Banana Whale Studios Pte. Ltd.

 

Figure 1. Horizon B2B Operator Core Network

OfferingOn May 18, 2018, we entered into and Market Related

In September 2016,consummated an Exchange Agreement (the “Exchange Agreement”) with Banana Whale Studios Pte. Ltd. and the founding shareholders of Banana Whale (the “Banana Whale Stockholders”), pursuant to which we sold 198,413acquired 51% of the outstanding shares (“Controlling Interest in Banana Whale”) of Banana Whale in exchange for a number of our shares of common stock to certain institutional investors atbe based upon the earnings of Banana Whale. As a purchase pricecondition to closing the acquisition, Banana Whale Stockholders demanded and we deposited in escrow for their benefit 295,320 shares of $0.63our common stock (“OHGI Shares”) with a fair value of $4,983,000 as security for aggregate gross proceedsour obligation to issue such shares to which they may become entitled. If the number of $125,000shares to which the Banana Whale Stockholders become entitled is less than 295,320, the excess shares will be returned to us for cancellation. We also granted Banana Whale the right to use our secure messaging software. On February 4, 2019, we entered into and consummated an agreement (the “Agreement”) with Banana Whale and the Banana Whale Stockholders, pursuant to which we sold the Controlling Interest in Banana Whale in exchange for $2,000,000, consisting of $1,500,000 in cash and a securities purchase agreement. In connection$500,000 promissory note bearing interest at 5% per annum payable on December 31, 2019 (the “BWS Note”). Under the BWS Note, Banana Whale can prepay the BWS Note in whole or in part without premium or penalty. Pursuant to the BWS Note, the Banana Whale Stockholders agreed to guarantee the payments of all amounts due thereunder on a limited-recourse basis. On February 4, 2019, we also entered into a Pledge and Escrow Agreement with the purchaseBanana Whale Stockholders pursuant to which the Banana Whale Stockholders agreed to place the Controlling Interest in Banana Whale in escrow as security for payment of common stock the purchasersBWS Note.

The Agreement also terminated certain of the remaining obligations under the Exchange Agreement, releasing us, Banana Whale and the Banana Whale Stockholders from their remaining obligations thereunder. In February 2020, the shares held in escrow were cancelled.

In December 2019, an agreement regarding the remaining amount due on the BWS Note was reached, pursuant to which the Company received $250,000 in December 2019 and the balance payable over the 2 years ending December 2021 whereby the Company will receive an amount equal to 25% of reported earnings before income tax, depreciation and amortization (“EBITDA”) each quarter up to a warrantmaximum amount of $250,000 in aggregate.

The Company realized a gain of $553,000 on the sale of its 51% interest in Banana Whale during the year ended December 31, 2019.

Disposal of Discontinued Operations

On October 22, 2018, we entered into an Exchange Agreement (“Browning Exchange Agreement”) pursuant to acquire 148,810which we acquired a majority of the outstanding shares (the “Controlling Interest in Browning”) of Browning Productions &Entertainment, Inc. (“Browning”), from William J. Browning, the sole stockholder of Browning.

In exchange for the controlling interest in Browning, we paid Mr. Browning $10,000 and issued to him 12,000 shares of common stock, atplus an exercise priceadditional number of $0.819 per share. The warrants became exercisable on the date of issuance for a three-year term.

In October 2016, we sold 320,512 shares of common stock to certain institutional investors at a purchase price of $0.39 for aggregate gross proceeds of $125,000 pursuantwhich can be up to a securities purchase agreement.. In connection withmaximum of 680,000 shares, determined by dividing two and a half times the purchasenet after tax earnings of common stockBrowning during the purchasers received a warrant to acquire 240,385 shares of common stock at an exercise price of $0.5616 per share. The warrants became exercisable ontwelve month period ended December 31, 2019 by the date of issuance for a three-year term.

In December 2016, we sold 500,000 shares of common stock to certain institutional investors at a purchase price of $0.30 for aggregate gross proceeds of $150,000 pursuant to a securities purchase agreement. . In connection with the purchase of common stock the purchasers received a warrant to acquire 375,000 shares of common stock at an exercise price of $0.35 per share. The warrants became exercisable on the date of issuance for a three-year term.

The above financings are conducted as at-the-market shelf-take down under our registration statement on Form S-3 (File No. 333-205049).

On August 10, 2015, in connection with an Underwriting Agreement dated August 4, 2015 (the “Underwriting Agreement”) with Aegis Capital Corp. (“Aegis”), as representativeaverage of the several underwriters named therein (the “Underwriters”), we closed a firm commitment underwritten public offering of 1,714,286 shares of Common Stock, and warrants to purchase up to an aggregate of 857,143 shares of Common Stock at a combined offering price of $1.75 per share and accompanying Warrant. Pursuant to the Underwriting Agreement, the Underwriters exercised an option to purchase 151,928 additional shares of Common Stock and 75,964 additional warrants. The net proceeds from the offering were approximately $2.89 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

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The warrants offered have a per share exercise price of $2.50 (subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Stock and also upon any distributions of assets, including cash, stock or other property to our stockholders), are exercisable immediately and will expire three years from the date of issuance. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent.

Recent Developments

Notice of Delisting or Failure to Satisfy a Continued Listing Rule

On August 30, 2016, the Company received a written alert from Nasdaq Listing Qualifications that our listed security has not regained compliance with the minimum $1 bid price per share requirement, within the 180 calendar days. However, the Staff has determined that the Company is eligible for an additional 180 calendar day period, pursuant to Listing Rule 5810(c)(3)(a). If at any time during this 180 day period the closing bid price of our common stock is at least $1 forduring the 10 consecutive trading days immediately preceding the end of 2019.

Though the terms of this transaction only required a minimum$20,000 cash payment ($10,000 in cash under the non-binding letter of ten consecutive business days,intent and $10,000 in cash under the Browning Exchange Agreement) to Mr. Browning, we will regain compliance. In order to regain compliance, we may have to affect a reverse stock-split. If we arewere required to effectprovide Browning with a reverse stock-split, it would haveworking capital loan in an initial amount of $150,000, which is to be completed at least 10 days prior to the expirationrepaid out of the date bypost-closing net profit of Browning, as well as earmark an additional $150,000 in cash for future investment in Browning (to assist in funding the future operations of Browning).

We had a right of first refusal to purchase the remaining shares of Browning.

During the year ended December 31, 2019, the Company decided to sell its interests in its subsidiaries, Love Media House Inc. (“Love Media”) and Browning. In connection with this determination, the Company concluded the intangible assets related to these subsidiaries were impaired. Accordingly, the Company recorded an impairment charge of $2,440,000 which we must regain complianceis included in the loss from discontinued operations.


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

The return of 89,334 shares in the Company held by William J. Browning for cancellation; and

The repayment to the Company of the advances made to Browning totaling $210,000 over a 24-month period ending January 31, 2022. To encourage early repayment by Browning, the Company has agreed to give additional debt reduction on the basis of $1.00 credit for every $1.00 paid during the first six months of the repayment term.

Currently, the Company is looking to negotiate a sale of its ownership interest in Love Media.  

Recent Developments

The Company continues to seek cost-effective acquisitions in the sports and entertainment sectors that would be synergistic with Rule 5550(a)(2).the Touchpoint app and platform, enabling the livestreaming of content to fans. On February 12, 2020, the Company announced the signing of a Touchpoint licensing agreement with TV celebrity Joey Essex.

 

On February 28, 2017,April 6, 2020 the Company receivedannounced the signing of a notice from Touchpoint licensing agreement with Russell Simmons company GDAS LLC.

The NasdaqCompany is in discussions with other athletes and other celebrities to enter into a Touchpoint license to enable them to engage with their fanbase with content.

Reverse Stock Market LLC (“Nasdaq”) Listing Qualifications Staff (the “Staff”) stating thatSplit

Following approval of the Staff has determined, unlessCompany’s stockholders at the Annual Meeting of Stockholders held on December 27, 2018, the Company timely requests an appealamended its Certificate of the Staff’s determination, before Nasdaq’s Hearing Panel (the “Panel”), by March 7, 2017,Incorporation, as amended, to delist the Company’s common stock from the Nasdaq Capital Market because the Company is not in compliance with the $1.00 minimum bid price requirement (the “Minimum Bid Price”) for continued listing set forth in the Nasdaq Listing Rule 5550(a)(2).The Company filedreflect a request for a hearing before the Panel, on March 2, 2017, which request will stay any delisting or suspension action by the Staff pending the issuance of the Panel’s decision and the expiration of any extension granted by the Panel.

On March 3, 2017, the Staff informed the Company that they were granted a hearing to be held on April 20, 2017 (the “Hearing”). As such, the delisting action, referenced above, has been stayed, pending a final written decision by the Panel at the Hearing.

At the Hearing, we will present its plan to regain compliance with the Minimum Bid Price by effecting a1-for-25 reverse stock split. On March 20, 2017, the Company filed a definitive proxy statement with the Securities and Exchange Commission in connection with special meeting of stockholders (the “Stockholders’ Meeting”) to be held on April 14, 2017.  The proposal being submitted is for a vote of the stockholders at the Stockholders’ Meeting is the approval of a 6 to 1This reverse stock split of all of the issued and outstanding shares of the Company’s common stock. Management believes that effectingtook effect on September 26, 2019. The share amounts presented in this Annual Report on Form 10-K have been adjusted to reflect the reverse stock split will allow our common stock to regain compliance with Nasdaq Listing Rule 5550(a)(2), which should allow the Company’s common stock to continue to trade on the Nasdaq Capital Market. Assuming the reverse stock split proposal is approved by the Company’s stockholders, the Company’s board of directors currently intends to effect the reverse stock split immediately after the Stockholders’ Meeting, unless it determines that doing so would not have the desired effect of satisfying the Minimum Bid Price requirement.

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Industrysplit.

 

Rapid Growth in Global Mobile Voice over IP Service MarketCorporate Information

 

We aimOur principal executive offices are located at 4300 Biscayne Blvd., Miami, Florida 33137, and our telephone number at that location is (305) 420-6640. Our website is www.touchpointgh.com. The information contained on or connected to deliver our patented smartphone software towebsite is not incorporated by reference into, and you must not consider the ever expanding mobile Voice over IP (“mVoIP”) user. By 2019 there are expected to be over 2.7 billion smartphones consumers, or more than one-third of all people worldwide (Source: https://www.statista.com/statistics/330695/number-of-smartphone-users-worldwide. Each new smartphone represents an opportunity for us to deliver our innovative mobile VoIP, Messaging over IP and Advertising over IP solution in whatever mobile app brand is attractive to the end user throughout the globe.

By partnering with national carriers and delivering our solution as a licensed service to regional mobile operators, we leverage the power of their brand and join them to fight back against already lost revenues, or potential revenue loss, to network bandwidth-intensive Over The Top (“OTT”) VoIP apps; such as SkypeTM in the USA or LineTM in Japan and the like.

In the past mobile operators relied upon blocking VoIP on their networks but they have realized that this is no longer a viable option. They must embrace innovations in VoIP software, especially on the smartphone, from businesses like ours. Not only can we offer a multi-media, multi-faceted software solution to smartphones, but we are the only company that offers a package that aids the operators in the rollout, expansion, maintenance and upgrade of their mobile network in metro and rural areas to cater for smartphones.

From the beginning of the first smartphones in 2008, our software was specifically targetedinformation to be a disruptive technology, which was and has been explicitly designed, and patented, to workpart of, this Annual Report on congested wireless Internet connections; the absolute fundamental basis of mobile phones in 2016 and beyond.Form 10-K.

As more and more smartphones come online, each one places a significantly higher load on the existing cellular infrastructure; as smartphone users now use smartphone to check for emails, surf the Internet, check the weather, read the news, etc. while in the past, all a mobile phone did was calling and Short Messaging (SMS). In order for carriers to keep up with the explosive growth of smartphones and their increased network consumption they are in need of any possible tool to assist them in managing their network and maintaining relevance on the users’ device.

We offer operators a mobile VoIP call that has ten (10) times less bandwidth than a standard telephone call over GSM or legacy mobile VoIP solutions such as Session Initiation Protocol (“SIP”). This gives operators a higher quality call on busy and legacy networks such as 2G, 3G and congested metro-based 4G using less bandwidth; meaning more bang for their “spectrum buck”. We will not replace traditional calls nor prevent the delivery of newer call types such as Voice over LTE (“VoLTE”) etc., but we give operators yet another tool in their arsenal to deliver the best quality voice, for the best value, for their diversified customer bases.

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Our Technology

Our Technology

We have a very detailed knowledge of these wireless data network issues and have invented a totally new solution to successfully deliver a high quality voice call over a wireless Internet connection. Our solution is designed specifically to address such issues as call latency (i.e. delay) and network jitter (i.e. lost data) in a way that achieves a much higher likelihood of a voice packet (i.e. tiny piece of recorded voice) arriving in time and not being lost or delayed. Our awareness of these problems led us to develop a completely new algorithm for sending and receiving (and ordering) voice packets so as to reduce the likelihood of packet loss due to congestion, which we call SmartPacket™; and to the end user this just means near HD audio at a fraction of the cellular consumption.

 

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SmartPacket™ Technology

The core of the Horizon solution is our truly innovative, and patented, SmartPacket™ technology. This enables VoIP from only 2 kilobytes/second (kbps) compared to around 8kbps and upwards from other VoIP platforms available today.  This industry-leading solution has been developed in-house and is fully compatible with digital telecommunications standards.  This technology is capable of interconnecting any phone system over IP - on mobile, fixed and satellite networks.  Our SmartPacket™ technology is not based on legacy SIP (Session Initiation Protocol) or RTP (Real-time Transport Protocol).  Rather, the Horizon signaling protocol is much simpler and benchmark testing has shown that it consumes significantly less bandwidth for the same audio quality score.  Our SmartPacket™ technology is the world’s most bandwidth efficient IP communication platform designed for mobile communications. The technology optimizes voice flow, delivery and playback and delivers excellent call quality, reduced delays and drops.   As a further illustration, the technology is considerably more efficient in the way it handles silence.  Traditional VoIP calls send the same amount of data in both directions, regardless of whether or not someone is speaking.  SmartPacket™ technology is designed to detect silence and send tiny “indications of silence”, rather than the silence itself. This massively reduces the amount of data transmitted, lowers the load on the cellular infrastructure which, in turn, means that more data can get through.  This results in higher audio quality and a better user experience.

Our Benchmark Testing: Horizon vs the biggest smartphone VoIP technologies in the world

University published testing has shown that Horizon is up to 8.8 times more efficient, depending on which one of our voice compression settings is selected by the user. 

 

Proprietary Technology

The Horizon Platform has been developed entirely in-house, patented, and is fully compatible with digital telecommunications standards. It is capable of interconnecting any phone system over IP – on mobile, fixed and satellite networks.

The Horizon Platform was initially developed for the burgeoning smartphone market and the challenging mobile VoIP over satellite market by Abbey Technology to make the best use of the limited wireless bandwidth available and to minimize the amount of data consumed.

We further developed the Horizon Platform for the broader telecommunications market on Apple’s iOS, Google’s Android and a Windows PC client focusing on the mobile Internet sector. This sector also benefits from our optimized mobile VoIP as it allows voice calls over new and legacy cellular telecom data networks. With the explosive growth in smartphone sales and increased usage of mobile data services, mobile operators face the challenge of dealing with increasingly congested networks, more dropped calls and rising levels of churn. Since the wireless spectrum is a finite resource, it is not always possible, or can be cost prohibitive, to increase network capacity. For these reasons, we believe that the demand for solutions to optimize the use of IP bandwidth will inevitably increase.

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Our Strategy

 

We have developed a mobile application template called “Horizon Call,” that enables highly bandwidth-efficient VoIP calls over a smartphone using a 2G/EDGE, 3G, 4G/LTE, WiFi or Satellite connection. Our Horizon Call applicationThe Company’s strategy is currently available forto grow the iPhoneTCL business and for Android handsets and we use it to showcase all of our functions, features, our call quality and the level of software innovation that we can brand for our potential clients.

Unlike the majority of mobile VoIP applications, Horizon Call creates a white-label business-to-business solution for mobile operators. Telecommunications operators are able to license from us, brand with us and deploy with us a completely new “white-labeled” solution so that they can optimize their highly pressurized mobile internet bandwidth and deliver innovation that in turn brings them new smartphone users. The operators decide how to integrate our application within their portfolio, how to offer it commercially and can customize it according to their own branding.  Our solution helps them to manage increased traffic volumes while combating the competitive threat to their voice telephony revenues from other mobile VoIP applications by giving its mobile data customers a more efficient mobile VoIP solution that adds value to their mobile data network.

We are positioning ourselves as an operator-enabler by licensing our technology to mobile operators in a manner that can be fully customized to the needs of their subscribers. As shown below, operators are able to offer our platform to deliver branded smartphone applications to their existing customers to reduce lost Voice/Text revenue and minimize customer churn.

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By offering Horizon Call to their existing customer base, our customers can offer innovative data-based voice and data services that are different from the existing Over The Top (“OTT”) data applications running on their networks. OTT refers to voice and messaging services that are delivered by a third party to an end user’s smartphone, leaving the mobile network provider responsible only for transporting internet data packets and not the value-added content. The Horizon Call voice services allow mobile operators’ customers to make VoIP calls under mobile operators’ call plans, thereby allowing mobile operators to capture value-added content, including voice calls, text messaging, voice messaging, group messaging, multimedia messaging, and advertising, that would have otherwise gone to the providers of other OTT services.

Horizon Call runs on both smartphone and tablet devices and, as networks become more congested, software services such as Horizon Call become ever more relevant. We believe that although more network capacity will eventually come on stream with 4G/LTE, it, like all other highways, will quickly become congested and this is why we believe that Horizon Call is ideally placed to add value to mobile data networks.

Incumbent mobile operators are suffering a reduction in revenue per user due to the OTT software services on mobile devices. OTT applications, such as Skype and Line, can negatively impact mobile operators’ traditional revenue streams of voice and SMS (short message service). As shown below, the Horizon Platform positions the Company to enable mobile operators to operate their own OTT solution branded in their image allowing use on all mobile data networks.

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In addition to delivering new data services to their existing customers, mobile operators can offer their brand of Horizon Call on anyother operators’ handsets. Because the Horizon Call application can be installed on the smartphone from the Internet, the potential customer base for the operators’ data application surpasses the customer base that they can reach through traditional mobile phone SIM card distribution. We believe that this service innovation, coupled with the fact that the Horizon Call application can also use existing mobile operator pre-paid credit redemption and distribution services, presents a very compelling service against OTT services.

We believe that emerging markets represent a key opportunity for Horizon Call because these are significant markets with high population densities, high penetration of mobile phones, congested mobile cellular networks and high growthacquisitions in the adoption of smartphones.  It is forecast that over 2.7 billion people will use smartphones in 2019.  Asia-Pacific will account for over half of all smartphone users in 2016, estimated at 1.1 billion users. Globally, China is the largest smartphone market with an estimated 563.1 million handsets. These factors will put increased pressure on mobile operators to manage their network availability.digital media, sports and entertainment space.

 

In this context, where necessary, we have created our own brand in China, called Aishuo, formed a number of strategic ventures with local partners in regions of various emerging markets to seize upon this opportunity.

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Marketing

Our marketing objective is to become a broadly adopted solution in the regions of the world with large concentrations of smartphone users and high network congestion. We aim at becoming the preferred solution for carriers who wish to deploy branded VoIP solutions that enable them to minimize revenue erosion, reduce churn, increase the effective capacity of their network infrastructure and improve user experience. We employ an integrated multi-channel approach to marketing, whereby we evaluate and focus our efforts on selling through telecommunications companies to enable them to provide the Horizon Platform to their customers. We routinely evaluate our marketing efforts and try to reallocate budgets to identify more effective media mixes.

We conduct marketing research to gain consumer insights into brand, product, and service performance, and utilize those findings to improve our messaging and media plans. Market research is also leveraged in the areas of testing, retention marketing, and product marketing to ensure that we bring compelling products and services to market.

Sales

Direct Sales. Our primary sales channel for the products and services of Horizon Platform is the sale of Horizon Platforms to Tier 1 and Tier 2 telecommunications companies to enable them to provide the product and services to their customers. We continue our efforts to develop new customers globally but particularly in Asia, Africa and Latin America.

Strategic Ventures.In addition to our direct sales channel, we also offer increased sales through our strategic venture channel. In this context, as mentioned above, we are working towards forming a number of strategic ventures in areas where regulatory issues require local representation.

Target Markets. The markets for our primary and joint venture channels will have high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones.

Competition

Our direct competitors for its technology primarily consist of systems integrators that combine various elements of SIP (Session Initiation Protocol) dialers and media gateways. Other dial-back solutions exist but they are not IP-based. Because SIP dialers and media gateways currently are unable to provide a low bandwidth solution, they do not currently compete with the Company’s technology in those markets in which their high bandwidth needs are unsupported by the existing cellular networks. They do, however, compete in those markets where the cellular networks are accessible by those SIP dialers and gateways.

We license the Horizon Platform to mobile operators, who in turn may offer the application to their end-user subscribers. The Company’s principal competitors for the mobile operators’ end-users are Skype, Viber, WeChat, and WhatsApp. Having a mobile operator’s subscriber opt to use the operator’s (branded) Horizon Call service instead of existing OTT services means that the mobile operator will gain market share of some of the OTT voice and messaging traffic. We are currently unaware of any other companies that seek to license VoIP technology directly to mobile operators.

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One of our key competitive advantages is that we are not a threat to mobile operators. Rather, the Company’s Horizon Platform is a tool that can be used by mobile operators to compete against the OTT provider’s applications that are running on their networks. Through the Horizon Platform, mobile operators are able to compete directly with OTT services that, by their design, divert voice and messaging services away from mobile operators. The solution is delivered completely and is easy to install and operate. This means that a mobile operator has a turnkey mobile voice and messaging solution to deploy to its customer (i.e., the end-user).

The turnkey Horizon software platform and the Horizon SmartPacket™ technology give us a competitive advantage by managing credit, routing, rating, security, performance, billing and monitoring. Horizon SmartPacket™ is the world’s lowest bandwidth voice compression and transmission protocol and is 100% developed and owned by the Company. Though other software companies can offer part of this solution space, we believe none offers it in such a complete and integrated fashion as we do. We believe it will take a substantial number of years to copy/replicate the Horizon Platform in its entirety, by which time we believe the Horizon Platform will have improved and further distanced itself from potential competition.

Intellectual Property

Our strategy with respect to our intellectual property is to patent our core software concepts wherever possible. The Company’s current software patent has been approved in the United States and is pending in other jurisdictions around the world. Our patent strategy serves to protects the Horizon Platform and the central processing service of the Horizon Platform.

The Company endeavors to protect its internally developed systems and technologies. All of our software is developed “in-house,” and then licensed to our customers. We take steps, including by contracts, to ensure that any changes, modifications or additions to the Horizon Platform requested by our customers remain the sole intellectual property of the Company.

Research and Development and Software Products

We have spent approximately $0.5 million on capitalizable research and development during 2016.

Throughout 2016 we continued with our focus on innovation and our research and development teams (“R&D”) brought us software that allows our customer to offer call and messaging Bundles. This is a common feature for SIM cards and popular with mobile subscribers whereby the user pre-purchases bulk minutes at a lower per minute rate that when they pay for a call minute by minute. The Company now offers such innovations to its subscribers right inside the operators’ smartphone app supplied to Company thereby driving up the operator’s revenue per user.

We also expanded our R&D effort into the cellular operators' core network with a feature set that allows our service to directly connect to an operators Unstructured Supplementary Service Data (USSD) service thereby allowing all mobile prepaid subscribers to add credit to their mobile account in a traditional way and then allowing this USSD top up to be applied to a mobile VoIP smartphone app, an industry first.

The Cyber-Security R&D team also delivered a cyber-secure VoIP service that leverages the low bandwidth benefits of Company’s patented technology to allow VoIP over the strongest security protocols on the Internet. By leveraging the power of Virtual Private Networks (VPN) native client on the smartphone the Company’s VoIP protocols work where other traditional VoIP solutions cannot due to call quality issues with high data consumption protocols. Management expect this platform to drive a new revenue stream for Cyber Secure VoIP.

Also in 2016 our Cyber-Security R&D team delivered a stand alone version of our optimized VoIP core network server software for vertical markets covering Government, Banks and Small to Medium Enterprises that ensures privacy of their internal voice and messaging services in a cryptographically secure way. Our stand alone service can be installed on-site at the customer and requires minimal operational support thereby delivering secure communications in a cost efficient manner.

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R&D also delivered a standalone Lawful Intercept module for operators that are legally required to have call recording features. This service is capable of recording calls from VoIP application on the handset to another handset or to the traditional telephone network. Such features are required by regulators in certain jurisdictions around the world.  This feature also allows our mobile solution to internet connect with Microsoft's Skype for Business Unified Communication platform.

R&D also delivered a complete mobile app telephone conferencing service where a user of our VoIP service can bring in other parties to an on-going call, an ad-hoc conference. This feature is targeting the B2B user that may need multi-party calls on lower quality or congested mobile data networks.

R&D delivered a complete integration into one of Africa's largest micropayments platforms, Ecocash.  App users can now securely pay for their calls from inside the app using this widely used payment solution.

Cyber-Security team delivered a completely new security messaging solution with external key-broker for the ultimate in message security.  Using our solution, not even the service-host can decrypt the app-app messages as the keys are not available inside the core network.  Our distributed key broker can be located anywhere in the world, independent of the service-host passing messages thereby guaranteeing message security for the end to end communication.

R&D delivered a bespoke real-time network quality monitor that automatically adjusts the bandwidth consumed by a handset for a VoIP call depending out network strength.  This allow for a much smoother call with reduced jitter and enhanced user acceptance.

R&D commenced the development work on iOS for the latest Apple CallKit service.

Cyber-Security R&D team commenced development on an encrypted call solution that can avail of the independent key broker service for the ultimate in VoIP security.

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Employees

 

As of December 31, 2016,2019, we had 23six employees, all of whom were full-time employees.


ITEM 1A. RISK FACTORS

RISKS RELATED TO OUR BUSINESS

We have a history of operating losses and our auditors have indicated that there is a substantial doubt about our ability to continue as a going concern.

For the fiscal years ended December 31, 2019 and 2018, we reported losses from continuing operations of $3.3 million and $13.4 million, respectively, and negative cash flow from operating activities from continuing operations of $1.4 million and $3.0 million, respectively. As of December 31, 2019, we had an aggregate accumulated deficit of approximately $61.3 million. Such losses have historically required us to seek additional funding through the issuance of debt or equity securities. Our long-term success is dependent upon among other things, achieving positive cash flows from operations and if necessary, augmenting such cash flows using external resources to satisfy our cash needs. As a result of Touchpoint licensing agreements signed and forecast to be signed in 2020 we project to have positive cash flows during the second half of 2020 to fund operations from late 2020 onwards. However, we may be unable to achieve these goals and actual results could differ from our estimates and assumptions; accordingly, we may have to supplement our cash flow, by debt financing or sales of equity securities. There can be no assurance that we will be able to obtain additional funding, if needed, on commercially reasonable terms, or of all.

As a result of these net losses and cash flow deficits and other factors, our independent auditors issued an audit opinion with respect to our consolidated financial statements for the two years ended December 31, 2019 that indicated that without obtaining sufficient additional equity or debt funding, there is a substantial 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. For further discussion about our ability to continue as a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Ability to Continue as a Going Concern.”

We are a holding company and depend upon our subsidiaries for our cash flows.

We are a holding company. All of our operations are conducted, and almost all of our assets are owned, by our subsidiaries. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our subsidiaries and the payment of funds by these subsidiaries to us in the form of dividends, distributions or otherwise. The ability of our subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiaries when needed could have a material adverse effect on our business, results of operations or financial condition.

Future acquisitions or strategic investments could disrupt our business and harm our business, results of operations or financial condition.

We may in the future explore potential acquisitions of companies or strategic investments to strengthen our business. Even if we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms or financing of the acquisition, and our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business.


Acquisitions involve numerous risks, any of which could harm our business, including:

straining our financial resources to acquire a company;

anticipated benefits may not materialize as rapidly as we expect, or at all;

diversion of management time and focus from operating our business to address acquisition integration challenges;

retention of employees from the acquired company;

cultural challenges associated with integrating employees from the acquired company into our organization;

integration of the acquired company’s accounting, management information, human resources and other administrative systems;

the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; and

litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties.

Failure to appropriately mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing or completely eliminating any anticipated benefits of transactions and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of which could have a material adverse effect on business, results of operations or financial condition.

We may require additional funding for our growth plans, and such funding may result in a dilution of your investment.

We have estimated our funding requirements in order to implement our growth plans.

If the costs of implementing such plans should exceed these estimates significantly or if we come across opportunities to grow through expansion plans which cannot be predicted at this time, and our funds generated from our operations prove insufficient for such purposes, we may need to raise additional funds to meet these funding requirements.

These additional funds may be raised by issuing equity or debt securities or by borrowing from banks or other resources. We cannot assure you that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. If we fail to obtain additional financing on terms that are acceptable to us, we will not be able to implement such plans fully if at all. Such financing even if obtained, may be accompanied by conditions that limit our ability to pay dividends or require us to seek lenders’ consent for payment of dividends, or restrict our freedom to operate our business by requiring lender’s consent for certain corporate actions.

Further, if we raise additional funds by way of a rights offering or through the issuance of new shares, any shareholders who are unable or unwilling to participate in such an additional round of fund raising may suffer dilution in their investment.

Public health epidemics or outbreaks, such as COVID-19, could materially and adversely impact our business.

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

Because COVID-19 infections have been reported throughout the United States and the United Kingdom, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. As a result, the Company has seen delays in certain Touchpoint licensing agreements commencing operation which leads to subsequent delays in subscriptions being processed. All of the Company employees and management can operate from home whilst the stay-at-home orders remain in place.

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.


The measures taken to date will impact the Company’s business for the fiscal first, second and third quarters and potentially beyond. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

Our executive officers do not reside in the United States.

Our U.S. stockholders would face difficulty in:

Effecting service of process within the United States on our executive officers, if considered necessary.

Enforcing judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against the executive officers.

Enforcing judgments of U.S. courts based on civil liability provisions of U.S. federal securities laws in foreign courts against the executive officers.

Bringing an original action in foreign courts to enforce liabilities based on the U.S. federal securities laws against the executive officers.

Accordingly, persons contemplating an investment in our common stock should seriously consider these factors before making an investment decision.

Our future success depends on the continuing efforts of our key employees and our ability to attract, hire, retain and motivate highly skilled and creative employees in the future.

Our future success depends on the continuing efforts of our executive officers, our founders and other key employees, and in particular, Mark White, our Chief Executive Officer, and Martin Ward, our Chief Financial Officer. We rely on the leadership, knowledge and experience that our executive officers, founders and key employees provide. They foster our corporate culture, which we believe has been instrumental to our ability to attract and retain new talent. Any failure to attract new or retain key creative talent could have a material adverse effect on our business, financial condition and results of operations.

The market for talent in our key areas of operations, including California and New York, is intensely competitive, which could increase our costs to attract and retain talented employees. As a result, we may incur significant costs to attract and retain employees, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards, and we may lose new employees to our competitors or other companies before we realize the benefit of our investment in recruiting and training them.

Employee turnover, including changes in our management team, could disrupt our business. The loss of one or more of our executive officers, founders or other key employees, or our inability to attract and retain highly skilled and creative employees, could have a material adverse effect on our business, results of operations or financial condition.

We believe our corporate culture has contributed to our success and, if we are unable to maintain it as we grow, our business could be harmed.

We believe our corporate culture has been a key element of our success. However, as our organization grows, it may be difficult to maintain our culture, which could reduce our ability to attract and maintain new talent and operate effectively. The failure to maintain the key aspects of our culture as our organization grows could result in decreased employee satisfaction, increased difficulty in attracting top talent and increased turnover and could compromise the quality of our client service, all of which are important to our success and to the effective execution of our business strategy. Accordingly, if we are unable to maintain our corporate culture as we grow our business, this could have a material adverse effect on our business, results of operations or financial condition.


We may not have sufficient insurance coverage and an interruption of our business or loss of a significant amount of property could have a material adverse effect on our financial condition and operations.

We currently do not maintain any insurance policies against loss of key personnel and business interruption as well as product liability claims. If such events were to occur, our business, financial performance and financial position may be materially and adversely affected.

We could become involved in claims or litigations that may result in adverse outcomes.

From time-to-time we may be involved in a variety of claims or litigations. Such proceeding may initially be viewed as immaterial but could prove to be material. Litigations are inherently unpredictable and excessive verdicts do occur. Given the inherent uncertainties in litigation, even when we can reasonably estimate the amount of possible loss or range of loss and reasonably estimable loss contingencies, the actual outcome may change in the future due to new developments or changes in approach. In addition, such claims or litigations could involve significant expense and diversion of management’s attention and resources from other matters.

We may be unable to adequately safeguard our intellectual property, or we may face claims that may be costly to resolve or that limit our ability to use such intellectual property in the future.

Our business is reliant on our intellectual property. Our software is the result of our research and development efforts, which we believe to be proprietary and unique. However, we are unable to assure you that third parties will not assert infringement claims against us in respect of our intellectual property or that such claims will not be successful. It may be difficult for us to establish or protect our intellectual property against such third parties and we could incur substantial costs and diversion of management resources in defending any claims relating to proprietary rights. If any party succeeds in asserting a claim against us relating to the disputed intellectual property, we may need to obtain licenses to continue to use the same. We cannot assure you that we will be able to obtain these licenses on commercially reasonable terms, if at all. The failure to obtain the necessary licenses or other rights could cause our business results to suffer.

Where litigation is necessary to safeguard our intellectual property, or to determine the validity and scope of the proprietary rights of others, this could result in substantial costs and diversion of our resources and could have a material adverse effect on our business, financial condition, operating results or future prospects.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery and anti-kickback laws with respect to our activities outside the United States.

We distribute our products to locations within and outside the United States as well as operate our business within and outside the United States. The U.S. Foreign Corrupt Practices Act, and other similar anti-bribery and anti-kickback laws and regulations, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We cannot assure you that we will be successful in preventing our agents from taking actions in violation of these laws or regulations. Such violations, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

We rely on third parties to provide services in connection with our business, and any failure by these third parties to perform their obligations could have an adverse effect on our business, financial condition and results of operations.

We have entered into agreements with third parties that include, but are not limited to, information technology systems (including hosting our website, mobile application and our point of sale system), software development and support, select marketing services, employee benefits servicing and video production and distribution. Services provided by third-party suppliers could be interrupted as a result of many factors, such as acts of nature or contract disputes. Accordingly, we are subject to the risks associated with the third parties’ abilities to provide these services to meet our needs. Any failure by a third party to provide services for which we have contracted on a timely basis or within expected service level and performance standards could result in a disruption of our business and have an adverse effect on our business, financial condition and results of operations.


RISKS RELATED TO OUR COMMON STOCK AND OUR STATUS AS A PUBLIC COMPANY.

As a result of being a public company, we are subject to additional reporting and corporate governance requirements that will require additional management time, resources and expense.

As a public company we are obligated to file with the SEC annual and quarterly information and other reports that are specified in the Exchange Act. We are also subject to other reporting and corporate governance requirements under the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and the rules and regulations promulgated thereunder, all of which impose significant compliance and reporting obligations upon us and require us to incur additional expense in order to fulfill such obligations.

Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our security holders to resell their common stock.

Our common stock is quoted on the OTCQB tier of the OTC Markets. Trading in securities quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like Nasdaq Capital Market or a stock exchange like the NYSE American. These factors may result in investors having difficulty reselling any shares of our common stock.

Our stock price is likely to be highly volatile because of several factors, including a limited public float.

The market price of our common stock has been volatile in the past and the market price of our common stock is likely to be highly volatile in the future. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.

Other factors that could cause such volatility may include, among other things:

actual or anticipated fluctuations in our operating results;

the absence of securities analysts covering us and distributing research and recommendations about us;

we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held;

overall stock market fluctuations;

announcements concerning our business or those of our competitors;

actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms;

conditions or trends in the industry;

litigation;

changes in market valuations of other similar companies;

future sales of common stock;

departure of key personnel or failure to hire key personnel; and

general market conditions.

Any of these factors could have a significant and adverse impact on the market price of our common stock and/or warrants. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock and/or warrants, regardless of our actual operating performance.


The issuance of a large number of shares of our common stock could significantly dilute existing stockholders and negatively impact the market price of our common stock.

On August 5, 2019 (“Closing Date”), the Company entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”), dated as of July 18, 2019, with Crown Bridge Partners, LLC (“Crown Bridge”) providing that, upon the terms and subject to the conditions thereof, Crown Bridge is committed to purchase, on an unconditional basis, shares of common stock (“Put Shares”) at an aggregate price of up to $10,000,000 over the course of its term. Pursuant to the terms of the Equity Purchase Agreement, the purchase price for each of thePut Shares equals 82% of the lesser of the (i) “Market Price,” which is defined as the lowest traded price for any trading day during the 15 trading days immediately preceding the respective Put Date, or (ii) “Valuation Price,” which is defined as the lowest traded price during the seven trading days following the clearing date associated with the applicable put notice (“Put Notice”).As a result, if we sell shares of common stock under the Equity Purchase Agreement, we will be issuing common stock at below market prices, which could cause the market price of our common stock to decline, and if such issuances are significant in number, the amount of the decline in our market price could also be significant. In general, we are unlikely to sell shares of common stock under the Equity Purchase Agreement at a time when the additional dilution to stockholders would be substantial unless we are unable to obtain capital to meet our financial obligations from other sources on better terms at such time. However, if we do, the dilution that could result from such issuances could have a material adverse impact on existing stockholders and could cause the price of our common stock to fall rapidly based on the amount of such dilution.

Crown Bridge may sell a large number of shares, resulting in substantial diminution to the value of shares held by existing stockholders.

Pursuant to the Equity Purchase Agreement, we are prohibited from delivering a Put Notice to Crown Bridge to the extent that the issuance of shares would cause Crown Bridge to beneficially own more than 4.99% of our then-outstanding shares of common stock. These restrictions, however, do not prevent Crown Bridge from selling shares of common stock received in connection with the $10,000,000 Crown Bridge equity line (the “Equity Line”) and then receiving additional shares of common stock in connection with a subsequent issuance. In this way, Crown Bridge could sell more than 4.99% of the outstanding shares of common stock in a relatively short time frame while never holding more than 4.99% at any one time. As a result, existing stockholders and new investors could experience substantial diminution in the value of their shares of common stock. Additionally, we do not have the right to control the timing and amount of any sales by Crown Bridge of the shares issued under the Equity Line.

Our common stock is a “penny stock” under SEC rules. It may be more difficult to resell securities classified as “penny stock.”

Our common stock is a “penny stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). Unless we successfully list our common stock on a national securities exchange, or attain and maintain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.

Legal remedies available to an investor in “penny stocks” may include the following:

If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment.

If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.

These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.

For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock will no longer be classified as a “penny stock” in the future.


As a result of our failure to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.

Our internal control over financial reporting has weaknesses and conditions that require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our common stock.  

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act and if we fail to continue to comply, our business could be harmed, and the price of our securities could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.

Shares eligible for future sale may adversely affect the market.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months, subject only to the current public information requirement. Affiliates may sell after six months, subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. Of the 4,132,600 shares of our common stock outstanding as of December 31, 2019, approximately 2,803,942 shares are tradable without restriction. Given the limited trading of our common stock, resale of even a small number of shares of our common stock pursuant to Rule 144 or an effective registration statement may adversely affect the market price of our common stock.

Certain provisions of the General Corporation Law of the State of Delaware may have anti-takeover effects, which may make an acquisition of our company by another company more difficult.

We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The operation of Section 203 may have anti-takeover effects, which could delay, defer or prevent a takeover attempt that a holder of our common stock might consider in its best interest.


Provisions of our certificate of incorporation, as amended, and bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.

Provisions of our certificate of incorporation, as amended, and our bylaws, as amended, may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. Further, our certificate of incorporation, as amended, authorize the issuance of up to 50,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our board of directors in their sole discretion. Our board of directors may, without stockholder approval, issue series of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock. 

We do not expect to pay dividends in the foreseeable future.

We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms. We cannot assure you of a positive return on investment or that you will not lose the entire amount of your investment in our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable to smaller reporting companies.

 

ITEM 2. PROPERTIES

 

We do not currently own any real property. In March 2017,As at December 31, 2019 we leased the following offices:

 

Location Approximate size Approximate monthly rent 
      
Ireland 840 sqft $2,050 
China 1,900 sqft $1,400 
UK 120 sqft $1, 250 

Executive Offices

Our executive offices are located at T1-017 Tierney Building, University of Limerick, Limerick, Ireland.

Location Approximate size Approximate monthly rent 
      
Hong Kong 150 sq.ft. $1,900 
USA 1000 sq.ft. $1,400 
UK 150 sq.ft. $1,250 

 

ITEM 3. LEGAL PROCEEDINGS

 

We are notThe Company has received a party to any materialclaim from the landlord of a property leased by Maham LLC, a possible acquisition target, under which the Company is a guarantor. The Company’s legal proceedings and no material legal proceedings have been threatened by us or,counsel has responded to the best of our knowledge, against us exceptclaim, denying the following:claim and requesting additional information.

 

Since 2014 theThe Company has also been involvedserved a claim from the former management of Love Media regarding a claim for unpaid wages. The Company disputes the validity of their claim in legal proceedings with Broadband Satellite Services Limited (“BSS”) to whom we sold had sold former subsidiaries in 2012.  In December 2016 the parties agreed to drop their respective claims and counterclaims without any payment required to paid by either party. As a result we have written off receivable amounts due by BSS totaling $455,000 in the Company’s books having provided previously an amount totaling $605,000 against the original unpaid sales invoices.its entirety.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

  

20


PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

Our common stock is currently quoted on the NASDAQ Capital MarketOTCQB tier of the OTC Markets under the symbol, OHGI.“TGHI.” Prior to October 23, 2019, our common stock was quoted on the OTCQB under the symbol, “OHGI.” Prior to March 8, 2019, our common stock was listed on the Nasdaq Capital Market (the “Nasdaq”). Our common stock commenced trading on the Nasdaq on July 9, 2014 under the ticker symbol, “OHGI.” On February 26, 2019, Martin Ward, Chief Financial Officer of the Company, approved the voluntary termination of the listing of our common stock on the Nasdaq. On March 8, 2019, the Company filed an application on Form 25 with the SEC to voluntarily terminate its Nasdaq listing. The delisting from the Nasdaq became effective on March 8, 2019.

Trading in OTCQB stocks can be volatile, sporadic and risky, as thinly traded stocks tend to move more rapidly in price than more liquid securities. Such trading may also depress the market price of our common stock and make it difficult for our stockholders to resell their common stock.

 

The following table sets forthreflects the high and low bid information, as reported by Nasdaq on its website, www.nasdaq.com,closing price for our common stock for each quarterlythe period in 2016indicated. For periods after March 8, 2019, the bid information was obtained from the OTC Markets Group, Inc. and 2015.reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions. 

 

  Low  High 
       
Fiscal year ending December 31, 2016:        
Quarter ended December 31 $0.22  $0.65 
Quarter ended September 30  0.52   1.27 
Quarter ended June 30  0.61   0.85 
Quarter ended March 31  0.78   1.17 
         
Fiscal year ending December 31, 2015:        
Quarter ended December 31 $0.90  $1.62 
Quarter ended September 30  1.11   3.34 
Quarter ended June 30  1.03   5.84 
Quarter ended March 31  1.21   3.92 
Quarter Ended High  Low 
June 30, 2020 (1) $0.0245  $0.013 
March 31, 2020 $0.148  $0.01 
         
December 31, 2019 $0.2502  $0.0551 
September 30, 2019 $0.7549  $0.0211 
June 30, 2019 (2) $1.80  $0.7025 
March 31, 2019 $0.18  $0.03 
         
December 31, 2018 $0.43  $0.07 
September 30, 2018 $0.54  $0.17 
June 30, 2018 $1.26  $0.49 
March 31, 2018 $3.03  $0.84 

(1)Through April 23, 2020.
(2)On March 8, 2019, following our application to terminate or Nasdaq listing, Nasdaq suspended our common stock from trading on the Nasdaq and the OTCQB commenced the quotation of our common stock.

On April 23, 2020, the closing price of our common stock on the OTCQB was $0.012.

Record Holders

 

As of April 3, 2017, the closing bid price of the common stock was $0.28 and23, 2020, we had approximately 37,316,714271 record holders of our common stock. This number excludes any estimate by us of theThe number of beneficial owners of sharesrecord holders does not include persons who held our common stock in street name, the accuracy of which cannot be guaranteed.nominee or “street name” accounts through brokers.

21

  

Dividend Policy

 

The payment of cash dividends by us is within the discretion of our board of directors and depends in part upon our earnings levels, capital requirements, financial condition, any restrictive loan covenants, and other factors our board considers relevant. Since the share exchange in 2012, weWe have not declared or paid any dividends on our common stock, during the periods included in this Annual Report on Form 10-K, and we do not anticipate paying such dividends in the foreseeable future. We intend to retain earnings, if any, to finance our operations and expansion.

 

Description ofSecurities Authorized for Issuance under Equity Compensation Plans Approved by Shareholders

 

PriorOn December 27, 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (“2018 Plan”). The 2018 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 Share Exchange,Company. No options were issued during the years ended December 31, 2019 or 2018, and there were no options outstanding as at December 31, 2019 or 2018.

Sales of Unregistered Equity Securities

On May 16, 2019, the Company entered into an agreement amendment with Browning regarding the original acquisition pricing and issued 150,000 shares to Browning.


On July 11, 2019, the Company issued 200,000 shares of common stock to One Horizon UK had authorized securitiesPercent Investments Inc. for issuance underconsultancy services.

On July 31, 2019 and December 5, 2019, the Company issued 566,000 shares of common stock to Crown Bridge Partners as a commitment fee for the equity compensation plans that have not been approvedpurchase agreement.

On August 2, 2019, the Company issued 179,104 shares of common stock to Labrys Fund LP as security for the cash advance. These shares were returned in February 2020 for cancellation following repayment of the advance by the stockholders, but none under equity compensation plans that were approved by the stockholders. The following table shows the aggregate amount of securities authorized for issuance under all equity compensation plans as of December 31, 2016:Company.

 

Number of securities to be issued upon exercise of outstanding options,
warrants and rights
(a)
    Weighted-
average
exercise price
of
outstanding
options,
warrants and
rights
(b)
  Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
 
             
Equity compensation plans approved by security holders  847,500  $2.47   4,936,000 

On August 20, 2019, the Company issued 100,000 shares of common stock to Scott Mahoney for consultancy services.

 

The securities referenced in the table above reflect stock options granted and approved by security holdersissuances were made pursuant to an exemption from registration as set forth in 506 of Regulation D and Section 4(2) of the 2013 plan.

In addition share options were issued to employees under previous unapproved plans, 875,700 of such options are fully vested.  583,800 of such options are expiring in 2020; and 291,900 are expiring in 2022. The number of options in the table above reflect a conversion that occurred in connection with the Share Exchange, whereby the number of options (to purchase One Horizon UK shares) held by each employee was increased by 175.14 times and the exercise price was decreased by the option exercise price divided by 175.14, and additionally reflect a 1-for-600 reverse stock split effected as of August 6, 2013.Securities Act.

 

Repurchases of Equity Securities

 

We havedid not repurchasedrepurchase any equity securities during the periods covered by this Report.fourth quarter of 2019.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

22

 

ITEM 7. 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 audited consolidated financial statements and notes for the fiscal years ended December 31, 20162019 and 2015.2018. The following discussion and analysis containscontain 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

 

One Horizon Group, Inc.We are a holding company which, through our operating subsidiaries, is engaged in media and its Subsidiaries (the “Company”) is the inventordigital technology, primarily in sports entertainment and related technologies that bring fans closer to athletes and celebrities.

Current Structure of the patentedSmartPacketTMCompany Voice over Internet Protocol (“VoIP”) platform. Our proprietary software is designed to capitalize on numerous industry trends, including the rapid adoption of smartphones, the adoption of cloud based Internet services, the migration towards all IP voice networks and the expansion of enterprise bring-your-own- device to work programs.

 

The Company designs, develops and sells white label SmartPacketTMVoIP software and services to large Tier-1 telecommunications operators. Our licensees market and deliver an operator-branded mobile Internet communication solution to smartphones including VoIP, multi-media messaging, video, conference calling, and mobile advertising to their retail subscribers; and to theirBusiness to Business(“B2B”) business subscribers.has the following subsidiaries:

 

The SmartPacket™ platform, significantly improves the efficiency by which voice signals are transmitted from smartphones over the Internet resulting in a 10X reduction in mobile bandwidth and reduced battery usage while transmitting a VoIP call on a smartphone. This is of commercial interest to operators that wish to have a high quality VoIP call on congested metropolitan 4G networks and on legacy 2G and 3G cellular networks and our optimizations benefits operators by reducing their payments by over 10x to overseas operators when their subscribers make VoIP calls whilst roaming.

 23Subsidiary name% Owned

The following diagram (source GSMA Intelligence, GSMA Mobile Economy 2016) shows the global penetration of mobile broadband and with the Company’s patented technology being one of the leading mobile VoIP solution for all mobile network types management believes that this represents a very large opportunity for future growth in sales.

 

 24123Wish, Inc. (considered dormant)51%
 One Horizon Hong Kong Ltd100%
Horizon Network Technology Co. Ltd100%
Love Media House, Inc. (Discontinued Operations)100%
Touchpoint Connect Limited (formed in September 2019)100%
Browning Productions & Entertainment, Inc. (Discontinued Operations and sold in February 2020)51%

By leveraging its SmartPacketTM solution, the Company is also a VoIP as a Service (“VaaS”) cloud communications leader for hosted smartphone VoIP that run globally on the Microsoft Azure cloud. The Company sells its software, branding, hosting and operator services to smaller telecommunications operators, enterprises, operators in fixed line telephony, cable TV operators and to the satellite communications sector; and the “VaaS” business. Our existing licensees come from around the world including USA, China, United Kingdom, Singapore, Canada and Hong Kong.

Based on the SmartPacketTM solution, the Company is the sole owner and operator its own branded retail smartphone VoIP, messaging and advertising service in the People’s Republic of China called AishuoTM; Since its inception in the second quarter of 2015 Aishuo has been downloaded over 40 million times and has increased its revenues for the first 5 quarters of operations. Aishuo offers subscribers very competitive telephone call rates and a travel-SIM rental service plus lots of innovative smartphone social media features. Aishuo has been made available to users across 25 Chinese Android app stores and through iTunes. Aishuo subscribers pay for VoIP or can have a free VoIP call sponsored by advertisers. Aishuo supports top-up payment services inside the smartphone app including China UnionPay, Apple In-App Purchases, Alibaba’s Alipay and Tencent’s Wechat Wallet.

Our business model is focused on winning newB2BTier-1 telecommunications operators, winning newVaaSsubscribers and drivingAishuoretail revenues. We are also commercially focused on expanding sales of new and existing licensed products and services to existing customers, and renewing subscriptions and software support agreements. We target customers of all sizes and across a broad range of industries.

We are an ISO 9001 and ISO 20000-1 certified company with assets and operations in Switzerland, Ireland, the United Kingdom, China, India, Russia, Singapore, Hong Kong and Latin America.

 

In February 2015, we announcedaddition to the rollout of our platformsubsidiaries listed above, Suzhou Aishuo Network Information Co., Ltd (“Suzhou Aishuo”) is a limited liability company, organized in China brand named, Aishuo. The Aishuo platform provides VoIP services, a travel SIM solution delivered through a People’s Republic of China (“PRC”) entityand controlled by us via various contractual arrangements,arrangements. Suzhou Aishuo. The Aishuo product has been deliveredis 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

Touchpoint Connect Limited (“TCL”) is 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.

TCL brings users closer to the major storesaction by enabling them to engage with clubs, favourite players, peers and relevant brands through features 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.


TCL is available to a broad audience 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.

The Company is based in Chinese App marketplace including Baidu’s 91.com and Baidu.com, the Tencent App store MyApp.com, 360 Qihoo store 360.cn, Apple’s iTunesUnited States of America, Hong Kong, China and the ever growing Xiaomi store mi.com. The Aishuo smartphone app is expected to drive multiple revenue streams from the supply of its value-added services including the rental of Chinese telephone phone numbers linked to the app, low cost local and international calling plans and sponsorship from advertisers. Subscribers can top up their app credit from the biggest online payment services in China including AliPay (from Alibaba), Union Pay, PayPal and Tencent’s WeChat payment service.United Kingdom. 

 

Aishuo soughtDisposal of Discontinued Operations

On October 22, 2018, we entered into an Exchange Agreement (“Browning Exchange Agreement”) pursuant to acquire 15 million new app subscriberswhich we acquired a majority of the outstanding shares (the “Controlling Interest in Browning”) of Browning Productions &Entertainment, Inc. (“Browning”), from William J. Browning, the sole stockholder of Browning.

In exchange for the smartphone app overcontrolling interest in Browning, we paid Mr. Browning $10,000 and issued to him 12,000 shares of common stock, plus an additional number of shares of common stock which can be up to a two-yearmaximum of 680,000 shares, determined by dividing two and a half times the net after tax earnings of Browning during the twelve month period and expects to achieve industryended December 31, 2019 by the average revenues per user (ARPU) for similar social media apps. Byof the closing price of our common stock during the 10 consecutive trading days immediately preceding the end of September 30, 2016, we had exceeded our two year target of 15 million and in December 2016 had grown to over 40 million downloads of Aishuo smartphone app.2019.

 

Also during 2016 Company was grantedThough the terms of this transaction only required a 20-year patent$20,000 cash payment ($10,000 in cash under the non-binding letter of intent and $10,000 in cash under the Browning Exchange Agreement) to Mr. Browning, we were required to provide Browning with a working capital loan in an initial amount of $150,000, which is to be repaid out of the post-closing net profit of Browning, as well as earmark an additional $150,000 in cash for Inventionfuture investment in Browning (to assist in funding the People's Republicfuture operations of China for its mobile VoIP software solution.Browning).

 

In additionWe had a right of first refusal to purchase the developments in the rolloutremaining shares of Aishuo smartphone app brand in mainland China, we delivered a data roaming VoIP solution with, Smart Communications, the Philippines' leading wireless service provider with an estimated 55 million prepaid subscribers. For the first time, prepaid subscribers that travel abroad are now able to call home on their operators' data roaming service free from roaming fees (http://smart.com.ph/smartroamer). The management expect this commercial rollout of an optimized data voice solution for roamers to drive further mobile operator interest in the Company’s products and to drive revenues from its rollout to Filipinos throughout 2017.

25

Corporate Governance

Research & DevelopmentBrowning.

 

During the year ended December 31, 2019, the Company decided to sell its interests in its subsidiaries, Love Media House Inc. (“Love Media”) and Browning. In connection with this determination, the Company concluded the intangible assets related to these subsidiaries were impaired. Accordingly, the Company recorded an impairment charge of $2,440,000 which is included in the loss from discontinued operations.

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

The return of 89,334 shares in the Company held by William J. Browning for cancellation; and

The repayment to the Company of the advances made to Browning totaling $210,000 over a 24-month period ending January 31, 2022. To encourage early repayment by Browning, the Company has agreed to give additional debt reduction on the basis of $1.00 credit for every $1.00 paid during the first six months of the repayment term.

Currently, the Company is looking to negotiate a sale of its ownership interest in Love Media.  

COVID-19 Effects

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally.

Because COVID-19 infections have been reported throughout the United States and the United Kingdom, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. As a result, the Company has seen delays in certain Touchpoint licensing agreements commencing operation which leads to subsequent delays in subscriptions being processed. All of the Company employees and management can operate from home whilst the stay-at-home orders remain in place.

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.


The measures taken to date will impact the Company’s business for the fiscal first, second and third quarters and potentially beyond. Management expects that all of its business segments, across all of its geographies, will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time

For the fiscal years ended December 31, 2019 and 2018, we our continuing operations generated revenues of $170,000 and $306,000, respectively; and reported net losses of $3,298,000 and $13,413,000, respectively, and negative cash flow from continuing operating activities of $1,431 and $2,973,000, respectively. As noted in our consolidated financial statements, we had an accumulated deficit of approximately $61.3 million and recurring losses from operations as of December 31, 2019. We anticipate that we will continue to report losses and negative cash flow. Our auditors have raised substantial doubt regarding our ability to continue as a going concern as a result of our historical recurring losses and negative cash flows from operations. See “Risk Factors—We have a history of operating losses and our auditors have indicated that unless there is additional equity or debt funding in 2020, there is a substantial doubt about our ability to continue as a going concern.”

Results of Operations

The following table sets forth information from our statements of operations for the years ended December 31, 2019 and 2018. 

Comparison of years ended December 31, 2019 and 2018 (in thousands) excluding discontinued items.

  For the Years Ended  Year to Year Comparison 
  December 31,  Increase/  Percentage 
  2019  2018  (decrease)  Change 
             
Revenue $170  $306  $(136)  (44.4)%
                 
Cost of revenue                
Software and production costs  4      4   N/A 
Amortization of intangible assets  553   1,982   (1,429)  (72.1)%
   557   1,982         
                 
Gross deficit  (387)  (1,676)  (1,289)  (76.9)%
                 
Operating Expenses                
                 
General and administrative  3,321   6,642   (3,321)  (50.0)%
Acquisition services  -   1,874   (1,874)  N/A 
Depreciation  1   1   -    %
Impairment charge  -   3,761   (3,761)  N/A 
Total Operating Expenses  3,322   12,278   (8,956)  (72.9)%
                 
Loss from Operations  (3,709)  (13,954)  (10,245)  (73.4)%
                 
Other Income(expense)                
Interest expense  (87)  (428)  (341)  (79.7)%
Other Income  553   968   (415)  (42.9)%
Loss on disposal of investment  (50)  -   (50)  N/A 
Foreign currency exchange (losses) gains  (5)  1   (6)  (600.0)%
   411   541         
                 
Loss from continuing operations $(3,298) $(13,413)  (10,115)  (75.4)%


Revenue: Our revenue for continuing operations for the year 2016, we spentended December 31, 2019 was approximately $500,000 on capitalizable research and development$170,000 as compared to approximately $306,000 for the year ended December 31, 2018, a decrease of approximately $136,000 or 44.4% due to a reduction in revenue generating contracts.

Cost of Revenue: Cost of revenue is primarily the amortization of intangible assets relating to subsidiaries acquired together with approximately $600,000 on expensed research and development.intellectual property associated with the secure messaging.

 

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Gross Deficit:  Gross deficit for the year ended December 31, 2019 was approximately $387,000 as compared to $1,676,000 for the year ended December 31, 2018. The decreased deficit is primarily due to the decrease in amortization.

 

Operating Expenses: Operating expenses including general and administrative expenses, consultancy expenses, depreciation and impairment charges were approximately $3.3 million for the year ended December 31, 2019, as compared to approximately $12.3 million, for the same period in 2018, a decrease of approximately $9.0 million or 73%. The decrease in expenses primarily arose due to decreases in consulting costs, acquisition costs and impairment charges.

Other Income (Expense): Net other income totaled approximately $0.4 million for the year ended December 31, 2019 as compared to approximately $0.5 million in the year ended December 31, 2018, a decrease of approximately $124,000. The decrease in net other income is due primarily to a decrease in interest expense charges and other income recognized from the planned disposition of Banana Whale.

Net Loss: Net loss from continuing operations for the year ended December 31, 2019 was approximately $3.3 million as compared to a net loss from continuing operations of $13.4 million for the same period in 2018.  Going forward, management believes the Company will continue to grow the business and increase profitability through acquisitions.

Foreign Currency Translation Adjustment:     Our reporting currency is the U.S. dollar. Our local currencies, Hong Kong Dollars, British pounds and Chinese Renminbi, 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.


Years Ended December 31, 2018 and December 31, 2018

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

  For the Years Ended
December 31
(in thousands)
 
  2019  2018 
Net cash used in operating activities from continuing operations  (1,431)  (2,973)
Net cash used in operating activities from discontinued operations  (633)  (1,058)
Net cash provided (used) in investing activities from continuing operations  1,660   (205)
Net cash used in investing activities from discontinued operations  (77)  (5)
Net cash provided by financing activities from continuing operations  291   3,516 
Net cash provided by financing activities from discontinued operations  69   301 

Net cash used by operating activities from continuing operations was approximately $1.4 million for the year ended December 31, 2019 as compared to approximately $3.0 million for the same period in 2018. The decrease in cash used in operating activities from continuing operations is largely due to the decrease in cash expenditures in 2019 as compared to 2018 related to the fundraising and management activities.

Net cash provided by investing activities from continuing operations was approximately $1.7 million for the year ended December 31, 2019 as compared to net cash used of approximately $0.2 million. Net cash provided by investing activities was primarily the disposal of the interest in Banana Whale Studios PTE LTD. 

Net cash provided by financing activities from continuing operations amounted to approximately $0.3 million for 2019 and $3.5 million for 2018. Cash provided by financing activities in 2019 and 2018 was primarily from the sale of common stock and exercise of warrants, net of related costs.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

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 accounting principles generally accepted in the United States, or 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 our recognition of revenues, accounting for the consolidation of operations, accounting for stock-based compensation, 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 consolidated financial statements.

 

Additionally, we consider certain judgments and estimates to be significant, including those relating to the timing of revenue recognition from the sales of perpetual licenses to certain Tier 1 and Tier 2 telecom entities, those relating to the determination of vendor specific objective evidence (“VSOE”) for purposes of revenue recognition, allowance for doubtful accounts, useful lives for amortization of intangibles, determination of future cash flows associated with impairment testing of long-lived assets, determination of the fair value of stock options and other assessments of fair value. We base our estimates on historical experience, current conditions and on other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions.

Together with our critical accounting policies set out above,forth below, our significant accounting policies are summarized in Note 2 of our audited financial statements as of December 31, 2016.

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company establishes persuasive evidence of a sales arrangement for each type of revenue transaction based on a signed contract with the customer and that delivery has occurred or services have been rendered, price is fixed and determinable, and collectability is reasonably assured.

·Software and licenses – revenue from sales of perpetual licenses to telecom entities is recognized at the date of invoices raised for installments due under the agreement, unless payment terms exceed one year, as described below, presuming all other relevant revenue recognition criteria are met.
·Revenue for user licenses purchased by customers is recognized when the user license is delivered except as set out below.
·Revenue for maintenance services is recognized over the period of delivery of the services except as set out below.
·Effective as of October 1, 2014, the Company amended certain existing customer contracts with respect to the terms under which those customers would pay the Company for perpetual licenses, user licenses and maintenance services provided by the Company. Existing customer contracts required payments for maintenance services to be made based on contractually specified fixed amounts, which were billed regularly through September 2014. Through that date the Company recorded revenue for licenses and maintenance services when those licenses and services were billed. Revenue for user licenses was recorded as earned and revenue for maintenance services was recorded based on a fixed annual fee, billed quarterly. The Company has modified the payment terms under certain of those existing customer contracts by entering into Revenue Sharing agreements with those customers. Under the terms of these Revenue Sharing agreements, future payments will be due from the customer when that customer has generated revenue from its customers who subscribe to use the Horizon products and services. Effective October 1, 2014 revenue will be recorded by the Company when it invoices the customer for the revenue share due to the Company. Certain customers who entered into revenue sharing arrangements had outstanding balances due to the Company as of September 30, 2014, which balances were included in accounts receivable at that date. Payments received after September 30, 2014, from those customers under revenue sharing agreements have been applied to the customer’s existing accounts receivable balances first. For those customers having balances due at September 30, 2014, revenue related to perpetual and user licenses and maintenance services will be recorded only after existing accounts receivable balances are fully collected.

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·Revenues from Aishuo retail sales are recognized when the PSTN calls and texts are made

Where the Company has entered into a Revenue Share with the customer then all future revenue from granting of user licenses and for maintenance services will be recognized when the Company has delivered user licenses and is entitled to invoice.

We enter into arrangements in which a customer purchases a combination of software licenses, maintenance services and post-contract customer support (“PCS”). As a result, judgment is sometimes required to determine the appropriate accounting, including how the price should be allocated among the deliverable elements if there are multiple elements. PCS may include rights to unspecified upgrades, when and if available, support, updates and enhancements. When vendor specific objective evidence (“VSOE”) of fair value exists for all elements in a multiple element arrangement, revenue is allocated to each element based on the relative fair value of each of the elements. VSOE of fair value is established by the price charged when the same element is sold separately. Accordingly, the judgments involved in assessing the fair values of various elements of an agreement can impact the recognition of revenue in each period. Changes in the allocation of the sales price between deliverables might impact the timing of revenue recognition, but would not change the total revenue recognized on the contract. When elements such as software and services are contained in a single arrangement, or in related arrangements with the same customer, we allocate revenue to each element based on its relative fair value, provided that such element meets the criteria for treatment as a separate unit of accounting. In the absence of fair value for a delivered element, revenue is first allocated to the fair value of the undelivered elements and then allocated to the residual delivered elements. In the absence of fair value for an undelivered element, the arrangement is accounted for as a single unit of accounting, resulting in a delay of revenue recognition for the delivered elements until the undelivered elements are fulfilled. No sales arrangements to date include undelivered elements for which VSOE does not exist.

For purposes of revenue recognition for perpetual licenses, the Company considers payment terms exceeding one year as a presumption that the fee in the transaction is not fixed and determinable.

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If the presumption cannot be overcome due to a lack of such evidence, revenue is recognized as payments become due, assuming all other revenue recognition criteria has been met.

Results of Operations

The following table sets forth information from our statements of operations for the year ended December 31, 2016 and 2015. 2019.

 


Comparison of year ended December 31, 2016 and 2015 (in thousands)Revenue Recognition

 

  For the Year Ended
December 31,
  Year to Year Comparison 
  2016   2015
(restated)
  Increase/
(decrease)
  Percentage
Change
 
             
Revenue $1,615  $1,532  $83   5.4%
                 
Cost of revenue                
Hardware, calls and network charges  98   116   (18)  (15.5)%
Amortization of software development costs  2,010   2,111   (101)  (4.8)%
   2,108   2,227         
                 
Gross margin  (493)  (695)  (202)  (29.1)%
                 
Operating Expenses                
                 
General and administrative  3,267   3,326   (59)  (0.2)%
Increase in Allowance for doubtful accounts  455   934   (501)  (53.6)%
Depreciation  59   67   (8)  (11.9)%
Research and development  605   579   26   4.5%
Total Operating Expenses  4,386   4,906   (520)  (10.6)%
                 
Loss from Operations  (4,879)  (5,601)  (722)  (12.9)%
                 
Other Income(Expense)                
Interest expense  (712)  (722)  10   1.4%
Interest expense - related parties  -   (2)  2   100%
Gain on settlement of lease  -   36   (36)  (100)%
Foreign Exchange gain/(loss), net  9   (29)  38   131.0%
Interest income  -   2   (2)  (100)%
                 
Loss for continuing operations before income taxes  (5,582)  (6,316)  (734)  (11.3)%
                 
Income tax recovery  (43)  (20)  (23)  (115.0)%
Net loss for the year  (5,539)  (6,296)  (757)  (12.0)%
1.Revenue for the sale of the software license is recognized when the customer has use of the services and has access to use the software. Revenue from maintenance services are recognized as the services are provided and charged.

 

Revenue: Our revenue for the year ended December 31, 2016 was approximately $1.6 million as compared to approximately $1.5 million for the year ended December 31, 2015, an increase of roughly $0.1 million or 5%. The increase was primarily due to increase in B2B business primarily in the Asia region.

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Cost of Revenue: Cost of revenue for hardware calls and network charges was approximately $0.1 million for the year ended December 31, 2016, compared to approximately the same amount for the year ended December 31, 2015. Our cost of sales is primarily composed of the amortization of software development costs together with the costs of hardware, calls and network charges.

Gross Profit:  Gross profit before the amortization charge for the year ended December 31, 2016 was approximately $1.5 million as compared to $1.4 millionfor the previous year.  Our gross profits increased by 6% from 2015 to 2016.  The increase was mainly due to the increase in B2B business primarily in the Asia region.

Operating Expenses: Operating expenses including general and administrative expenses, allowance for doubtful accounts, depreciation and research and development expenses were approximately $ 4.4 million or 272% of revenue for the year ended December 31, 2016, as compared to approximately $4.9 million, or 322% of sales for the same period in 2015, a decrease of $0.5 million. The decrease in expenses arose due to the reduction in provision for doubtful accounts of $0.4 million in the year ended December 31, 2016 when compared to the same period in 2015. General and administrative expenses were approximately $3.3 million for the year ended December 31, 2016 as compared to approximately the same amount as the same period in 2015.

Net Loss: Net loss for the year ended December 31, 2016 was approximately $5.5 million as compared to a net loss of $6.3 million for the same period in 2015.  Going forward, management expects to generate a growth in revenue based on the roll out of the products primarily in the China, Asia and Latin America regions. Going forward, management believes the Company will continue to grow the business and increase profitability if we are successful in selling the Horizon B2B solution to new telecommunications company customers globally and the B2C service to end users.

Foreign Currency Translation Adjustment:     Our reporting currency is the U.S. dollar. Our local currencies, Swiss Francs, Euro, British pounds and Chinese Renminbi, 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.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to approximately $65,000 for the year ended December 31, 2016.

Liquidity and Capital Resources

As we continue to pursue our operations and our business plan, we expect to incur further losses in 2017 which when combined with our continued investment in our intellectual property, will generate negative cash flows. As of December 31, 2016 the Company did not have any available credit facilities. As a result we are in the process of seeking new financing by way of sale of either convertible debt or equities. Whilst we have been successful in the past in obtaining the necessary capital to support our investment and operations there is no assurance that we will be able to obtain additional financing under acceptable terms and conditions, or at all. As a result , our auditors’ report for our 2016 Financial Statements, which are included as part of this report, contains a statement concerning our ability to continue as a “going concern”.

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Years Ended December 31, 2016 and December 31, 2015Recent Accounting Pronouncements

 

The following table sets forthIn February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, “Leases,” which created a summarynew Topic, Accounting Standards Codification Topic 842 and established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments, that arise from leases. For leases with a term of our approximate cash flows12 months or less, a lessee is permitted to make an election under which such assets and liabilities would not be recognized, and lease expense would be recognized generally on a straight-line basis over the lease term. This standard is effective for the periods indicated:

  For the Years Ended
December 31
(in thousands)
 
  2016  2015 
Net cash used in operating activities  (1,303)  (2,115)
Net cash used in investing activities  (475)  (1,072)
Net cash provided by financing activities  334   1,787 

Net cash usedCompany beginning in 2019 and was adopted by operating activities was approximately $1.3 millionthe Company for the year ended December 31, 2016 as compared to approximately $2.1 million forbeginning January 1, 2019. The Company has evaluated the same period in 2015. The decrease in cash used in operating activities is largely due to the deferralimpact of payments to vendors during 2016

Net cash used in investing activities was approximately $0.5 million and $1.1 million for the years ended December 31, 2016 and 2015, respectively. Net cash used in investing activities was primarily focused on investment in software development costs. 

Net cash provided by financing activities amounted to approximately $0.3 million for 2016 and $1.8 million for 2015. Cash provided by financing activities in 2016 primarily from the sale of Common Stock in September, October and December 2016, net of related costs. Cash provided by financing activities in 2015 was primarily due to the sale of Common Stock in August and September 2015.

Our working capital deficit as of December 31, 2016, was approximately $1.9 million, as compared to working capital of approximately $3.9 million for the same date in 2015.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effectthis revised guidance on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that isstatements and determined it had no material to investors.impact, as the Company has no leasing arrangements with terms greater than one year.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by Item 304 of Regulation S-K.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our financial statements, including the independent registered public accounting firm’s report on our financial statements, are included beginning at page F-1 immediately following the signature page of this report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

(a) Dismissal of Independent Certifying Accountant.

(1) Previous Independent Public Accounting Firm

On October 12, 2016, Peterson Sullivan LLP (“Peterson”) resigned as One Horizon Group, Inc.’s (the “Company”) independent registered public accounting firm. The report of PetersonAnnual Report on the Company’s financial statements for the year ended December 31, 2014, did not contain an adverse opinion or disclaimer of opinion, and such report was not qualified or modified as to uncertainty, audit scope, or accounting principles. During the year ended December 31, 2014, there were no disagreements between the Company and Peterson on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. No reportable event, as described in Item 304(a)(1)(v) of Regulation S-K, has occurred from the resignation of Peterson.Form 10-K.

As a result of Peterson’s resignation, Peterson determined not to reissue their report on our financial statements for fiscal year ended December 31, 2015.

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(2) New Independent Public Accounting Firm

On October 12, 2016, the Company entered into an engagement with Cherry Bekaert LLP (“Cherry”) to retain Cherry as the Company’s independent public accounting firm. On October 12, 2016, the audit committee of the Company approved and ratified the engagement of Cherry as its new independent registered public accounting firm.

Cherry re-audited our financial statements for the fiscal year ended December 31, 2015 and determined there is no material change to the prior report issued by Peterson for that period, but for the emphasis of matter paragraph with respect to the restatement of the previously reported consolidated financial statement as of and for the year ended December 31, 2015.

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ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including itsour chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Limitations on the Effectiveness of Disclosure Controls. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our chief executive officerChief Executive Officer and our chief financial officer,Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures for the period ended December 31, 2016. Based on2019. Our Chief Executive Officer and Chief Financial Officer concluded that due to the foregoing, our chief executive officer and chiefdeficiency in the internal control over financial officer concluded thatreporting discussed below, our disclosure controls and procedures (as defined in Rules 13a-15(e)13a-15(f) and 15d-15(e) under the Exchange Act) were not operating effectivelyeffective as of December 31, 2016. Our disclosure controls and procedures were not effective because of the “material weaknesses” described below under “Management’s Annual Report on Internal Controls Over Financial Reporting”.2019.


Management’s Report on Internal Control over Financial Reporting

 

Our management is also responsible for establishing and maintaining adequate internal controls over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors (notably, the Audit Committee thereof), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principlesGAAP and includes those policies and procedures that:

 

·       Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

·       Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

 

·       Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

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Our management, including our Chief Executive Officer and our Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2016.2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Tread wayTreadway Commission (COSO) in Internal Control—Integrated Framework. BecauseControl-Integrated Framework (2013). Due to a lack of accounting personnel, the Company’s inability to segregate various accounting functions, lack of a control function over original documentation of agreements, and a lack of a documented control environment with respect to our operating entities, management has concluded that there was a material weaknesses describedweakness in the following paragraphs, management believesour internal control environment based on these matters and has concluded that as of December 31, 2016,2019, our internal control over financial reporting was not effective based on those criteria.effective.

 

A “material weakness” is defined under the SEC rules as a deficiency, or a combinationThis annual report does not include an attestation report of deficiencies, inour registered public accounting firm regarding internal control over financial reporting such that there is a reasonable possibility that a material misstatementreporting. The rules of a company’s annual or interim financial statements willthe SEC do not be prevented or detected on a timely basisrequire an attestation of the management’s report by our internal controls. As a result of its review, management concluded that we had material weaknessesregistered public accounting firm in our internal control over financial reporting process consisting of the following:

(i)   Lack of in-house US GAAP Expertise. Currently we do not have sufficient in-house expertise in US GAAP reporting. Instead, we rely on the expertise and knowledge of external financial advisors to account for transactions in accordance with US GAAP.

During the years ended December 31, 2015 and 2016, we implemented the following measures to remediate the material weaknesses identified:

During 2015 and 2016, the Company engaged external CPA consultants to provide the Company with improved in-house US GAAP expertise. Despite these measures which were intended to address the identified material weaknesses as well as to enhance our overall internal control environment, management concluded that as of December 31, 2016, the material weaknesses identified above had not been fully remediated.

Management Plan to Remediate Material Weaknesses

We intend to continue in the future using external financial advisors throughout the year to assist on the reporting of complex transactions and the overall review of the quarterly andthis annual filings.report.

 

Changes in Internal Control over Financial Reporting

 

Other than described above, duringDuring the fourth quarter of the fiscal year ended December 31, 2016,2019, there were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

Entry into a Material Definitive Agreements & Unregistered Sales of Equity Securities

Catalyst Corporate Solutions, LLC Consulting Agreement

On August 5, 2019, the Company entered into a Consulting Agreement (the “Catalyst Agreement”) between the Company and Catalyst Corporate Solutions, LLC (“Catalyst”). Pursuant to the terms of the Catalyst Agreement, the Company retained Catalyst to (i) assist the Company with its plans to expand its business; and (ii) furnish additional ongoing management and business consulting services aimed at enhancing Company’s business (collectively, the “Catalyst Consulting Services”).

The Catalyst Agreement had a term of six months, but the Company had the right to cancel the Catalyst Agreement by providing 30 days’ written notice to Catalyst. Notwithstanding, in the event of a termination notice, all of the compensation mentioned in the Catalyst Agreement and issued to Catalyst up to and including 15 days following the termination notice will be deemed earned (or immediately due and payable). The Catalyst Agreement provides that Catalyst will not be issued, at any time during the term of the Catalyst Agreement or any extension thereof, such number of shares of Company common stock that would result in beneficial ownership by Catalyst and its affiliates of more than 9.99% of the outstanding shares of Company common stock.

In order to incentivize Catalyst to enter into the Catalyst Agreement and to provide the Catalyst Consulting Services and for other good and valuable consideration, the Company agreed to issue and immediately and irrevocably deliver to Catalyst 2,500,000 restricted shares of Company common stock.

 

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Catalyst Corporate Solutions, LLC Accord and First Amended Consulting Agreement

 

On April 21, 2020, the Company entered into the Accord and First Amended Consulting Agreement (the “Amended Catalyst Agreement”), dated as of April 16, 2020, by and between the Company and Catalyst. The Amended Catalyst Agreement amends the Catalyst Agreement. Pursuant to the terms of the Amended Catalyst Agreement, Catalyst agreed to provide the Consulting Services until October 15, 2020 in exchange for issuance by the Company of 5,000,000 shares of Company common stock.

In addition, pursuant to the terms of the Catalyst Agreement, the parties agreed that the 2,500,000 shares that were issued would not be subject to a reverse split. As previously disclosed, on September 26, 2019, the Company effected a 1-for-25 reverse stock split of the Company’s common stock (the “Reverse Split”). Pursuant to the terms of the Amended Catalyst Agreement, the Company agreed to issue to Catalyst an additional 2,400,000 shares of Company common stock as a corrective share issuance that the parties agreed was fully earned by Catalyst as of August 20, 2019.

Convertible Note

On November 21, 2019, the Company issued a convertible note (the “Convertible Note”) to Bespoke Growth Partners, Inc. (“Bespoke”) in the principal amount of $300,000. The Convertible Note is payable in full on May 21, 2020 and bears interest at the rate of 20% per annum. Accrued interest on the Convertible Note is payable each month on the 30-day anniversary of the issue date. The Convertible Note carries an original issue discount of $100,000; Accordingly, the purchase price of the Convertible Note is $200,000. The Convertible Note may not be prepaid in whole or in part except as set forth in the Convertible Note. Any amount of principal or interest on the Convertible Note which is not paid when due shall bear interest at the rate of the lesser of 28% per annum or the maximum amount permitted under applicable law from the due date until paid. The Convertible Note may be convertible into shares of the Company’s common stock at any time only following an event of default at a price per share of 50% (representing a 50% discount) of the lowest one trading price for the Company’s common stock during the 20-trading day period ending on the last complete trading day prior to the date of conversion.

Quantum Lexicon Consulting Agreement

On April 20, 2020, the Company entered into a Consulting Agreement (“Quantum Agreement”), dated as of April 16, 2020, by and between the Company and Quantum Lexicon (“Quantum”). Pursuant to the terms of the Quantum Agreement, the Company retained Quantum to (i) assist the Company with its plans to grow its business; and (ii) furnish additional ongoing management and business consulting services aimed at enhancing the Company’s business (collectively, the “Quantum Consulting Services”).

The Quantum Agreement had a term of six months, but the Company had the right to cancel the Quantum Agreement by providing 30 days’ written notice to Quantum. Notwithstanding, in the event of a termination notice, all of the compensation mentioned in the Quantum Agreement and issued to Quantum up to and including 15 days following the termination notice will be deemed earned (or immediately due and payable). The Quantum Agreement provides that Quantum will not be issued, at any time during the term of the Quantum Agreement or any extension thereof, such number of shares of Company common stock that would result in beneficial ownership by Quantum and its affiliates of more than 9.99% of the outstanding shares of Company common stock.

In order to incentivize Quantum to enter into the Quantum Agreement and to provide the Quantum Consulting Services and for other good and valuable consideration, the Company agreed to issue and immediately and irrevocably deliver to Quantum 2,000,000 restricted shares of Company common stock.

With regard to any acquisition of a company introduced by Quantum that results in ownership by the Company of not less than 20% of such company, the Company agreed to compensate Quantum within three business days of closing of such transaction by that amount of cash that equates to 5% of the anticipated total purchase price or deal value or that amount of Company stock that equates to 7.5% of the anticipated purchase price or deal value.

The foregoing descriptions of the Catalyst Agreement, the Amended Catalyst Agreement and the Quantum Agreement are qualified in their entirety by reference to such Catalyst Agreement, Amended Catalyst Agreement, Convertible Note and Quantum Agreement, copies of which are filed as Exhibits 10.45, 10.46, 10.47 and 10.48, respectively, to this Annual Report on Form 10-K.

On April 24, 2020, the Company issued an aggregate of 5,000,000 shares to an employee in advance of stock awards due to him. The Company claims an exemption from the registration requirements of the Securities Act for the private placement of the securities issued to this employee and to Catalyst and Quantum pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder because, among other things, the transaction did not involve a public offering, the recipients are accredited investors, the recipients acquired the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.


PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Board of Directors and Executive Officers

 

The following table and text setsets forth the names, positions and ages of allour directors and executive officers as of April 3, 2017. Therethe date of this Annual Report on Form 10-K. Our directors are no family relationships amongelected by our directors and executive officers. Each director is electedstockholders at our annual meeting of shareholdersthe stockholders and holds officeserve until the next annual meeting of shareholders,the stockholders or, until his successor is elected and qualified. Also provided herein are brief descriptionsin absence of the business experience of each director, executive officer and advisor during the past five years and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws. None of our officers or directors is a party adverse to us or has a material interest adverse to us.  Each director has been elected to the term indicated. Directors whose term of office ends in 2016 shall serve until the next Annual Meeting of Stockholders andsuch annual meeting, until their successors are elected and qualified. Officers are elected by our board of directors and their terms of office are at the discretion of our board.

 

Name Age Principal Occupation or Employment First Became Director Current
Board Term
Expires
 
          
Brian Collins  49 President, Chief Executive Officer, Chief Technology Officer, Director 12/10/12  2017 
            
Martin Ward  59 Chief Financial Officer, Director 12/10/12  2017 
            
Nicholas Carpinello  67 Owner, Carpinello Enterprises LLC, Director 3/7/13 Until the date of removal or resignation 
            
Richard Vos  71 Director 8/21/2013 Until the date of removal or resignation 
            
Robert Law  66 Director 8/28/2013 Until the date of removal or resignation 
            
Robert Vogler  66 Director 1/8/14 Until the date of removal or resignation 

Directors and Executive Officers

NameAgePosition
Mark White 59President, Chief Executive Officer and Director
Martin Ward 62Chief Financial Officer and Director
Nicholas Carpinello 70Director
Nalin Jay43Director
Robert Law 69Director
Aling Zhang62Director
Pengfei Li32Director

Biographical information concerning the directors and executive officers listed above is set forth below.  

 

Brian CollinsMark White.  

Mr. CollinsWhite was appointed as thePresident, Chief Executive OfficeOfficer and President on July 28, 2014. Mr. Collins also acts as the Chairman of the Boarda director of the Company upon his appointment as theon September 8, 2017. Mr. White founded and became Chief Executive Officer of a predecessor of the Company. Mr. Collins was earlier appointed as Vice PresidentCompany, One Horizon Group PLC, in 2004 and Chief Technology Officer on November 30, 2012 and director on December 10, 2012. Prior to his appointment as Vice President and Chief Technology Officer, Mr. Collins had served as Chief TechnologyExecutive Officer and a Director of One Horizon Group, PLC since 2010, followingInc. from 2012 to 2014. His entrepreneurial career in the distribution of electronic equipment and telecommunications spans over 25 years.

He founded Next Destination Limited in 1993, the European distributor for Magellan GPS and satellite products, and sold the business in 1997. Prior to that, Mr. White was Chief Executive Officer for Garmin Europe, where he built up the company’s European distribution network.

Apart from his product and technical knowledge, Mr. White has a wealth of experience in corporate finance. He has led in excess of 25 merger and acquisition by One Horizon Group of Abbey Technology GmbH, a company that was founded by,transactions and employed, Mr. Collins in 1999,associated funding and which became a subsidiary of One Horizon Group upon its acquisition. He is the co-inventor of the Horizon Platform,financing rounds and has over 20 years’ experience insuccessfully transformed numerous company’s fortunes on both the technology sector with a background in software engineering. Abbey Technology developed software systems for the Swiss banking industry. Prior to his employment at Abbey, he worked as a software engineer for Credit Suisse First Boston Equities in Zurich. Earlier in his career, between 1993private and 1996, he worked as a software engineer for Sybase, an information technology company, in California and Amsterdam. Mr. Collins graduated in 1990 with a BSc Hons in Computer Systems from the University of Limerick, Ireland. He also undertook further software research and development at International Computers Limited between 1990 and 1993. Mr. Collins brings experience founding and working at technology companies along with extensive knowledge of software engineering.public markets.

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Martin WardWard.

Mr. Ward was appointed Chief Financial Officer on November 30, 2012 and director on December 10, 2012. Prior to his appointmenthas served as Chief Financial Officer Mr. Ward had servedand a director of the Company since 2012, and as the Chief Financial Officer and Company Secretary of One Horizon Group PLCand its predecessor since 2004.  Prior to joining One Horizon Group, Mr. WardDuring that time, he has overseen the Company’s United Kingdom arm float on the London AIM market and in 2012 merge with an OTC market company that was a partner at Langdowns DFK, a United Kingdom-based chartered accountancy practice. Earlieruplisted the NASDAQ Capital Market in his career, between 1983 and 1987, he worked for PricewaterhouseCoopers as an Audit Manager.2014. Mr. Ward is a fellowFellow of the Institute of Chartered Accountants ofin England and Wales. Mr. Ward brings significant experienceWales (“ICAEW”) and qualified as a Chartered Accountant in accounting, corporate finance and public company reporting.1983.

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Nicholas CarpinelloCarpinello.

Mr. Carpinello was appointed ashas served asa member of the Board of Directors since 2013.  He is an Independent Director of the Company and is the Chairman of the Audit Committee and a director on March 7, 2013.member of the Compensation and the Nomination & Governance Committees. He has been the owner of Carpinello Enterprises LLC d/b/a Cottman Transmission Center, a nationalU.S. nationwide auto service franchise since 2004 and also has worked as a consultant to SatCom Distribution Inc. (“SDI”), assisting in various business, tax and financial matters of US operations of UK-based distributors of satellite communication hardware and airtime, since 2005. Prior to November 2012, SDI was a subsidiary of One Horizon Group PLC.2004.  Mr. Carpinello’s years of professional experience are extensive and include experience as CFO and Treasurer with multinational public and private manufacturers of armored vehicles and, later in his career, CFO of privately-held companies in the computer science field. He is a Certified Public Accountant, an alumnus of Arthur Andersen & Co., and holds a BA degree in Accounting from the University of Cincinnati. The Board decided that Mr. Carpinello should serve as a director because of his significant U.S. public company experience, as well as years of experience as a certified public accountant.

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Richard VosNalin Jay.

Mr. VosJay was appointed as a director in 2019 and has many years’ experience in corporate finance and management consultancy.  Currently, he heads up Carnegie Stewart, a strategic, financial and management consultancy business that he founded in 2011. Clients include several major law firms, such as Allen & Overy, Linklaters, White & Case and Freshfields as well as major corporations such as Bank of America Merrill Lynch, Starwood Hotels, Grosvenor, Gammon Construction and Brown Brothers Harriman.

In addition, Mr. Jay has a long and successful track record in sports, where he has advised a number of Premier League and Championship teams on August 28, 2013. Mr. Vos has beenissues ranging from player acquisition, global sponsorship (with a non-executive director of NSSC Operations Ltd.particular focus on Asia), which operates the National Space Centre in the United Kingdom.  He is the chairman of its audit committee. Mr. Vos since August 2014 has been a non-executive director of Tawsat Limitedplayer and Tawsat Holdings Limited, both Irish registered companies which hold intellectual property in certain satellite operations.team performance and corporate strategy. Carnegie Stewart’s sporting clients have included Lee Grant, Gianfranco Zola, Aaron Ramsey, Ole Solskjaer, and Roberto Martinez.

 

Mr. Vos was an Independent Director from 2007 to January 2017 of Avanti Communications Group plc,Nalin is a public company listed on the London Stock Exchange (LSE:AVN), where he was chairman of its remuneration committee and past chairman of its audit committee.  From June 2005 to June 2010, Mr. Vos was a director of our United Kingdom subsidiary, One Horizon Group plc (formerly SatCom Group Holdings plc) (“One Horizon UK”), and from October 2006 to June 2010 was also Chairman.  From July 2005 to March 2010, One Horizon UK was listed on the Alternative Investment Marketgraduate of the London Stock Exchange (AIM: SGH).  From October 2008 to October 2010, Mr. Vos served asSchool of Economics and a directornon-practising Barrister and Member of TerreStar Europe Ltd., a former start-up business seeking to provide mobile satellite services in Europe. From April 2003 to 2009, Mr. Vos was chairman of the Telecommunications and Navigation Advisory Board of the British National Space Centre (subsequently reconstituted as the United Kingdom Space Agency).   From September 2006 to June 2009, Mr. Vos was a director of Avanti Screenmedia Group plc, formerly listed on the London Stock Exchange (LSE:ASG), which provided satellite and other services. Mr. Vos obtained his Bachelor of Arts with Honors in Modern Languages from University of London in 1968, and his Diploma in Management Studies from Kingston Polytechnic in 1973. He is a member of the Institute of Directors.Lincoln’s Inn.

 

Robert LawLaw.

Mr. Law was appointedhas served as a director on August 28,member of the Board of Directors since 2013.  Between MayHe is an Independent Director of the Company and is the Chairman of the Compensation Committee and a member of the Nomination & Governance and the Audit Committees. From 1990 and Januaryuntil 2016, Mr. Law has served as chief executive officer of Langdowns DFK Limited (“Langdowns”), a United Kingdom-based accounting, tax and business advisory firm, and since 1979 has served as a director of Langdowns.  Also, between May 1990 and January 2016 Mr. Law has been the chief executive officer of Southern Business Advisers LLP (“Southern Business Advisers”), a United Kingdom-based business associated with Langdowns that also offers accounting, tax and business advisory services, and has been a member of Southern Business Advisers since 1979.services. Mr. Law is a Fellow of the Institute of Chartered Accountants in England and Wales (“ICAEW”). and is a member of the Valuation and Information Technology Faculties of the ICAEW. Mr. Law qualified as an ICAEWa Chartered Accountant in 1976.

 

Robert VoglerAjing Zhang.

Mr. VoglerZhang was appointed as a director on January 8, 2014.in 2019. Hewas managing director of Shanghai Suonengderui Energy Science and Technology Development Co., Ltd. from 2011 to 2018. From 2010 to 2011, he was Executive Deputy General Manager of China Energy Conservation and Environmental Protection Shanghai Company. From 2006 to 2010, he was Deputy General Manager of Shanghai Citelum Kighting Design Co. Ltd. From 2003 to 2006, he was Assistant General Manager of Oriental Pearl Group Co., Ltd. From 1992 to 2003, he was Assistant General Manager and Financial Manager of Oriental Pearl Taxi Co., Ltd. From 1989 to 1992, he was Finance Supervisor of Shanghai Qichongtian Hotel. Mr. Zhang received a Bachelor’s degree from Shanghai Lixin College of Accounting in 1987 (where he majored in Accounting), a postgraduate degree from East China Normal University in 1999 (where he majored in Economic Information Management) and a Master’s degree from Macau University of Science and Technology in 2004 (where he majored in Business Administration Management).

Pengfei Li. Mr. Li was appointed as a director in 2019. He has been Investment Director of Dachao Asset Management (Shanghai) Co., Ltd., of which Mr. Wu is Chairman, since 2018. From 2015 to 2017, he was Assistant resident of Shanghai Lighter Capital Management Co., Ltd. From 2013 to 2015, he was Investment Manager of Shanghai Fosun Hiogh Technology (Group) Co., Ltd/Shanghai Yuyuan Gold and Jewelry Group Ltd. Mr. Li received a long-standing history asBachelor’s degree from Shanghai University of Engineering Science in 2011 (where he majored in International Economics and Trade) and a successfulMaster of Science degree from the University of Brighton (United Kingdom) in 2013 (where he majored in MSc Finance and Investment).

There are no family relationships among our directors and executive officers. Each director is elected at our annual meeting of shareholders and business owner. He also has extensive experiencesholds office until the next annual meeting of shareholders, or until his successor is elected and practices as an accounting specialist.  Mr. Vogler has beenqualified, or his earlier death, resignation or removal. Officers are elected by and serve at the owner and Chairmandiscretion of the Board of Kreivo AG, an accounting and bookkeeping company serving Swiss companies in a variety of industries with operations throughout Europe since 1974. Mr. Vogler has served on the Boards of other Swiss accounting firms such as RV Revisions AG, Impe Zug AG and also served as President of Lüfta Baar, a HVAC Company also based in Switzerland. Mr. Vogler is not a director of any public companies except One Horizon.

Significant Employees

Qingsong  Li

Mr. Li, aged 40, was appointed the General Manager of Horizon Network Technology Co., Ltd at the end of 2012. Mr. Li was the Deputy General Manager of Nanjing ZTEsoft CO., Ltd, in charge of international marketing and national business development from 2008 to 2012. Before that period, he was a Software Engineer(2002-2003), Chief of International Development Team(2003-2004), Deputy Head of International Sales Department(2004-2005) and Head of International Sales Department(2006-2007) of Nanjing ZTEsoft Co., Ltd. Mr. Li graduated from Southeast University, Nanjing with a master degree in System Engineering and Hefei University of Technology with a bachelor degree in Accounting and minor in Computer Science.

Directors.

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Peter Hall

Peter Hall, aged 43, joined One Horizon Group in 2011 and was appointed Chief Information Officer in August 2014. Before joining the Company, he worked at Microsoft within the Premier Field Engineering Division (2008-2011).  Between 2004 and 2008 he worked as a Security Consultant for Atos Origin and a CRM software company, AIT Group plc, between 1998 and 2002. Mr. Hall has held the CISSP certification since 2010. He graduated from the University of Sheffield in 1995 and also holds an MSc (Distinction) Degree from University College London in 2006.

Andrew Le Gear

Dr. Andrew Le Gear, aged 34, joined One Horizon Group in 2013 and was appointed Chief Horizon Architect in September 2015.  Before joining the Company, he worked as a Senior Solutions Architect at Dell Inc. (2012-1013),and as an Equity Trading Software Engineer at Lehman Brothers Inc. and Nomura Plc. (2007-2012).  Prior to this he was co-founder of Juneberi Ltd., a research driven software tech start up (2004-2007). Dr. Le Gear graduated from the University of Limerick in 2003 and again in 2006, with a B.Sc. in Computer Systems and a Ph.D. in Computer Science respectively.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act and the rules thereunder require our officers and directors, and persons that own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies. Based solely on our review of the copies of the Section 16(a) forms received by us, or written representations from certain reporting persons, we believe that none of our officers, directors, and greater than 10% beneficial owners filed on a timely basis reports required by Section 16(a) of the Exchange Act prior to the Share Exchange on November 30, 2012 during the fiscal year ended December 31, 2012. After the Share Exchange, we believe that none of our officers, directors, and beneficial owners with more than 10% shareholding, failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2016.

Board Committees

Committees of the Board of Directors

Audit Committee

Our Audit Committee consists of Nicholas Carpinello, Robert Law and Richard Vos, each of whom is independent. The Audit Committee assists the Board of Directors oversight of (i) the integrity of financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications and independence, and (iv) the performance of our internal audit function and independent auditor, and prepares the report that the Securities and Exchange Commission requires to be included in our annual proxy statement. The audit committee operates under a written charter. Mr. Carpinello is the Chairman of our audit committee.

The Board of Directors determined that Mr. Carpinello possesses accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the Nasdaq Marketplace Rules and that he is an “audit committee financial expert” as defined by the rules and regulations of the SEC.

A copy of current charter of Audit Committee is available on the Company’s websitehttp://content.stockpr.com/onehorizongroup/media/6f6926ac07f2526da1eaa0d94f84c6d7.pdf

Nominating and Corporate Governance Committee

The purpose of the Nominating and Corporate Governance Committee is to assist the Board of Directors in identifying qualified individuals to become members of our Board of Directors, in determining the composition of the Board of Directors and in monitoring the process to assess Board effectiveness. Each of Nicholas Carpinello, Robert Law and Richard Vos are members of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee operates under a written charter. Mr. Richard Vos is the Chairman of the Nominating and Corporate Governance Committee.

·Our Nominating and Corporate Governance Committee has, among the others, the following authority and responsibilities:
·To determine and recommend to the Board, the criteria to be considered in selecting nominees for the director;

·To identify and screen candidate consistent with such criteria and consider any candidates recommended by our stockholders pursuant to the procedures described in our proxy statement or in accordance with applicable laws, rules and regulations and provisions of our charter documents.
·To select and approve the nominees for director to be submitted to a stockholder vote at the annual meeting of stockholders.

A copy of current charter of Nominating and Corporate Governance Committee is available on the Company’s websitehttp://content.stockpr.com/onehorizongroup/media/8eccadeceb1ccc10b249cc5ab2456058.pdf

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Compensation Committee

The Compensation Committee is responsible for overseeing and, as appropriate, making recommendations to the Board of Directors regarding the annual salaries and other compensation of our executive officers and general employees and other policies, and for providing assistance and recommendations with respect to our compensation policies and practices. Each of Nicholas Carpinello, Robert Law and Richard Vos are members of the Compensation Committee. The Compensation Committee operates under a written charter. Mr. Robert Law is the Chairman of Compensation Committee.

As required by Rule 10C-1(b)(2), (3) and (4)(i)(vi) under the Securities Exchange Act of 1934 (the “Act”) , our Compensation Committee has, among the others,  the following responsibilities and authority.

·The compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser.
·The compensation committee shall be directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the compensation committee or said group.

·The Company must provide for appropriate funding, as determined by the compensation committee, for payment of reasonable compensation to a compensation consultant, legal counsel or any other adviser retained by the compensation committee or said group.
·The compensation committee select, or receive advice from, a compensation consultant, legal counsel or other adviser to the compensation committee or said group, other than in-house legal counsel, only after conducting an independence assessment with respect to the adviser as provided for in the Act.

A copy of current Charter of Compensation Committee is available on the Company’s websitehttp://content.stockpr.com/onehorizongroup/media/abf14232f92dbd65d5ee4c83d7b1fa3b.pdf

Code of Ethics

Our board of directors has adopted a Policy Statement on Business Ethics and Conflicts of Interest (“Code of Ethics”) applicable to all employees, including the Company’s chief executive officer and chief financial officer. A copy of the Code of Ethics and Business Conduct is available on the Company’s website http://content.stockpr.com/onehorizongroup/media/250c1db923f658aca6cc69dfc35c7f89.pdf

Board Leadership Structure and the Board’s Role in Risk Oversight.

 

The Board of Directors currently does not have a Chairman. Our Chief Executive Officer acts as the Chairman of the Board. The Board determined that in the best interest of the Company the most effective leadership structure at this time is not to separate the roles of Chairman and Chief Executive Officer. A combined structure provides the Company with a single leader who represents the companyCompany to our stockholders, regulators, business partners and other stakeholders, among other reasons set forth below. Should the Board conclude otherwise, the Board will separate the roles and appoint an independent Chairman.

 

·This structure creates efficiency in the preparation of the meeting agendas and related Board materials as the Company’s Chief Executive Officer works directly with those individuals preparing the necessary Board materials and is more connected to the overall daily operations of the Company. Agendas are also prepared with the permitted input of the full Board of Directors allowing for any concerns or risks of any individual director to be discussed as deemed appropriate. The Board believes that the Company has benefited from this structure, and Mr. Collin’sWhite’s continuation in the combined role of the Acting Chairman and Chief Executive Officer is in the best interest of the stockholders.

 

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·The Company believes that the combined structure is necessary and allows for efficient and effective oversight, given the Company’s relatively small size, its corporate strategy and focus.

 

The Board of Directors does not have a specific role in risk oversight of the Company. The Chairman, President and Chief Executive Officer and other executive officers and employees of the Company provide the Board of Directors with information regarding the Company’s risks.

 

Compensation of Directors

Non-employee directors are entitled to receive compensation for serving as directors and may receive option grants from our company. Employee directors do not receive any compensation for their services as directors. All of our directors are reimbursed for expenses incurred by them in connection with attending Board of Directors’ meetings. The following table sets forth all cash compensation paid or where unpaid, accrued by us in 2019 to each of our non-employee directors.

Name 

Fees
Earned,

Accrued
or
Paid in
Cash
($)

  Stock
Awards
($)
  Option
Awards
($)
  Non-Equity
Incentive
Plan
Compensation
($)
  Nonqualified
Deferred
Compensation
Earnings
($)
  All Other
Compensation
($)
  Total ($) 
Nicholas Carpinello  18,000         0         0         0         0         0   18,000 
Robert Law  16,000   0   0   0   0   0   16,000 
Richard Vos (1)  14,666   0   0   0   0   0   14,666 
Nalin Jay (2)  1,000   0   0   0   0   0   1,000 

(1)Mr. Vos resigned his position as a member of the Board of Directors on December 12, 2019.
(2)Mr. Jay was appointed as a member of the Board of Directors on December 12, 2019.

Independent Directors

Our Board of Directors has determined that Nicholas Carpinello, Robert Law and Nalin Jay are “independent directors” within the meaning of NASDAQ Marketplace Rule 5605(a)(2).


Board Meetings; Committees and Membership

The Board of Directors held seven meetings during the fiscal year ended December 31, 2019. During 2019, more than 75% of the directors attended aggregate of (i) the total number of meetings of the Board of Directors and (ii) the total number of meetings of all committees of the Board on which such director served.

We maintain the following committees of the Board of Directors: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each committee is comprised entirely of directors who are “independent” within the meaning of NASDAQ Marketplace Rule 5605(a)(2). Each committee acts pursuant to a separate written charter, and each such charter has been adopted and approved by the Board of Directors. Copies of the committee charters are available on our website at touchpointgh.com under the heading “Investor Relations.” As of March 8, 2019, our common stock is quoted on the OTCQB tier of the OTC Markets and ceased trading on Nasdaq.

Audit Committee

Our Audit Committee consists of Messrs. Carpinello, Law and Jay, each of whom is independent. The Audit Committee held 4 meetings during 2019 and acted by written consent X times. The Audit Committee assists the Board of Directors oversight of (i) the integrity of financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications and independence, and (iv) the performance of our internal audit function and independent auditor, and prepares the report that the SEC requires to be included in our annual proxy statement. The audit committee operates under a written charter. Mr. Carpinello is the Chairman of our audit committee.

The Board of Directors determined that Mr. Carpinello possesses accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the Nasdaq Marketplace Rules and that he is an “audit committee financial expert” as defined by the rules and regulations of the SEC. As of March 8, 2019, our common stock is quoted on the OTCQB tier of the OTC Markets and ceased trading on Nasdaq.

A copy of current charter of Audit Committee is available on the Company’s website at http://content.stockpr.com/onehorizongroup/media/6f6926ac07f2526da1eaa0d94f84c6d7.pdf.

Nominating and Corporate Governance Committee

The purpose of the Nominating and Corporate Governance Committee is to assist the Board of Directors in identifying qualified individuals to become members of our Board of Directors, in determining the composition of the Board of Directors and in monitoring the process to assess Board effectiveness. Each of Messrs. Carpinello, Law and Jay are members of the Nominating and Corporate Governance Committee. Mr. Jay serves as Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee held 4 meetings during 2019 and acted by written consent X times. The Nominating and Corporate Governance Committee operates under a written charter.

Our Nominating and Corporate Governance Committee has, among the others, the following authority and responsibilities:

To determine and recommend to the Board, the criteria to be considered in selecting nominees for the director;

To identify and screen candidate consistent with such criteria and consider any candidates recommended by our stockholders pursuant to the procedures described in our proxy statement or in accordance with applicable laws, rules and regulations and provisions of our charter documents.

To select and approve the nominees for director to be submitted to a stockholder vote at the annual meeting of stockholders.

A copy of current charter of Nominating and Corporate Governance Committee is available on the Company’s website at http://content.stockpr.com/onehorizongroup/media/8eccadeceb1ccc10b249cc5ab2456058.pdf.


Compensation Committee

The Compensation Committee is responsible for overseeing and, as appropriate, making recommendations to the Board of Directors regarding the annual salaries and other compensation of our executive officers and general employees and other policies, and for providing assistance and recommendations with respect to our compensation policies and practices. Each of Messrs. Carpinello, Law and Jay are members of the Compensation Committee. The Compensation Committee operates under a written charter. Mr. Law is the Chairman of Compensation Committee. The Compensation Committee held 4 meetings during 2019 and acted by written consent X times.

As required by Rule 10C-1(b)(2), (3) and (4)(i)(vi) under the Exchange Act, our Compensation Committee has, among the others, the following responsibilities and authority.

The compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser.

The compensation committee shall be directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the compensation committee or said group.

The Company must provide for appropriate funding, as determined by the compensation committee, for payment of reasonable compensation to a compensation consultant, legal counsel or any other adviser retained by the compensation committee or said group.

The compensation committee select, or receive advice from, a compensation consultant, legal counsel or other adviser to the compensation committee or said group, other than in-house legal counsel, only after conducting an independence assessment with respect to the adviser as provided for in the Exchange Act.

A copy of current Charter of Compensation Committee is available on the Company’s website at http://content.stockpr.com/onehorizongroup/media/abf14232f92dbd65d5ee4c83d7b1fa3b.pdf.

Code of Ethics

Our board of directors has adopted a Policy Statement on Business Ethics and Conflicts of Interest (“Code of Ethics”) applicable to all employees, including the Company’s chief executive officer and chief financial officer. A copy of the Code of Ethics and Business Conduct is available on the Company’s website at  http://content.stockpr.com/onehorizongroup/media/250c1db923f658aca6cc69dfc35c7f89.pdf.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act and the rules thereunder require our officers and directors, and persons that own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies. Based solely on our review of the copies of the Section 16(a) forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2019 all of our officers, directors, and beneficial owners of more than 10% of our outstanding shares of common stock filed on a timely basis all reports required by Section 16(a) of the Exchange Act, except as follows: Mr. Jay failed to file a Form 3 in connection with his appointment in December 2019.


Stockholder Communications

TGHI stockholders who want to communicate with our Board or any individual director can write to:

Touchpoint Group Holdings, Inc.  

4300 Biscayne Blvd, Suite 203

Miami FL 33137

Attn: Board Administration

Your letter should indicate that you are a Touchpoint stockholder.  Depending on the subject matter, management will:

 41Forward the communication to the Director or Directors to whom it is addressed;
 
Attempt to handle the inquiry directly, for example where it is a request for information about TGHI or it is a stock-related matter; or 
Not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic.

 

At each Board meeting, a member of management presents a summary of all communications received since the last meeting that were not forwarded and makes those communications available to the Directors on request.

  

ITEM 11. EXECUTIVE COMPENSATION

 

The following tables set forth, for each of the last two completed fiscal years of the Company,periods indicated, the total compensation awarded to, earned by or paid to anyeach person who was aserved as the principal executive officer during the preceding fiscal year ended December 31, 2019 and everyeach other highest compensated executive officers earning more thanofficer whose total compensation awarded to, earned by or paid to such other executive officer for 2019 was in excess of $100,000 duringfor services rendered in all capacities to the last fiscal yearCompany and its subsidiaries (together, the “Named Executive Officers”).

 

2019 Summary Compensation Table: ExecutivesTable

 

Name and
Principal
Position
 Period Salary
($)
  Bonus
($)
  Stock
Award(s)
($)
  Option
Awards
($)
  Non-
Equity
Incentive
Plan
Compensation
  Non-
Qualified
Deferred
Compen-
sation
Earnings 
($)
  All Other
Compensation 
($)
  Total ($) 
                           
Brian Collins, CEO (1) Year ended 12/31/16  360,000   0   0   0   0   0   0   360,000 
                                   
  Year ended 12/31/15  360,000   0   0   357,000   0   0   0   717,000 
                                   
Martin Ward, CFO(2) Year ended 12/31/16  254,000   0   0   0   0   0   0   254,000 
  Year ended 12/31/15  287,000   0   0   0   0   0   0   287,000 
Name and
Principal
Position
 Period Salary
($)
  Bonus
($)
  Stock
Award(s)
($)
  Option
Awards
($)
  Non-
Equity
Incentive
Plan
Compensation
  Non-
Qualified
Deferred
Compensation
Earnings 
($)
  All Other
Compensation 
($)
  Total ($) 
                           
Mark White CEO (1) 2019  480,000        0        0        0        0        0        0   480,000 
  2018  480,000   0   0   0   0   0   0   480,000 
Martin Ward, CFO (2) 2019  240,000   0   0   0   0   0   0   240,000 
  2018  240,000   0   0   0   0   0   0   240,000 

For the two years ended December 31, 2019 and 2018, Mr. White’s and Mr. Ward’s salaries were either paid or accrued in U.S. Dollars. 

We have entered into an employment agreement with Mark White which continues for an initial term through July 31, 2022, and which automatically renews for one-year terms thereafter, subject to the rights of both parties to terminate the agreement. Mr. White’s employment agreement provided for a signing grant of 1,600,000 shares of the Company’s common stock, an annual salary of $480,000 per annum, an annual bonus to be determined by the Board and an acquisition bonus whereby Mr. White will receive additional shares each time the Company completes an acquisition of a new business. Mr. White’s agreement contains customary non-disclosure and non-compete provisions which are operative during the term of his agreement and for one year thereafter. Mr. White’s agreement provides for severance of one year’s salary if his agreement is terminated by the Company without cause or in the event of a change in control of the Company. In addition, we have agreed that upon termination of Mr. White’s employment agreement, upon request we would register our shares of common stock then held by him for sale under the Securities Act.

We have entered into an employment agreement with Martin Ward which continues for an initial term through July 31, 2022, and which automatically renews for one-year terms thereafter, subject to the rights of both parties to terminate the agreement. Mr. Ward’s employment agreement provides for an annual salary of $240,000 per annum and an annual bonus to be determined in accordance with a program to be developed by the Board of Directors. Mr. Ward’s agreement contains customary non-disclosure and non-compete provisions which are operative during the term of his agreement and for one year thereafter. Mr. Ward’s agreement provides for severance of one year’s salary if his agreement is terminated by the Company without cause or in the event of a change in control of the Company. In addition, we have agreed that upon termination of Mr. Ward’s employment agreement, upon request we would register our shares of common stock then held by him for sale under the Securities Act.


Elements of Compensation

Mark White and Martin Ward were provided with the following primary elements of compensation in 2019 and 2018:

Base Salary

Mark White and Martin Ward received a fixed base salary in an amount determined by the Compensation Committee based on a number of factors, including:

 

(1)Mr. Collins was appointed our Chief Executive Officer effective July 28, 2014The nature, responsibilities and our chief technology officer effective November 30, 2012. Forduties of the two years ended December 31, 2016, Mr. Collins was paid predominately in US Dollars.officer’s position;

     

(2)Mr. Ward was appointed our Chief Financial Officer effective November 30, 2012. ForThe officer’s expertise, demonstrated leadership ability and prior performance;

The officer’s salary history and total compensation, including annual cash bonuses and long-term incentive compensation; and

The competitiveness of the period ended December 31, 2016, Mr. Ward was paid predominately in British pounds, with conversion rate of £1.00 = $1.351, which rate representsmarket for the average exchange rate for that period. For the period ended December 31, 2015, Mr. Ward was paid predominately in British pounds (GBP 1 = USD 1.5288).officer’s services.

 

Pension BenefitMark White’s and Martin Ward’s base salary for 2019 and 2018 is listed in “—2019 Summary Compensation Table.”

 

None during the periods covered in this Report.Equity Awards – Years Ended 2019 and 2018

 

Nonqualified Deferred CompensationWe did not grant any equity awards to Mark White and Martin Ward during 2019 and 2018.

 

None during the periods covered in this Report.

Retirement/Resignation Plans

None during the periods covered in this Report.

Outstanding Equity Awards at 20162019 Year-End

 

As of the year ended December 31, 2016,2019, there were no unexercised options, to purchase an aggregate of 364,000, shares of common stock that werehas not vested or equity incentive plan awards held by any of the Company’s named executive officers.

 

42

Other Benefits

 

We did not pay any other benefits or perquisites to Mark White and Martin Ward during years ended 2019 and 2018.

Pension Benefit

None during years ended 2019 and 2018.

Nonqualified Deferred Compensation

None during years ended 2019 and 2018.

Retirement/Resignation Plans

None during years ended 2019 and 2018.

Equity Incentive Plan

Introduction

On February 1, 2018, our Board of Directors adopted the 2018 Plan, which authorizes the issuance of shares of common stock for grants of stock options, stock appreciation rights, restricted stock, stock units, bonus stock, dividend equivalents, other stock related awards and performance awards that may be settled in cash, stock, or other property. The 2018 Plan initially authorized the issuance of up to 5,000,000 shares.

On November 2, 2018 and December 27, 2018, our Board of Directors and our shareholders, respectively, amended the 2018 Plan to increase the number of shares authorized to be issued to up to 15,000,000 shares; provided that as of February 1 of each fiscal year commencing February 1, 2020 and ending on February 1, 2027, the number of shares available for all awards under the Plan shall automatically be increased by an amount equal to the lesser of (i) 5,000,000 shares of common stock or the equivalent of such number of shares after the plan administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the terms of the 2018 Plan; (ii) 5% of the number of outstanding shares of common stock on such date; and (iii) an amount determined by the Board. Any reverse stock split, if approved and effected, will not reduce the number of shares available under the 2018 Plan.


We adopted the 2018 Plan to provide a means by which employees, directors, and consultants of our Company and those of our subsidiaries and other designated affiliates, which we refer to together as our affiliates, may be given an opportunity to purchase our common stock, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions, and to provide incentives for such persons to exert maximum efforts for our success and the success of our affiliates. The material features of the 2018 Plan are outlined below. This summary is qualified in its entirety by reference to the complete text of the 2018 Plan. Stockholders are urged to read the actual text of the 2018 Plan in its entirety, which has been filed with the SEC.

Summary of the 2018 Plan

Shares Available for Awards 

The total number of shares of our common stock that may be subject to awards under the 2018 Plan is 15,000,000 shares; provided that as of February 1 of each fiscal year commencing February 1, 2020 and ending on February 1, 2027, the number of shares available for all awards under the 2018 Plan shall automatically be increased by an amount equal to the lesser of (i) 5,000,000 shares of common stock or the equivalent of such number of shares after the plan administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the terms of the 2018 Plan; (ii) 5% of the number of outstanding shares of common stock on such date; and (iii) an amount determined by the Board. Under the 2018 Plan, the terms and number of options or other awards to be granted in the future are to be determined in the discretion of the plan administrator. No determination has been made regarding awards or grants under the 2018 Plan, or as to the benefits or amounts that will be received by or allocated to our non-employee directors, executive officers and other eligible employees under the 2018 Plan. Our only other equity incentive plan is the 2013 Equity Incentive Plan (the “2013 Plan”). As of December 31, 2019, under the 2013 Plan, 20,000 shares remain available for grant. However, the Company does not intend to grant any additional awards under the 2013 Plan.      

Limitations on Awards

The plan administrator may, in its discretion, proportionately adjust the number of shares covered by each outstanding Award, and the number of shares which have been authorized for issuance under the 2018 Plan but as to which no Awards have yet been granted or which have been returned to the 2018 Plan, the exercise or purchase price of each such outstanding Award, as well as any other terms that the plan administrator determines require adjustment for (1) any increase or decrease in the number of issued shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the shares, (2) any other increase or decrease in the number of issued shares effected without receipt of consideration by the Company, or (3) as the 2018 Plan administrator may determine in its discretion, any other transaction with respect to common stock to which Section 424(a) of the Internal Revenue Code of 1986, as amended (the “Code”), applies. Such adjustment shall be made by the plan administrator and its determination shall be final, binding and conclusive.

Eligibility

The persons eligible to receive awards under the 2018 Plan consist of officers, directors, employees, and consultants of our company and those of our affiliates. An employee on leave of absence may be considered as still in our employ or in the employ of an affiliate for purposes of eligibility under the 2018 Plan.

Administration

The 2018 Plan is administered by our Compensation Committee or other committee appointed by our Board of Directors, or in the absence of any such committee, the Board of Directors (together, our Board of Directors and any committee(s) delegated to administer the 2018 Plan, including the Compensation Committee, are referred to as the “plan administrator”).  The Compensation Committee, or such other committee appointed from time to time by the Board of Directors to administer the 2018 Plan, is intended to consist of three or more Non-Employee Directors, each of whom will be, to the extent required by Rule 16b-3 under the Exchange Act and the rules of the Financial Industry Regulatory Authority, a non-employee director as defined in Rule 16b-3, an “outside director” as defined under Section 162(m) of the Code and an “independent” director within the meaning of NYSE American Rule 303A.02. If for any reason the plan administrator does not meet the requirements of Rule 16b-3 of the Exchange Act or Section 162(m) of the Code, the validity of the awards, grants, interpretation or other actions of the plan administrator will not be affected. The plan administrator has the full authority to select those individuals eligible to receive awards and the amount and type of awards. Subject to the terms of the 2018 Plan, the plan administrator is authorized to select eligible persons to receive awards, determine the type and number of awards to be granted and the number of shares of our common stock to which awards will relate, specify times at which awards will be exercisable or may be settled (including performance conditions that may be required as a condition thereof), set other terms and conditions of awards, prescribe forms of award agreements, interpret and specify rules and regulations relating to the 2018 Plan, and make all other determinations that may be necessary or advisable for the administration of the 2018 Plan. The plan administrator may amend the terms of outstanding awards, in its discretion; provided that any amendment that adversely affects the rights of the award recipient must receive the approval of such recipient.


Stock Options and Stock Appreciation Rights

The plan administrator is authorized to grant stock options, including both incentive stock options, which we refer to as ISOs, and non-qualified stock options. In addition, the plan administrator is authorized to grant stock appreciation rights, which entitle the participant to receive the appreciation in our common stock between the grant date and the exercise date of the stock appreciation right. The plan administrator determines the exercise or purchase price per share subject to an option and the grant price of a stock appreciation right. However, the per share exercise price of an ISO and a non-qualified stock option must not be less than 100% of the fair market value of a share of our common stock on the grant date; provided, however, that in the case of an ISO granted to an employee who owns more than 10% of the voting power of all classes of stock of the Company or affiliates, the exercise or purchase price must not be less than 110% of the fair market value of a share of our common stock on the grant date. The plan administrator generally will fix the maximum term of each option or stock appreciation right, the times at which each stock option or stock appreciation right will be exercisable, and provisions requiring forfeiture of unexercised stock options or stock appreciation rights at or following termination of employment or service, except that no ISO may have a term exceeding ten years. Stock options may be exercised by payment of the exercise price in any form of legal consideration specified by the plan administrator, including cash, shares and outstanding awards or other property having a fair market value equal to the exercise price. The plan administrator determines methods of exercise and settlement and other terms of the stock appreciation rights.

Restricted Stock 

The plan administrator is authorized to grant restricted stock. Restricted stock is a grant of shares of our common stock, subject to restrictions on transfers, rights of first refusal, repurchase provisions, forfeiture provisions and other terms and conditions as may be established by the plan administrator. A grantee granted restricted stock generally has all of the rights of one of our shareholders, unless otherwise determined by the plan administrator.

Stock Based Awards 

The plan administrator is authorized to grant awards under the 2018 Plan that are denominated or payable in, valued by reference to, or otherwise based on or related to shares of our common stock. Such awards might include convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of our common stock, purchase rights for shares of our common stock, awards with value and payment contingent upon our performance or any other factors designated by the plan administrator, and awards valued by reference to the book value of shares of our common stock or the value of securities of or the performance of specified subsidiaries or business units. The plan administrator determines the terms and conditions of such awards.

Performance Awards 

The plan administrator is authorized to grant awards which may be earned in whole or in part upon attainment of performance criteria and which may be settled for cash, shares of our common stock, other securities or a combination of cash, shares of our common stock or other securities. The right of a grantee to exercise or receive a grant or settlement of an award, and the timing thereof, may be subject to satisfaction of performance criteria, which may be based on any one, or combination of, the following factors: increase in share price, earnings per share, total shareholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, or personal management objectives. Partial achievement of the specified criteria may result in a partial payment or vesting as specified in the award agreement.

Other Terms of Awards 

The plan administrator shall have the authority to determine the provisions, terms, and conditions of each award including, but not limited to, the award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, shares of our common stock, or other consideration) upon settlement of the award, payment contingencies, and satisfaction of any performance criteria. The plan administrator may establish one or more programs under the 2018 Plan to permit selected grantees the opportunity to elect to defer receipt of consideration upon exercise of an award, satisfaction of performance criteria, or other event that absent the election would entitle the grantee to payment or receipt of shares of our common stock or other consideration under an award. The plan administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, shares of our common stock or other consideration so deferred, and such other terms, conditions, rules and procedures that the plan administrator deems advisable for the administration of any such deferral program.

The plan administrator may establish one or more programs under the 2018 Plan to permit selected grantees to exchange an award under the Plan for one or more other types of awards under the 2018 Plan on such terms and conditions as determined by the plan administrator from time to time. The plan administrator may establish one or more separate programs under the 2018 Plan for the purpose of issuing particular forms of awards to one or more classes of grantees on such terms and conditions as determined by the plan administrator from time to time.


Awards granted under the 2018 Plan generally may not be pledged or otherwise encumbered and are not transferable except by will or by the laws of descent and distribution, or to a designated beneficiary upon the participant’s death, except that the plan administrator may, in its discretion, permit transfers of nonqualified stock options for estate planning or other purposes subject to any applicable legal restrictions. The plan administrator may also provide that, in the event that a grantee terminates employment with the Company to assume a position with a governmental, charitable, educational or similar non-profit institution, a third party, including but not limited to a “blind” trust, may be authorized by the plan administrator to act on behalf of and for the benefit of the respective grantee with respect to any outstanding awards.

Acceleration of Vesting; Change in Control

The plan administrator shall have the authority, exercisable either in advance of any actual or anticipated corporate transaction (as defined in the 2018 Plan) or at the time of an actual corporate transaction and exercisable at the time of the grant of an award under the 2018 Plan or any time while an Award remains outstanding, to provide for the full automatic vesting and exercisability of one or more outstanding unvested awards under the 2018 Plan and the release from restrictions on transfer and repurchase or forfeiture rights of such Awards in connection with a corporate transaction, on such terms and conditions as the plan administrator may specify. The plan administrator also shall have the authority to condition any such award vesting and exercisability or release from such limitations upon the subsequent termination of the continuous service of the grantee within a specified period following the effective date of the corporate transaction. Effective upon the consummation of a corporate transaction, all outstanding awards under the 2018 Plan shall remain fully exercisable until the expiration or sooner termination of the award.

Amendment and Termination

 

Our directors are reimbursed for expenses incurred by them in connection with attending Board of Directors’ meetings. Directors may amend, alter, suspend, discontinue, or terminate the 2018 Plan, except stockholder approval shall be obtained for any amendment or alteration if such approval is required by law or regulation or under the rules of any stock exchange or quotation system on which shares of our common stock are then listed or quoted. No award may be granted during any suspension of the 2018 Plan or after termination of the 2018 Plan. Any amendment, suspension or termination of the 2018 Plan shall not affect Awards already granted, and such awards shall remain in full force and effect as if the 2018 Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the grantee and the plan administrator, which agreement must be in writing and signed by the grantee and the Company. 

Unless earlier terminated by our Board of Directors, the 2018 Plan will terminate ten years after its adoption by our Board of Directors. 

Federal Income Tax Consequences of Awards 

The information set forth herein is a summary only and does not purport to be complete. In addition, the information is based upon current federal income tax rules and therefore is subject to change when those rules change. Moreover, because the tax consequences to any recipient may depend on his or her particular situation, each recipient should consult the recipient’s tax adviser regarding the federal, state, local, and other tax consequences of the grant or exercise of an award or the disposition of stock acquired as a result of an award. The 2018 Plan is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974.

Nonqualified Stock Options

Generally, there is no taxation upon the grant of a nonqualified stock option where the option is granted with an exercise price equal to the fair market value of the underlying stock on the grant date. On exercise, an optionee will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the stock over the exercise price. If the optionee is our employee or an employee of an affiliate, that income will be subject to withholding tax. The optionee’s tax basis in those shares will be equal to their fair market value on the date of exercise of the option, and the optionee’s capital gain holding period for those shares will begin on that date.

Incentive Stock Options

The 2018 Plan provides for the grant of stock options that qualify as “incentive stock options,” which we refer to as ISOs, as defined in Section 422 of the Code. Under the Code, an optionee generally is not subject to ordinary income tax upon the grant or exercise of an ISO. In addition, if the optionee holds a share received on exercise of an ISO for at least two years from the date the option was granted and at least one year from the date the option was exercised, which we refer to as the Required Holding Period, the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder’s tax basis in that share will be long-term capital gain or loss.


If, however, an optionee disposes of a share acquired on exercise of an ISO before the end of the Required Holding Period, which we refer to as a Disqualifying Disposition, the optionee generally will recognize ordinary income in the year of the Disqualifying Disposition equal to the excess, if any, of the fair market value of the share on the date the ISO was exercised over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the option, the amount of ordinary income recognized by the optionee will not exceed the gain, if any, realized on the sale. If the amount realized on a Disqualifying Disposition exceeds the fair market value of the share on the date of exercise of the option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.

For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired on exercise of an ISO exceeds the exercise price of that option generally will be an adjustment included in the optionee’s alternative minimum taxable income for the year in which the option is exercised. If, however, there is a Disqualifying Disposition of the share in the year in which the option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to that share. If there is a Disqualifying Disposition in a later year, no income with respect to the Disqualifying Disposition is included in the optionee’s alternative minimum taxable income for that year. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an ISO is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the option is exercised. 

We are not allowed an income tax deduction with respect to the grant or exercise of an incentive stock option or the disposition of a share acquired on exercise of an incentive stock option after the Required Holding Period. However, if there is a Disqualifying Disposition of a share, we are allowed a deduction in an amount equal to the ordinary income includible in income by the optionee, provided that amount constitutes an ordinary and necessary business expense for us and is reasonable in amount, and either the employee includes that amount in income or we timely satisfy our reporting requirements with respect to that amount. 

Stock Awards

Generally, the recipient of a stock award will recognize ordinary compensation income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however, the stock is not vested when it is received (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time the recipient will recognize ordinary compensation income equal to the excess, if any, of the  fair market value of the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock. A recipient may, however, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize ordinary compensation income, as of the date the recipient receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient in exchange for the stock.

The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock awards will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the stock becomes vested. 

Stock Appreciation Rights 

We may grant stock appreciation rights separate from any other award, which we refer to as stand-alone stock appreciation rights, or in tandem with options.

With respect to stand-alone stock appreciation rights, where the rights are granted with a strike price equal to the fair market value of the underlying stock on the grant date and the recipient receives the appreciation inherent in the stock appreciation rights in shares of stock, the recipient will recognize ordinary compensation income equal to the excess of the fair market value of the stock on the day it is received over any amounts paid by the recipient for the stock.

With respect to stand-alone stock appreciation rights, if the recipient receives the appreciation inherent in the stock appreciation rights in cash or the strike price of the rights is less than the fair market value of the underlying stock on the grant date (whether the appreciation is paid in cash or stock), the cash or stock will be taxable as ordinary compensation income to the recipient at the time that the payment is received, so long as the payment may only be received upon one of the following events: a fixed calendar date, separation from service, death, disability or a change of control. If delivery occurs on another date, the taxable event will be on the date the stock appreciation right is vested and there will be an additional twenty percent excise tax and interest on any taxes owed.

At this time, due to the complex and unfavorable tax consequences, we do not plan on granting any tandem stock appreciation rights.


Dividend Equivalent Rights 

Generally, the recipient of an award consisting of dividend equivalent rights will recognize ordinary compensation income each time a dividend is paid pursuant to the dividend equivalent rights award equal to the fair market value of the dividend received. If the dividends are deferred, additional requirements must be met to ensure that the dividend is taxable upon actual delivery of the shares, instead of the grant of the dividend.

Equity Compensation Plan Information

The table below sets forth information as of December 31, 2019.

Plan CategoryNumber of securities to be issued upon exercise of outstanding options, warrants and rightsWeighted-average exercise price of outstanding options, warrants and rightsNumber of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(a)(b)(c)
Equity compensation plans approved by security holders (1)-$15,020,000
Equity compensation plans not approved by security holders---
Total-$15,020,000

(1)Represents 15,000,000 shares available for issuance under the 2018 Plan, plus 20,000 shares available for issuance under the 2013 Plan. The Company does not intend to grant any additional awards under the 2013 Plan, however.

The Company has two equity incentive plans, each of which has been approved by the Company’s stockholders: the 2013 Plan and the 2018 Plan. However, the Company does not intend to grant any additional awards under the 2013 Plan.

As of December 31, 2019, under the 2013 Plan, 20,000 shares remain available for grant. However, the Company does not intend to grant any additional awards under the 2013 Plan.

As of December 31, 2019, under the 2018 Plan, no equity grants have been made, and 15,000,000 shares of our common stock remain available for issuance. Pursuant to the terms of the 2018 Plan, the total number of shares of our common stock that may be subject to awards under the 2018 Plan is 15,000,000 shares; provided that as of February 1 of each fiscal year commencing February 1, 2020 and ending on February 1, 2027, the number of shares available for all cashawards under the 2018 Plan shall automatically be increased by an amount equal to the lesser of (i) 5,000,000 shares of common stock or the equivalent of such number of shares after the plan administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the terms of the 2018 Plan; (ii) 5% of the number of outstanding shares of common stock on such date; and (iii) an amount determined by the Board. Accordingly, as of April 23, 2020, an aggregate of 15,000,000 shares of common stock are authorized for issuance under the 2018 Plan.

Executive Compensation Philosophy

Our Compensation Committee determines the compensation paid by us,given to our executive officers in their sole determination. Our Compensation Committee reserves the right to pay our executives or any future executives a salary, and/or issue them shares of common stock issued in consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock-based compensation to certain other compensation paid or accrued,executives, which is intended to align the performance of our executives with our long-term business strategies. Additionally, while our Compensation Committee has not granted any performance-based stock options to date, the Compensation Committee reserves the right to grant such options in 2016, to eachthe future, if the Board in its sole determination believes such grants would be in the best interests of the following named directors.Company.

 

Name Fees
Earned
or
Paid in
Cash
($)
  Stock
Awards
($)
  Option
Awards
($)
  Non-Equity
Incentive
Plan
Compensation
($)
  Nonqualified
Deferred
Compensation
Earnings
($)
  All Other
Compen-
sation
($)
  Total ($) 
Nicholas Carpinello  18,000   0   0   0   0   0   18,000 
Brian Collins  360,000   0   0   0   0   0   360,000 
Robert Law  16,000   0   0   0   0   0   16,000 
Richard Vos  16,000   0   0   0   0   0   16,000 
Martin Ward  254,000   0   0   0   0   0   254,000 
Robert Vogler  18,000   0   0   0   0   0   18,000 

Incentive Bonus

The Compensation Committee may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion, if the Compensation Committee believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives.

Long-Term, Stock-Based Compensation

In order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy, we may award our executives and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our Compensation Committee.

  

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding beneficial ownership of our Common Stockcommon stock as of April 3, 201724, 2020 by (i) each person (or group of affiliated persons) who is known by us to own more than five percent (5%)5% of the outstanding shares of our Common Stock,common stock, (ii) each director, executive officer and director nominee, and (iii) all of our directors, executive officers and director nominees as a group. As of April 3, 2017,24, 2020, we had 37,316,71425,688,386 shares of Common Stockcommon stock issued and outstanding.

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Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of March 21, 2016.April 24, 2020. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above,below, any shares that such person or persons has the right to acquire within 60 days of March 21, 2016April 24, 2020  is deemed to be outstanding for such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.

 

Name of Person or Group Amount And
Nature of
Beneficial
Ownership(1)
  Percent 
       
Principal Stockholders:        
         
Alexandra Mary Johnson
44 Fairway Lakes Village
Fritton, Great Yarmouth, NR31 9EY
United Kingdom
  1,942,666   5.3%
         
Adam Christe Thompson
547A Wellington Road
Crisfield, MD 21817
  1,942,666   5.3%
         
Mark White(2)  4,262,397   11.6%
         
Named Executive Officers and Directors:        
         
Brian Collins  6,247,074   16.9%
         
Martin Ward  3,059,609   8.3%
         
 Richard Vos  20,413   * 
         
Nicholas Carpinello  10,700   * 
         
Robert Law  10,684   * 
         
Robert Vogler  205,284   * 
All Executive Officers and Directors as a Group (6 persons):  9,553,764   25.9%
Name Amount And
Nature of
Beneficial
Ownership (1)
  Percent 
       
Owners of More than 5% of Outstanding Shares:      
       
Zhanming Wu  614,177   2.4%
         
Directors and Named Executive Officers:        
         
Mark White  165,624   * 
         
Martin Ward  54,790   * 
         
Nalin Jay        
         
Nicholas Carpinello  71   * 
         
Robert Law  71   * 
         
All Executive Officers and Directors as a Group (5 persons):  220,556   * 

 

*Less than 1%.
(1)Based on 25,688,386 shares of common stock outstanding on April 24, 2020. Except as otherwise indicated, each of the stockholders listed above has sole voting and investment power over the shares beneficially owned.
(2)Mr. White was appointed our chief executive officer effective November 30, 2012 and resigned on July 24, 2014 due to personal reasons.

44

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Our Policy Concerning Transactions with Related Party TransactionsPersons

Under Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities (a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.

We recognize that transactions between us and any of our Directors or Executives or with a third party in which one of our officers, directors or significant shareholders has an interest can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our Company and stockholders.

The Audit Committee of the Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any such transactions, as reported or disclosed to the Committee by the independent auditors, employees, officers, members of the Board of Directors or otherwise, and to determine whether the terms of the transaction are not less favorable to us than could be obtained from an unaffiliated party.

The following includes a summary of transactions since January 1, 2018, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest.

 

Amounts due to related parties include the following: (in thousands)

 

 December 31 December 31  December 31, 
 2016  2015  2019 
Loans due to stockholders        
Loans due to stockholders and related parties   
Due within one year $-  $-  $1,010 
Long-term  2,343   2,354   0 
 $2,343  $2,354  $1,010 

As of December 31, 2019, amounts totaling $205,000 (December 31, 2018 – $205,000) were owed to certain members of the management of Browning. The amounts are unsecured, interest free and have no specified repayment dates. The loans were transferred out of the group following the sale of Browning in February 2020.

 

The balancepromissory notes due to Zhanming Wu ($500,000) and the Company’s CEO, Mark White ($500,000), both considered related parties, including accrued interest of $2,343,000 matures7% per annum from issuance, were due for repayment on April 1, 2018August 31, 2019 and bearsthe Company is currently in negotiations with the counterparties to extend the maturity dates of the promissory notes, but there can be no interest.guarantee that commercially reasonable terms will agreed upon.

  

InThe $500,000 loan payable with a remaining principal balance of $10,000 at December 31, 2019 is due to Century River Limited, a company controlled by the quarter ended March 31, 2015 the CompanyCompany’s CEO, Mark White. This loan is due on demand and bears interest of 3% per annum. 

Indemnification

We have entered into indemnification agreements with each of our directors and entered into such agreements with certain of our executive officers. These agreements require us, among other things, to indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of our company or that person’s status as a sales contract inmember of our Board of Directors to the normal course of business with a customer (Horizon Latin America) which the Company holds minority ownership interest. The customer purchased perpetual software license for $500,000. The Company owns a cost based investment interest of 10% in the customer with limited voting rights or board representation.

45

Promoters and Certain Control Personsmaximum extent allowed under Delaware law.

 

NoneThe foregoing transactions were reviewed and approved by the Audit Committee or our Board of our management or other control personsDirectors. We believe that the terms of each transaction were “promoters” (within the meaning of Rule 405 under the Securities Act), and none of such persons took the initiative in the formation of our business or received any of our debt or equity securities or any of the proceedsnot less favorable to us than those terms that could be obtained from the sale of such securities in exchange for the contribution of property or services, during the last five years.an unaffiliated third party.


Director Independence 

 

Director Independence

Under the definitionOur Board of independent directors found in Nasdaq Rule 5605(a)(2),we currently have four independent directors, Nicholas Carpinello, Robert Law, Robert Vogler and Richard Vos. The audit committee is comprised of Nicholas Carpinello (chair), Robert Law and Richard Vos, the compensation committee is comprised of Nicholas Carpinello, Robert Law (chair) and Richard Vos, and the corporate governance/nominating committee is comprised ofDirectors has determined that Nicholas Carpinello, Robert Law and Richard Vos (chair), allNalin Jay are “independent directors” within the meaning of whom are independent.NASDAQ Marketplace Rule 5605(a)(2). As of March 8, 2019, our common stock is quoted on the OTCQB tier of the OTC Markets.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

The Audit Committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services.

Principal Accountant Fees and Services

As required by our Audit Committee charter, our Audit Committee pre-approved the engagement of Cherry Bekaert LLP (“Cherry”) for all audit and permissible non-audit services. The Audit Committee annually reviews the audit and permissible non-audit services performed by our principal accounting firm and reviews and approves the fees charged by our principal accounting firm. The Audit Committee has considered the role of Cherry in providing tax and audit services and other permissible non-audit services to us and has concluded that the provision of such services, if any, was compatible with the maintenance of such firm’s independence in the conduct of its auditing functions.  

 

Aggregate fees for professional services rendered to the Company by Peterson Sullivan LLP (“Peterson”) and Cherry Bekaert LLP (“Cherry”) for the years ended December 31, 20162019 and 20152018 were as follows:

 

Services Provided 2016 2015  2019  2018 
Audit Fees $167,000  $150,000  $119,000  $101,684 
Audit Related Fees  0   30,000   4,500   16,100 
Tax Fees  0   0   -   20,000 
All Other Fees  0   0   -   - 
Total $167,000  $180,000  $123,500  $137,784 

 

Audit Fees

 

Audit fees billed by Peterson, the Company’s prior independent registered public accounting firm, and by Cherry, the Company’s current independent registered public accounting firm, were for the audit of our annual consolidated financial statements, including any fees related to other filings with the SEC.

    

Audit-Related Fees

 

Audit-related fees billed in 2015 were for therelated to work undertaken in respect of amendmentsperformed with regard to the 2015 consolidated financialregistration statements. on Form S-1. 

46

 

Tax Fees

 

There were no tax fees billed or accrued during the Reported Periods.2019 or 2018. 

 

All Other Fees

 

There were no other fees billed or accrued during the Reported Periods.

Preapproval Policies and Procedures

Before the independent registered accountants are engaged to render audit services2019 or non audit activities, the engagement is approved by the audit committee.

2018.

47


PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)(1) Financial Statements

The consolidated financial statements and Report of Independent Registered Public Accounting Firm are listed in the Index to Financial Statements on page F-1 and included beginning on page F-2.

(2) Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.

(3) Exhibits.

Exhibit
Number
 Title of Document Location
     
Item 2Plan of acquisition, reorganization, arrangement, liquidation or succession
2.1 Agreement and Plan of Merger effective as of August 26, 2013 

Incorporated by reference from Definitive Information Statement on Form 14C Appendix C

filed May 26, 2013

     
Item 32.2 Articles of Incorporation and BylawsStock Purchase Agreement with Brian Collins dated August 11, 2017 Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed August 14, 2017
     
3.1 Amendment to Articles of Incorporation as filed December 27, 2012, with the Pennsylvania Department of State Corporate Bureau Incorporated by reference from the Current Report on Form 10-K filed May 13, 2013
     
3. 23.2 Amendment to Articles of Incorporation as filed, with the Pennsylvania Department of State Corporate Bureau 

Incorporated by reference from Definitive Information Statement on Form 14C Appendix B

filed May 26, 2013

     
3. 33.3 Amended and restated articles of incorporation of BICO, Inc as filed, with the Pennsylvania Department of State Corporate Bureau 

Incorporated by reference from Definitive Information Statement on Form 14C Appendix F

filed May 26, 2013

     
3. 43.4 Bylaws of BICO, Inc. as filed, with the Pennsylvania Department of State Corporate Bureau Incorporated by reference from Definitive Information Statement on Form 14C Appendix G filed May 26, 2013
     
3.5 Certificate of incorporation, of  One Horizon Group, Inc., as filed with Delaware Secretary of State Incorporated by reference from Definitive Information Statement on Form 14C Appendix D filed May 26, 2013
     
3.6 BylawsCertificate of One Horizon Group, Inc., asAmendment to Certificate of Incorporation effecting a 1-for-6 reverse stock splitIncorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with Delaware SecretaryMay 1, 2017.
3.7Certificate of StateDesignation for Series A-1 Convertible Preferred StockIncorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed July 14, 2017.
3.8Bylaws Incorporated by reference from Definitive Information Statement on Form 14C Appendix E filed May 26, 2013

 

48


 

Exhibit
Number
 Title of Document Location
Item 10Material Contracts  
4.1Common Stock Purchase Warrant dated May 1, 2013Incorporated by reference to Exhibit 4.1 of Quarterly Report on Form 10-Q/A filed May 30, 2013
4.2Form of Class A WarrantIncorporated by reference from Current Report on Form 8-K filed July 25, 2014.
4.3Form of Class B WarrantIncorporated by reference from Current Report on Form 8-K filed July 25, 2014
4.4Form of Convertible DebentureIncorporated by reference from Current Report on Form 8-K filed December 29, 2014
4.5Form of Amended and Restated Class C WarrantIncorporated by reference from Current Report on Form 8-K filed January 23, 2015
4.6Form of Amended and Restated Class D WarrantIncorporated by reference from Current Report on Form 8-K filed January 23, 2015
4.7Form of Amended and Restated Performance WarrantIncorporated by reference from Current Report on Form 8-K filed January 23, 2015
4.8Form of Amended and Restated Placement Agent WarrantIncorporated by reference from Current Report on Form 8-K filed January 23, 2015
4.9Form of WarrantIncorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed July 18, 2017
4.10Form of Warrant issued to Bespoke Growth Partners, Inc.Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-3 (File No. 333-221300) filed October 17, 2017
4.11Form of warrants issued to First Choice International Company, Inc.Incorporated by reference to the exhibits to Exhibit 10.1 to Current Report on Form 8-K Filed December 19, 2017
     
10.1 Loan Agreement dated January 22, 2013 between the Company and Mark White Incorporated by reference to the Quarterly Report on Form 10-Q/A filed on May 30, 2013
     
10.2 Loan Agreement dated January 22, 2013 between the Company and Brian CollinsIncorporated by reference to the Quarterly Report on Form 10-Q/A filed on May 30, 2013
10.3Subscription Agreement, as amended, dated as of February 18, 2013, between the Company and Patrick SchildknechtIncorporated by reference to the Quarterly Report on Form 10-Q/A filed on May 30, 2013
10.4Warrant Agreement, dated as of February 18, 2013, between the Company and Patrick SchildknechtIncorporated by reference from the Current Report  on Form 10-8K filed September 5, 2013
10.5Advisory Agreement dated as of April 15, 2013 between the Company and TriPoint Global Equities, LLCIncorporated by reference to the Quarterly Report on Form 10-Q/A filed on May 30, 2013
Common Stock Purchase Warrant dated May 1, 2013
10.6Amended and Restated Subscription Agreement, dated as of August 30, 2013, between the Company and Patrick SchildknechtIncorporated by reference from the Current Report  on Form 10-8K filed September 5, 2013
10.7Amended and Restated Warrant Agreement, dated as of August 30, 2013, between the Company and Patrick Schildknecht

Incorporated by reference from the Current Report on Form 8-K filed September 5, 2013 

10.8Form of Independent Director Agreement between the Company and Richard Vos/Nicholas Carpinello/Robert Law Incorporated by reference from the Current Report on Form 8-K filed August 22, 2013
     
10.910.3 From of Indemnification Agreement between the Company and Richard Vos/Nicholas Carpinello/Robert Law Incorporated by reference from the Current Report on Form 8-K filed August 22, 2013
     
10.1010.4 Agreement, dated November 29, 2013, between One Horizon Group, Inc. and Newport Coast Securities, Inc. Incorporated by reference from the Current Report on Form 8-K filed December 3, 2013
     
10.1110.5 Director Agreement between the Company and Robert Vogler dated January 8, 2014 Incorporated by reference from the Current Report on Form 8-K filed January 13, 2014
     
10.1210.6 Securities Purchase Agreement dated July 21, 2014 Incorporated by reference from the Current Report on Form 8-K filed on July 25, 2014

 


49

10.13Exhibit
Number
 FormTitle of Class B WarrantDocument Incorporated by reference from the Current Report on Form 8-K filed on July 25, 2014Location
     
10.1410.7 

Form of Class A WarrantSecurities Purchase Agreement dated July 14, 2017

 Incorporated by reference from theto Exhibit 10.1 to Current Report on Form 8-K filed on July 25, 201418, 2017
     
10.1510.8 Amendment to Certain Transaction Documents dated August 15, 2014 Incorporated by reference from the Current Report on Form 8-K filed on August 8, 2014
     
10.1610.9 Securities Purchase Agreement dated December 22, 2014 Incorporated by reference from the Current Report on Form 8-K filed on December 29, 2014
     
10.1710.10 FormAgreement with Zhanming Wu for conversion of Convertible DebentureIncorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed September 8, 2017
10.11Registration Rights Agreement dated December 22, 2014 Incorporated by reference from the Current Report on Form 8-K filed on December 29, 2014
     
10.1810.12 Registration Rights Agreement with Mark White dated December 22, 2014August 4, 2017 for Exchange of Series A-1 Preferred Stock Incorporated by reference from theto Exhibit 10.2 to Current Report on Form 8-K filed on December 29, 2014September 8, 2017
     
10.1910.13 Form of Amended and Restated Class C WarrantConsulting Agreement dated October 17, 2017 with Bespoke Growth Partners, Inc. Incorporated by reference from the Current Reportto Exhibit 10.1 to Registration Statement on Form 8-KS-3(File No. 333-221300) filed on January 23, 2015October 17, 2017
     
10.2010.14 Form of Amended and Restated Class D WarrantAgreement dated December 6, 2017 with Maxim Group LLC Incorporated by reference from the Currentto Exhibit 10.21 to Annual Report on Form 8-K10-K filed on January 23, 2015April 2, 2018
     
10.2110.15 Form of Amended and Restated Performance WarrantAgreement dated December 13, 2017 with First Choice International Company, Inc. Incorporated by reference from theto Exhibit 10.1 to Current Report on Form 8-K filed on January 23, 2015December 19, 2017
     
10.2210.16 Form of Amended and Restated Placement Agent WarrantIncorporated by reference from the Current Report on Form 8-K filed on January 23, 2015
10.23Indemnification Agreement between the Company and Brian CollinsMartin Ward dated Incorporated by reference from the Annual Report on Form 10-K filed on April 1, 2015
     
10.2410.17 IndemnificationForm of Securities Purchase Agreement between the Company and Martin Ward dated July 14, 2017. Incorporated by reference from theto Exhibit 10.1 to Current Report on Form 8-K filed July 18, 2017.
10.18Exchange Agreement dated January 18, 2018 with Once In A Lifetime, LLCIncorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed January 24, 2018
10.19Exchange Agreement dated February 26, 2018 with C-Rod, Inc.Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed February 28, 2018
10.20†Employment Agreement with Mark WhiteIncorporated by reference to Exhibit 10.28 to Annual Report on Form 10-K filed April 2, 2018
10.21†Employment Agreement with Martin WardIncorporated by reference to Exhibit 10.29 to Annual Report on Form 10-K filed April 1, 20152, 2018
10.22†2018 Equity Incentive PlanIncorporated by reference to Exhibit 10.30 to Annual Report on Form 10-K filed April 2, 2018
10.23Subscription Agreement with BK Consulting Group, LLCIncorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-3 (Registration No. 333-225945) filed on June 28, 2018 and declared effective on August 7, 2018
10.24Verified Complaint in the Wu LitigationIncorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 7, 2018

 

50

 

Exhibit
Number
 Title of Document Location
10.25Escrow Agreement between the Company and the stockholders of Banana Whale Studios Pte. Ltd.Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 10, 2018
10.26Subscription Agreement with First Choice International Company, Inc.Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-3 (Registration No. 333-227247) filed on September 10, 2018 and declared effective on September 14, 2018
10.27Exchange Agreement dated as of May 18, 2018 by and among One Horizon Group, Inc., Banana Whale Studios, Sargon Petros, Mark Hogbin, Rita Liu and Jeremy ChungIncorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 24, 2018
10.28Subscription Agreement dated as of August 29, 2018Incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-3 filed on September 10, 2018 and declared effective on September 14, 2018
10.29Consulting Agreement dated as of March 30, 2018 with BK Consulting Group, LLCIncorporated by reference to Exhibit 10.2 to Registration Statement on Form S-3 filed on September 10, 2018 and declared effective on September 14, 2018
10.30Subscription Agreement dated as of September 21, 2018Item 14..Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on September 21, 2018
10.31Securities Purchase Agreement dated as of October 4, 2018 with First Choice International Company, Inc.Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on October 9, 2018
10.32Exchange Agreement dated as of October 22, 2018 for the acquisition of a majority of the outstanding shares of BrowningIncorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on October 24, 2018
10.33Settlement Agreement relating to the Wu LitigationIncorporated by reference to Registration Statement on Form S-3 (Registration No. 333-227971) filed October 24, 2018 and declared effective November 2, 2018
10.34Consulting Agreement with One Percent Investments, Inc.Incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q filed November 16, 2018
10.35Securities Purchase Agreement with Bespoke Growth Partners, Inc.Incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q filed November 16, 2018
10.36Securities Purchase Agreement with BK Consulting Group, LLC.Incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q filed November 16, 2018
10.37Agreement dated as of February 4, 2019 relating to Disposition of Banana Whale Studios Pte. Ltd.Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 5, 2019
10.38Promissory Note of Banana Whale Studios Pte Ltd dated February 4, 2019.Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 5, 2019


Exhibit
Number
 CodeTitle of EthicsDocument Location
10.39Pledge and Escrow Agreement dated as of February 4, 2019.Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 5, 2019
10.40Exchange Agreement dated as of February 20, 2019 with Maham LLC.Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 21, 2019
10.41Consulting Agreement with One Percent Investments, Inc.Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 11, 2019
10.42Equity Purchase Agreement entered into on August 5, 2019 and dated as of July 18, 2019 with Crown Bridge Partners, LLC.Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 9, 2019
10.43Registration Rights Agreement entered into on August 5, 2019 and dated as of July 18, 2019, with Crown Bridge Partners, LLCIncorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 9, 2019
10.44Convertible promissory note issued to Bespoke Growth Partners, Inc. on July 11, 2019Incorporated by reference to Exhibit 10.50 to Registration Statement on Form S-1 (Registration No. 333-233825) filed September 18, 2019 and declared effective September 23, 2019
10.45Consulting Agreement dated August 5, 2019 by and between the registrant and Catalyst Corporate Solutions, LLCFiled herewith
10.46Accord and First Amended Consulting Agreement dated April 16, 2020 by and between the registrant and Catalyst Corporate Solutions, LLCFiled herewith
10.47Consulting Agreement dated April 16, 2020 by and between the registrant and Quantum LexiconFiled herewith
10.48Convertible Promissory Note dated November 21, 2019 issued by the registrant to Bespoke Growth Partners, Inc.Filed herewith
     
14.1 Policy Statement on Business Ethics and Conflicts of Interest Incorporated by reference from the Annual Report on Form 10-KSB for the year ended December 31, 2004, filed May 23, 2005
     
14.221.1 Insider Trading PolicySubsidiaries Incorporated by reference from the Registration Statement on Form S-1 filed February 5, 2015Filed herewith
     
23.1Item 31.Consent of Cherry Bekaert, LLP Rule 13a-14(a)/15d-14(a) CertificationsFiled herewith
     
31.1 Certification of Principal Executive Officer Pursuant to Rule 13a-14 Filed as part of this reportherewith
     
31.2 Certification of Principal Financial Officer Pursuant to Rule 13a-14 Filed as part of this report
Item 32.Section 1350 Certificationsherewith
     
32.1 Certification of ChiefPrincipal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Filed as part of this report
32.2Certification of Chiefand Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed as partherewith

Exhibit
Number
Title of this reportDocumentLocation
101.INSXBRL InstanceFiled herewith
101.SCHXBRL Taxonomy Extension SchemaFiled herewith
101.CALXBRL Taxonomy Extension CalculationFiled herewith
101.DEFXBRL Taxonomy Extension DefinitionFiled herewith
101.LABXBRL Taxonomy Extension LabelsFiled herewith
101.PREXBRL Taxonomy Extension PresentationFiled herewith

 

51

† Management contract, compensation plan or arrangement.

 

Item 16. Form 10-K Summary

 

None. 


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.

 

 ONE HORIZONTOUCHPOINT GROUP HOLDINGS, INC.
   
Date: April 10, 201724, 2020By:/s/ Brian CollinsMark White
  Brian CollinsMark White
  President and PrincipalChief Executive Officer (principal executive officer)
 
Date: April 24, 2020By:/s/ Martin Ward
Martin Ward
Chief Financial Officer (principal financial officer and principal accounting officer)

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Mark White and Martin Ward, and each of them, as attorneys-in-fact with full power of substitution, severally, to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to the annual report on Form 10-K, which amendments may make such changes in the report as the attorney-in-fact acting deems appropriate and to file any such amendment to the annual report on Form 10-K with the Securities and Exchange Commission.

 

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

Dated:  April 10, 2017dates indicated.

 

By:/s/ Brian CollinsSignature TitleDate
  Brian Collins 
/s/ Mark White President, Chief Executive Officer and Director April 24, 2020

Mark White By:/s/ Martin Ward 
  
/s/ Martin WardChief Financial Officer and DirectorApril 24, 2020
Martin Ward 
  Chief Financial Officer, Principal Finance and Accounting Officer and
/s/ Nicholas CarpinelloDirector April 24, 2020

Nicholas Carpinello By:/s/ Robert Vogler 
  
/s/ Robert VoglerLawDirectorApril 24, 2020
Robert Law
/s/ Nalin JayDirectorApril 24, 2020
Nalin Jay
 
  Director April 24, 2020

Ajing Zhang By:/s/ Nicholas Carpinello 
  Nicholas Carpinello 
  Director April 24, 2020
Pengfei Li

TOUCHPOINT GROUP HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

 By:Page
Report of Independent Registered Public Accounting Firm/s/ Robert LawF-2
Consolidated Financial Statements: 
Consolidated Balance Sheets as of December 31, 2019 and 2018Robert LawF-3
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018Director

By:/s/ Richard VosF-4
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2019 and 2018Richard VosF-5
Consolidated Statements of Temporary and Stockholders’ Equity for the Years Ended December 31, 2019 and 2018F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018DirectorF-7
Notes to Consolidated Financial StatementsF-9

52


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders

One HorizonStockholders of
Touchpoint Group Holdings, Inc.

Limerick, Ireland

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of One HorizonTouchpoint Group Holdings, Inc. (the “Company”) as of December 31, 20162019 and 20152018, and the related consolidated statements of operations, comprehensive loss, temporary and stockholders’ deficitequity, and cash flows for each of the years then ended. These financial statements areended, and the responsibility ofrelated notes (collectively referred to as the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States of America)“financial statements”). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company atas of December 31, 20162019 and 20152018, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matters

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s evaluations of the events and conditions and management’s plans in regard to theseregarding those matters are also described in Note 2 to the financial statements.2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

As discussed in Note 12Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board of the United States of America (“PCAOB”) and are required to be independent with respect to the consolidatedCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the 2015 consolidatedpurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, have been restatedwhether due to correcterror or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a misstatement.test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Cherry Bekaert LLP

Tampa, Florida

April 24, 2020  

Date: April 10, 2017We have served as the Company’s auditors since 2016.


TOUCHPOINT GROUP HOLDINGS, INC.

F-1

ONE HORIZON GROUP, INC.

Consolidated Balance Sheets

December 31, 20162019 and 20152018

(in thousands, except share data)

 

  2016  2015 
       (As
Restated,
note 12)
 
Assets        
Current assets:        
Cash $260  $1,772 
Accounts receivable, net  1,208   1,760 
Other assets  472   402 
Total current assets  1,940   3,934 
         
Property and equipment, net  42   96 
Intangible assets, net  8,407   9,823 
Investments  17   18 
         
Total assets $10,406  $13,871 
         
Liabilities and Stockholders' Equity        
         
Current liabilities:        
Accounts payable $364  $223 
Accrued expenses  206   220 
Accrued compensation  156   18 
Income taxes payable  90   90 
Convertible debenture, net  3,068   - 
Current portion of long-term debt  -   5 
Total current liabilities  3,884   556 
         
Long-term liabilities        
Long term debt, net of current portion  -   - 
Amount due to related parties  2,343   2,354 
Convertible debenture  -   2,636 
Deferred income taxes  172   215 
Mandatorily redeemable preferred shares  62   73 
Total liabilities  6,461   5,834 
         
Stockholders' Equity        
One Horizon Group, Inc. stockholders' equity        
Preferred stock: $0.0001 par value, authorized 50,000,000; issued and outstanding 170,940 shares  1   1 
Common stock: $0.0001 par value, authorized 200,000,000 shares, issued and outstanding 35,147,283 (2016)and 33,281,069 (2015)  4   3 
Additional paid-in capital  37,501   36,070 
         
Retained Earnings (Deficit)  (33,590)  (28,001)
Accumulated other comprehensive income/(loss)  29   (36)
Total stockholders' equity  3,945   8,037 
Total liabilities and stockholders' equity $10,406  $13,871 
  December 31, 
  2019  2018 
       
Assets      
Current assets:      
Cash $258  $313 
Accounts receivable, net  80   - 
Prepaid compensation  550   550 
Investment  -   100 
Other receivable  -   2,022 
Advances to acquisition target  210   70 
         
Other current assets  88   381 
   1,186   3,436 
Current assets of discontinued operations  29   586 
Total current assets  1,215   4,022 
         
Other receivable  250   - 
Goodwill  419   419 
Intangible assets, net  1,992   2,489 
Prepaid compensation (non-current)  917   1,467 
Non current assets of discontinued operations  34   2,528 
         
Total assets $4,827  $10,925 
         
Liabilities, Temporary Equity and Stockholders’ Equity        
         
Current liabilities:        
Accounts payable $387  $311 
Accrued expenses  219   121 
Accrued compensation  531   181 
Loans payable  290    
Promissory notes, related parties  1,000   1,000 
   2,427   1,613 
Current liabilities of discontinued operations  428   842 
Total current liabilities  2,855   2,455 
         
Total liabilities  2,855   2,455 
         
Temporary Equity - redeemable common stock outstanding 848,611  605   605 
         
Stockholders’ Equity        
Touchpoint Group Holdings, Inc. stockholders’ equity        
Preferred stock: $0.0001 par value, authorized 50,000,000; nil shares issued or outstanding      
Common stock: $0.0001 par value, authorized 200,000,000 shares, issued and outstanding 4,132,600 (2019) and 3,502,387 (2018)  2   2 
Additional paid-in capital  61,749   62,606 
Share subscription receivable  -   (1,425)
Accumulated Deficit  (61,362)  (54,854)
Accumulated other comprehensive loss  (24)  (35)
Total Touchpoint Group Holdings, Inc. stockholders’ equity  365   6,294 
Non-controlling interest  1,002   1,571 
Total stockholders’ equity  1,367   7,865 
Total liabilities, temporary equity and stockholders’ equity $4,827  $10,925 

 

See accompanying notes to consolidated financial statements.


TOUCHPOINT GROUP HOLDINGS, INC.

F-2

ONE HORIZON GROUP, INC.

Consolidated Statements of Operations

For the years ended December 31, 20162019 and 20152018

(in thousands, except per share data)

 

  Years ended December 31, 
  2016  2015 
     (As
Restated,
note 12
 
Revenue $1,615  $1,532 
Cost of revenue        
Hardware, calls and network charges  98   116 
Amortization of intangibles  2,010   2,111 
   2,108   2,227 
Gross deficit  (493)  (695)
         
Expenses:        
General and administrative  3,267   3,326 
Increase in Allowance for doubtful accounts  455   934 
Depreciation  59   67 
Research and development  605   579 
   4,386   4,906 
         
Loss from operations  (4,879)  (5,601)
         
Other income and expense:        
Interest expense  (712)  (722)
Interest expense - related parties  -   (2)
Gain on settlement of lease  -   36 
Foreign currency exchange  9   (29)
Interest income  -   2 
   (703)  (715)
         
Loss from continuing operations before income taxes  (5,582)  (6,316)
Income taxes benefit  (43)  (20)
Net loss  (5,539)  (6,296)
         
Loss attributable to non-controlling interest  -   (50)
Net loss attributable to One Horizon Group, Inc.  (5,539)  (6,246)
Less: Preferred dividends  (50)  (100)
Net loss attributable to One Horizon Group, Inc. Common stockholders $(5,589) $(6,346)
         
Earnings per share        
Basic and diluted net loss per share $(0.16) $(0.18)
Weighted average number of shares outstanding        
Basic and diluted  35,411   33,996 
  Years Ended December 31, 
  2019  2018 
       
Revenue $170  $306 
Cost of revenue        
Software and production costs  4    
Amortization of intangible assets  553   1,982 
   557   1,982 
Gross deficit  (387)  (1,676)
         
Expenses:        
General and administrative  3,321   6,642 
Acquisition related costs  -   1,874 
Depreciation  1   1 
Intangible asset impairment charge  -   3,761 
   3,322   12,278 
         
Loss from operations  (3,709)  (13,954)
         
Other income and expense:        
Interest expense  (87)  (428)
Other income (Note 3)  553   968 
Foreign currency exchange (losses)/gains  (5)  1 
Loss on disposal of investment  (50)  - 
   411   541 
         
Loss from continuing operations  (3,298)  (13,413)
         
Loss from discontinued operations  (3,330)  (1,166)
Net loss for the year  (6,628)  (14,579)
Net loss attributable to non controlling interest  120   810 
Net loss attributable to Touchpoint Group Holdings, Inc. common stockholders $(6,508) $(13,769)
         
Earnings per share        
Basic and diluted net loss per share        
- Continuing operations $(0.85) $(6.59)
- Discontinued operations $(0.88) $(0.57)
Weighted average number of shares outstanding        
Basic and diluted  3,768   2,034 

 

See accompanying notes to consolidated financial statements.


TOUCHPOINT GROUP HOLDINGS, INC.

F-3

ONE HORIZON GROUP, INC.

Consolidated Statements of Comprehensive Loss

For the years ended December 31, 20162019 and 20152018

(in thousands)

 

 Years ended December 31,  Years Ended December 31, 
 2016  2015  2019  2018 
   (As
Restated,
note 12
      
Net loss $(5,539) $(6,296) $(6,508) $(13,769)
Other comprehensive (loss):        
Other comprehensive loss:        
Foreign currency translation adjustment gain (loss)  65   (99)  11   (13)
Comprehensive loss  (5,474)  (6,395)
Comprehensive loss attributable to the non-controlling interest  -   (50)
                
Total comprehensive loss $(5,474) $(6,345) $(6,497) $(13,782)

 

See accompanying notes to consolidated financial statements.


TOUCHPOINT GROUP HOLDINGS, INC.

F-4

ONE HORIZON GROUP, INC.

Consolidated Statements of Stockholders'Temporary and Stockholders’ Equity

For the years ended December 31, 20162019 and 20152018

(in thousands)

 

   Preferred
Stock
   Common Stock   Additional 
Paid-
in Capital
   Deferred
Compensation
   Retained
Earnings
(Deficit)
   Accumulated
Other
Comprehensive
Income
(Loss)
   Non-
controlling
Interest
   Total
Stockholders'
Equity
 
   Number
of
Shares
   Amount   Number
of
Shares
   Amount                         
                                         
Balance December 31, 2014
(Restated, note 12)
  171  $1   33,282  $3  $32,163  $(214) $(21,655) $63  $291  $10,652 
Net loss                          (6,246)      (50)  (6,296)
Foreign currency translations                              (99)      (99)
Preferred dividends                          (100)          (100)
Amortization of deferred compensation                      214               214 
Options issued for services                  660                   660 
Common Stock issued for cash          1,866       3,266                   3,266 
Contribution of shares of subsidiary                   241               (241  - 
Costs of financing                  (391)                  (391)
Amounts owing to related party forgiven                  131                   131 
                                         

Balance December 31, 2015

(restated, note 12)

  171  $1   35,148  $3  $36,070  $-  $(28,001) $(36) $-  $8,037 
                                         
Net loss                          (5,539)          (5,539)
Foreign currency translation                              65       65 
Preferred dividends                          (50)          (50)
Issuance of common stock for cash          1,374   1   524                   525 
Common Stock issued for services          347       204                   204 
Options issued for services                  703                   703 
Balance December 31, 2016  171  $1   36,869  $4  $37,501  $-  $(33,590) $29  $-  $3,945 
  Temporary Equity  Common Stock  Additional
Paid-In
  Stock
Subscription
  Accumulated  Accumulated
Other
Comprehensive
  Non-
Controlling
  Total
Stockholders’
 
  Shares  Amount  Shares  Amount  Capital  Receivable  Deficit  Income  Interest  Equity 
Balance January 1, 2018    $   1,210  $1  $48,358     $(41,085) $22  $  $7,252 
                                         
Net loss                    (13,769)     (810)  (14,579)
                                         
Foreign currency translation                       (13)     (13)
                                         
Warrant modification expense                  544                   544 
                                         
Shares issued for services provided  7   199   459   1   4,749               4,750 
                                         
Shares issued for exercise of warrants        347      2,096               2,096 
                                         
Shares issued for business combinations        491      3,341            2,381   5,722 
                                         
Shares issued for IP agreement        120      548               548 
                                         
Shares issued for settlement agreement        14      96               96 
                                         
Shares issued in conversion of debt  27   406   -      -               - 
                                         
Beneficial conversion feature              200               200 
                                         
Shares issued for sale of stock        861      2,674   (1,425)           1,249 
                                         
Balances, December 31, 2018  34  $605   3,502  $2  $62,606  $(1,425) $(54,854) $(35) $1,571  $7,865 
                                         
Net loss                    (6,508)     (120)  (6,628)
                                         
Foreign currency translation                       11      11 
                                         
Additional shares for contract revision        82       127            -   127 
                                         
Rounding shares issued        6      -               - 
                                         
Shares issued for services provided  -   -   300   -   189               189 
                                         
Shares issued as security for loan        179   -   -   -            - 
                                         
Disposal of equity in subsidiary  -   -                     (449)  (449)
                                         
Shares issued for commitment fees        370      102               102 
                                         
Share subscription settled through services provided              -   150            150 
                                         
Shares subscription cancelled        (340)     (1,275)  1,275            - 
                                         
Balances, December 31, 2019  34  $605   4,099  $2  $61,749  $-  $(61,362) $(24) $1,002  $1,367 

 

See accompanying notes to consolidated financial statements.


TOUCHPOINT GROUP HOLDINGS, INC.

F-5

ONE HORIZON GROUP, INC.

Consolidated Statements of Cash Flows

For the years ended December 31, 20162019 and 20152018

(in thousands)

 

  Years ended December 31, 
  2016  2015 
     (As
Restated,
note 12
 
Cash used in operating activities:        
Operating activities:        
Net loss for the year $(5,539) $(6,246)
         
Adjustment to reconcile net loss for the year to net cash used in operating activities:        
Depreciation of property and equipment  59   67 
Amortization of intangible assets  2,010   2,111 
Increase in allowance for doubtful accounts  455   934 
Amortization of debt issue costs  132   132 
Amortization of beneficial conversion feature  100   101 
Amortization of debt discount  200   199 
Amortization of deferred compensation  -   214 
Amortization of shares issued for services  47   - 
Gain on settlement of lease  -   (36)
Options issued for services received  703   660 
Common shares issued for services received  70   - 
Net loss attributable to non-controlling interest  -   (50)
Changes in operating assets and liabilities:        
Accounts receivable  96   (50)
Other assets  18   174 
Accounts payable and accrued expenses  389   (302)
Income taxpayable  -   (3)
Deferred income taxes  (43)  (20)
         
Net cash used in operating activities  (1,303)  (2,115)
         
Cash used in investing activities:        
         
Acquisition of intangible assets  (467)  (1,063)
Acquisition of property and equipment  (8)  (9)
Net cash used in investing activities  (475)  (1,072)
         
Cash flow from financing activities:        
         
Decrease in long-term borrowing, net  (5)  (144)
Cash proceeds from issuance of common stock  400   2,875 
Preferred dividends paid  (50)  (100)
Repayments to related parties  (11)  (844)
Net cash provided by financing activities  334   1,787 
         
Decrease in cash during the year  (1,444)  (1,400)
Foreign exchange effect on cash  (68)  - 
Cash at beginning of the year  1,772   3,172 
Cash at end of the year $260  $1,772 
  Years Ended December 31, 
  2019  2018 
       
Cash used in operating activities:      
Operating activities:      
Net loss for the year $(3,298) $(13,413)
         
Adjustment to reconcile net loss for the year to net cash used in operating activities:        
Depreciation of property and equipment  1   1 
Amortization of intangible assets  553   1,982 
Shares issued for financing commitment  102   - 
Amortization of beneficial conversion feature  -   355 
Shares issued for contract revision  127   - 
Impairment charge  -   3,761 
Amortization of shares issued for services  955   550 
Warrants issued for services received  -   544 
Non-cash interest expense  18   - 
Loss on disposal of investment  50   - 
Common shares issued for services received  189   4,729 
Other income (non-cash) (Note 3)  (553)  (930)
Changes in operating assets and liabilities:        
Accounts receivable  (102)  (102)
Other assets  21   (353)
Accounts payable and accrued expenses  506   (97)
         
Net cash flows from continuing operating activities  (1,431)  (2,973)
         
Net cash flows from discontinued operating activities  (633)  (1,058)
         
Net cash flows from operating activities  (2,064)  (4,031)
         
Cash used in investing activities:        
Cash advances to acquisition target  (140)  - 
Cash consideration of acquisitions (net of cash acquired)  -   (204)
Proceeds from sale of investments  50   - 
Proceeds from sale of interest in subsidiary  1,750    
Acquisition of fixed assets  -   (1)
Net cash flows from investing activities – continuing operations  1,660   (205)
         
Cash flows from investing activities – discontinued operations  (77)  (5)
         
Net cash flows from investing activities  1,583   (210)
         
Cash flows from financing activities:        
Proceeds from loans  762   - 
Repayments on loans  (490)  - 
Cash proceeds from exercise of warrants  -   2,096 
Cash proceeds from issuance of common stock  --   1,450 
Advances from/(repayments to) related parties  19   (30)
Net cash flows from financing activities – continuing operations  291   3,516 
Cash flows from financing activities – discontinued operations  69   301 
Net cash flows from financing activities  360   3,817 
         
Decrease in cash during the year  (121)  (424)
Foreign exchange effect on cash  10   (26)
         
Cash at the beginning of the year - continuing operations  313   763 
Cash at the beginning of the year – discontinued operations  58   - 
Cash at end of the year – total $260  $313 

 

See accompanying notes to consolidated financial statements.


TOUCHPOINT GROUP HOLDINGS, INC.

F-6

ONE HORIZON GROUP, INC.

Consolidated Statements of Cash Flows (continued)

For the years ended December 31, 20162019 and 20152018

(in thousands)

 

  Year ended December 31, 
  2016  2015 
       
Interest paid $209  $216 
Non-cash transactions:        
Common stock issued for services provided  204   - 
Common stock issued for settlement of accrued compensation  125   - 
  Year Ended December 31, 
  2019  2018 
       
Cash paid for interest $  $ 
Non-cash transactions:        
Common stock issued in acquisitions $   $5,722 
Common stock issued for software $   $548 
Disposal of interest in subsidiary $(449) $- 
Share subscription settled through securities provided $150  $- 

 

See accompanying notes to consolidated financial statements.

F-7


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 20162019 and 20152018

 

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

 

Description of Business

 

One Horizon Group, Inc., (the “Company” or “Horizon”) develops proprietary software primarily in the Voice over Internet Protocol (VoIP) and bandwidth optimization markets (“Horizon Globex”) and provides it to telecommunication companies under perpetual license arrangements (“Master License”) throughout the world. In addition,On September 26, 2019, the Company either sells related user licenses and software maintenance services to or enters into revenue sharing agreements with telecommunication companies. Horizon, throughchanged its Chinese company Suzhou Aishuo Network Information Co. Ltd., provides the Aishuo App to end user customers through App stores based in China. Our Aishuo customers purchase call credits for Public Service Telephone Network (PSTN) access using a variety of Chinese on-line payment services including Union Pay and Apple Pay.

Principles of Consolidation and Combination

The consolidated financial statements include the accounts ofname from One Horizon Group, Inc. and its wholly owned subsidiaries One Horizonto Touchpoint Group plc, Horizon Globex GmbH, Abbey Technology GmbH, One Horizon Group Pte., Limited, Horizon Globex Ireland Limited, Global Phone Credit Limited and One HorizonHoldings, Inc. (the “Company”). The Company has the following businesses:

(i)Touchpoint Connect Limited (“Touchpoint”) – a newly formed wholly owned subsidiary that offers a white label product which is a fan engagement platform designed to enhance the fan experience and drive commercial aspects of the sport and entertainment business.

(ii)The Company is in negotiations to sell its interests in Love Media House, Inc. (“Love Media House”) and as such, it is considered to be discontinued operations. See Note 3 for more information.
(iii)The Company signed agreements in February 2020 completing the sale of its interest in Browning Productions & Entertainment, Inc. (“Browning”) and its results for 2019 are treated as discontinued operations. See Note 3 for more information.
(iv)123 Wish, Inc. is considered dormant. All operations have been moved to Touchpoint.

The Company is based in the United States of America, Hong Kong, Limited,China and its wholly-owned subsidiary, Horizon Network Technology Co. Ltd. (“HNT”). the United Kingdom.

Current Structure of the Company

The Company has the following subsidiaries: 

Subsidiary name% Owned
● 123Wish, Inc. (considered dormant)51%
● One Horizon Hong Kong Ltd100%
● Horizon Network Technology Co. Ltd100%
● Love Media House, Inc. (discontinued operations)100%
● Touchpoint Connect Limited (formed in September 2019)100%
● Browning Productions & Entertainment, Inc. (discontinued operations and disposed of in February 2020)51%

In addition included into the consolidated financial statements as of and for the years ended December 31, 2016 and 2015, are the accounts ofsubsidiaries listed above, Suzhou Aishuo Network Information Co., Ltd. whichLtd (“Suzhou Aishuo”) is a limited liability company organized in China and controlled by One Horizon Group, Inc. throughthe Company via various contractual arrangements (Note 3).

During the year ended December 31, 2015, the minority parties which held ownership interestsarrangements. Suzhou Aishuo is treated as one of our subsidiaries for financial reporting purposes in HNT returned their shareholdings to HNT such that HNT is now fully owned by the Company. The amount of net loss attributable to the Company and the non-controlling interest, up to the time that the shareholdings were returned, are both presented in the Consolidated statement of operations.accordance with GAAP.

 

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

F-8

Note 2. Summary of Significant Accounting Policies

 

Liquidity and Capital Resources

 

As we continue to pursue our operationsHistorically, the Company has incurred net losses and our business plan, we expect to incur further losses in 2017 which when combined with our continued investment in our intellectual property, will generate negative cash flows. As of December 31, 2016,flows from operations which raise substantial doubt about the Company did not have any available credit facilities. As a result, we are in the process of seeking new financing by way of sale of either convertible debt or equities. Whilst we have been successful in the past in obtaining the necessary capital to support our investment and operations there is no assurance that we will be able to obtain additional financing under acceptable terms and conditions, or at all. In the event, we are unable to obtain sufficient additional funding when needed in order to fund our ongoing research and development activities as well as our operations, we would not be ableCompany’s ability to continue as a going concernconcern. The Company has principally financed these losses from the sale of equity securities and maybe forced to severely curtail or cease operations and liquidate the Company. As a result, our auditors’ report for our 2016 Financial Statements, which are included as partissuance of this report, contains a statement concerning our ability to continue as a “going concern”.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 December 31, 2019, the Company had cash of $258,000. Together with the Company’s current operational plan and budget, the Company believes that it is probable that it will have sufficient cash to fund its operations into at least the first quarter of 2021. However, actual results could differ materially from the Company’s projections.

On August 5, 2019, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) with Crown Bridge Partners, LLC (“Crown”), whereby Crown are committed to purchase up to $10.0 million of new common stock from the Company at the Company’s option during the next three years. The amount is determined by the market value of trades and is priced at an 18% discount to average market price. As of December 31, 2019, no shares have been sold under the Equity Purchase Agreement. In connection with the Equity Purchase Agreement, the Company entered into a six month loan with Labrys Fund, LP in the original principal amount of $180,000. The loan was issued with a 10% original issue discount, and accordingly, the Company received net proceeds of $162,000 and an annual coupon rate of 12%. The loan was repaid on the due date in January 2020.

Basis of Accounting and Presentation

 

These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States.States (“GAAP”).

 

Foreign Currency Translation

 

The reporting currency of the Company is the United StatesU.S. dollar. Assets and liabilities of operations other than those denominated in U.S. dollars, primarily in Switzerland, Ireland,Singapore, the United Kingdom and China, are translated into United StatesU.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 Other incomegeneral and expense.administrative expenses.


Cash

 

Cash and cash equivalents include bank demand deposit accounts and highly liquid short termshort-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 Switzerland, Ireland, Singapore, Hong Kong and China which, at times, balances may exceed insured limits. 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

 

Accounts receivable result primarilyPerformance 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 sale of software and licenses to customers and are recorded at their principal amounts. The categories of sales and receivables and their terms of payment areeach business segment as follows:described below:

— Discontinued operations 

 

a)1Master License Agreement (“Agreement”) deposits– DepositsLove Media House derives income from recording and video services. Income is recognized when the recording and video services are payable in accordance withperformed and the terms offinal customer product is delivered and the Agreement. Payment terms may vary from Agreement to Agreement, with payment due generally within 30 days ofpoint at which the execution of an Agreement.performance obligation is satisfied. These revenues are non-refundable.

 

b)2Software consultancy and hardware fees – The terms of payment are fixed terms, with payment normally due within stated terms, normally 30 daysBrowning derives income from the dateadvertising associated with the airing of the invoice.

F-9

c)Maintenancetelevision series produced by Browning and operational fees and end useralso licenses fees – Payments vary from customer to customer. For customers who have not entered into a revenue share agreement, the terms of payment are fixed and payment is due within stated terms, normally 30 daysincome from the dateshowing of series on certain channels based on the invoice. For customers who have entered into anumber of viewers attracted. Advertising revenue share agreement,is recognized when the Company will receive an agreed proportion of a customer’s revenue fromseries to which the customer’s operation of the Horizon service. The proportion of a customer’s revenue receivedadvertising relates is used to pay the receivable balance until the balance is paid.aired.

 

Receivables are generally unsecured. Account balances are charged off against the allowance when the Company determines that certain receivable will probably not be recovered.— Continued operations 

3Touchpoint – Revenue for the sale of the software license is recognized when the customer has use of the services and has access to use the software. Revenue from maintenance services are recognized over time as the services are provided and charged.

 

The Company does not have off-balance sheet credit exposure related to its customers. As of December 31, 2016 and December 31, 2015,2019, two customers accounted for 61% and 51%, respectively,100% of the accounts receivable balance and as of December 31, 2018, there was no accounts receivable balance. Five customers accounted for 100% of the revenue for the year ended December 31, 2019 and one customer accounted for 74% of the revenue for the year ended December 31, 2018. During the year ended December 31, 2019, revenues totaling $40,000 were generated from an arrangement with an acquisition target.

  

Property and Equipment

Property and equipment is primarily comprised of equipment that is recorded at cost and depreciated or amortized using the straight-line method over their estimated useful lives of between 3 and 5 years.

Repairs and maintenance are charged to expense as incurred. Expenditures that substantially increase the useful lives of existing assets are capitalized.

Intangible Assets

 

Intangible assets include software development costs and customer listsacquired technology and are amortized on a straight-line basis over the estimated useful lives ofranging from four to five years for customer lists and ten years for software development.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. Based on these valuations, no impairment charges were recognized during either of the years December 31, 2016 or 2015.

The Company expenses software development costs as incurred until technological feasibility has been established, at which time those costs are capitalized until the product is available for general release to customers. Judgement is required in determining when technical feasibility of a product is established. The Company has determined that after technological feasibility for software products is reached, the Company continues to address all high risk development issues through coding and testing prior to release of the products to customers. The amortization of these costs is included in cost of revenue over the estimated life of the products.

During the years ended December 31, 2016 and 2015 software development costs of $467,000 and $1,063,000 respectively, have been capitalized.

F-10


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. During the yearsyear ended December 31, 2016 and 2015 the Company recorded no impairment losses related to the Company’s long-lived assets.

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company establishes persuasive evidence of a sales arrangement for each type of revenue transaction based on a signed contract with the customer and that delivery has occurred or services have been rendered, price is fixed and determinable, and collectability is reasonably assured.

·Software and licenses – revenue from sales of perpetual licenses to telecom entities is recognized at date of invoices raised for installments due under the agreement, unless payment terms exceed one year, as described below, presuming all other relevant revenue recognition criteria are met. Revenue from sales of perpetual licenses to other entities is recognized over the agreed collection period.

·Revenue for user licenses purchased by customers is recognized when the user license is delivered.

·Revenue for maintenance services is recognized over the period of delivery of the services.

·Effective October 1, 2014, the Company amended certain existing customer contracts with respect to the terms under which those customers would pay the Company for perpetual licenses, user licenses and maintenance services provided by the Company. Existing customer contracts required payments for maintenance services to be made based on contractually specified fixed amounts, which were billed regularly through September 2014. Through that date the Company recorded revenue for licenses and maintenance services when those licenses and services were billed. Revenue for user licenses was recorded as earned and revenue for maintenance services was recorded based on a fixed annual fee, billed quarterly. The Company has modified the payment terms under certain of those existing customer contracts by entering into Revenue Sharing agreements with those customers. Under the terms of these Revenue Sharing agreements, future payments will be due from the customer when that customer has generated revenue from its customers who subscribe to use the Horizon products and services. Hosted services are offered to customers on revenue share arrangements whereby the Company can provide fully terminated services and sells vouchers for minutes which can be resold by the customer. Sales for this service are recognized when the supply is made and the invoice raised.

Effective October 1, 2014 revenue has been recorded by the Company when it invoices the customer for the revenue share due to the Company. Certain customers who entered into revenue sharing arrangements had outstanding balances due to2018 the Company, as of September 30, 2014, which balances were included in accounts receivable as at that date. Payments received after September 30, 2014, from those customers under revenue sharing agreements have been applied to the customer’s existing accounts receivable balances first. For those customers having balances due at September 30, 2014, revenue related to perpetual and user licenses and maintenance services are recorded only after existing accounts receivable balances are fully collected.

·Revenues from Aishuo retail sales are recognized when the PSTN calls and texts are made.

Where the Company has entered into a Revenue Share with the customer, then all future revenue from granting of user licenses and for maintenance services will be recognized when the Company has delivered user licenses and is entitled to invoice.

F-11

We enter into arrangements in which a customer purchases a combination of software licenses, maintenance services and post-contract customer support (“PCS”). As a result judgment is sometimes requiredof this review, recognized an impairment charge relating to determine the appropriate accounting, including how the price should be allocated among the deliverable elements if there are multiple elements. PCS may include rights to upgrades, when and if available, support, updates and enhancements. When vendor specific objective evidence (“VSOE”) of fair value exists for all elementsHorizon Software totaling $3.8 million. As set out in a multiple element arrangement, revenue is allocated to each element based on the relative fair value of each of the elements. VSOE of fair value is established by the price charged when the same element is sold separately. Accordingly, the judgments involved in assessing the fair values of various elements of an agreement can impact the recognition of revenue in each period. Changes in the allocation of the sales price between deliverables might impact the timing of revenue recognition, but would not change the total revenue recognized on the contract. When elements such as software and services are contained in a single arrangement, or in related arrangements with the same customer, we allocate revenue to each element based on its relative fair value, provided that such element meets the criteria for treatment as a separate unit of accounting. In the absence of fair value for a delivered element, revenue is first allocated to the fair value of the undelivered elements and then allocated to the residual delivered elements. In the absence of fair value for an undelivered element, the arrangement is accounted for as a single unit of accounting, resulting in a delay of revenue recognition for the delivered elements until the undelivered elements are fulfilled. No sales arrangements to date include undelivered elements for which VSOE does not exist.

For purposes of revenue recognition for perpetual licenses, the Company considers payment terms exceeding one year as a presumption thatthe fee in the transaction is not fixed and determinable.

In order to determine the company’s historical experience is based on sufficiently similar arrangements, the Company considers the various factors including the types of customers and products, product life cycle, elements Included in the arrangement, length of payment terms and economics of license arrangement.

DuringNote 3, during the year ended December 31, 2016 $1,175,000 or 73% of2019, the Company’s revenue was concentrated in the hands of one major customer. During the year ended December 31, 2015, $1,205,000 or 79% of the Company’s revenue was concentrated in the hands of two customers.

Advertising Expenses

It is the Company’s policy to expense advertising costs as incurred. Advertising costs incurred during the years ended December 31, 2016 and 2015 were $39,000 and $30,000, respectively.

Research and Development Expenses

Research and development expenses include all direct costs, primarily salaries for Company personnel and outside consultants,recorded an impairment charge related to the development of new products, significant enhancements to existing products, and the portion of costs of development of internal-use software required to be expensed.  Research and development costs are charged toCompany’s discontinued operations as incurred with the exception of those software development costs that may qualify for capitalization. The Company expensed research and development costs in the years ended December 31, 2016 and 2015 of $605,000 and $579,000, respectively.totaling $2.4 million.

 

Debt Issue Costs

In accordance with the ASU No. 2015-03 the debt issue costs related to long-term debt are shown as a reduction of debt outstanding and amortized over the term of the related debt using the effective interest method.

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.

  

F-12

The Company continually evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense and other expense, respectively.

Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company makes certain estimates and assumptions in: (1) calculating its income tax expense, deferred tax assets, and deferred tax liabilities; (2) determining any valuation allowance recorded against deferred tax assets; and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company’s estimates and assumptions may differ significantly from tax benefits ultimately realized. Historically the Company has not filed income tax returns and the related required informational filings in the US. Certain informational filings if not filed contain penalties. The Company is currently addressing this issue with advisors to determine the amount, if any, of potential payments due. Given the complexity of the issue the Company is unable to quantify a range of potential loss, if any. Accordingly no liability has been recorded in the accompanying consolidated balance sheets in respect of this matter

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 years ended December 31, 20162019 and 2015,2018, all outstanding stock options, warrants and convertible debt are 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 comparisons.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

 

F-13

Financial Instruments

The carrying valueIn February 2016, the FASB issued ASU 2016-02, “Leases,” which created a new Topic, ASC Topic 842 and established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments, that arise from leases. For leases with a term of our financial12 months or less, a lessee is permitted to make an election under which such assets and liabilities suchwould not be recognized, and lease expense would be recognized generally on a straight-line basis over the lease term. This standard is effective for the Company beginning in 2019 and was adopted by the Company for the year beginning January 1, 2019. The Company has evaluated the impact of this revised guidance on its financial statements and determined it had no material impact, as cash, accounts receivablethe Company has no leasing arrangements with terms greater than one year.

Note 3. Acquisitions

123Wish, Inc.

In February 2018, the Company completed the acquisition of a 51% controlling interest in 123 Wish, Inc. (formerly Once in a Lifetime LLC) (“123 Wish”) in exchange for the issuance of 1,333,334 fully paid and accounts payable approximate their fair values based on level 1 inputs in thenon-assessable shares of common stock with a fair value hierarchy becauseof $1.39 million. In addition, the Company shall issue fully paid and non-assessable shares of common stock equal to 2.5 times of the short maturitynet, after tax, earnings of these instruments. Due123 Wish for the nine month period after the date of acquisition and fully paid and non-assessable shares of common stock equal to 4.5 times the conversion featuresnet, after tax, earnings of 123 Wish for the second six month period after the date of acquisition. 123 Wish has proprietary applications which use the social media aspect of the internet.

The following table summarizes the consideration paid and other terms, it is not practical to estimate the fair value of amounts due to related partiesthe assets acquired and long term debt.liabilities assumed (In thousands):

 

Share-Based CompensationConsideration Paid:

Common stock $1,387 
Non controlling interest  1,353 
  $2,740 
     
Fair values of identifiable assets acquired and liabilities assumed:    
     
Assets acquired:    
Cash $14 
Other intangible assets  2,307 
Goodwill  419 
     
Net Assets Acquired $2,740 

The consideration paid was 1,333,334 common shares valued at $1.04 per share. Separately identifiable intangible assets include technology which were valued by management using discounted cash flow and replacement cost approaches.

Love Media House, Inc. (formerly C-Rod, Inc.)

In March 2018, the Company accountscompleted the acquisition of 100% ownership of Love Media House in exchange for stock-based awards at fair value on date$150,000 cash and 3,376,147 fully paid and non-assessable shares of grant and recognition of compensation over the service period for awards expected to vest. Thecommon stock with a fair value of stock options is determined using$1.9 million. The financial statements of Love Media House have been included in the Black-Scholes option pricing model, which includes subjective judgements aboutconsolidated financial statements from the expected lifedate of acquisition.


The following table summarizes the consideration paid and the fair value of the awards, forfeiture ratesassets acquired and stock price volatility.liabilities assumed (In thousands):

 

Recently Issued Accounting Standards Not Yet AdoptedConsideration Paid:

Cash $150 
Common stock  1,885 
  $2,035 
     
Fair values of identifiable assets acquired and liabilities assumed:    
     
Assets acquired:    
Cash $5 
Other intangible assets  900 
Goodwill  1,172 
Total assets acquired  2,077 
     
Liabilities assumed:    
Accounts payable  42 
Total Liabilities Assumed  42 
     
Net Assets Acquired $2,035 

Separately identifiable intangible assets were customer relationships and were valued by management using discounted cash flow and replacement cost approaches.

Banana Whale Studios PTE Ltd

 

In May 2014,2018 the Financial Accounting Standards BoardCompany completed the acquisition of 51% ownership of Banana Whale Studios PTE Ltd (“FASB”BWS” or “Banana Whale”) issued Accounting Standard Update (“ASU”) 2014-09 –Revenue From Contracts with Customersa Singapore corporation. The acquisition of Banana Whale was based on an earnout formula solely and should Banana Whale fail to reach forecasted profit numbers during the first 24 months then some, or all of the shares allocated would be refundable to the Company.

At the time of acquisition 295,300 shares of common stock were placed in escrow for payment of the confirmed earn out. However, based on the terms of the ultimate disposition (note 4) of BWS no shares were ultimately transferred or other consideration paid. The following table summarizes the consideration paid and the fair value of the assets acquired and liabilities assumed in May 2018 (In thousands):

Consideration Paid:

Common stock $ 
Non-controlling interest  894 
  $894 

Fair values of identifiable assets acquired and (liabilities) assumed:

Assets acquired:   
Cash $42 
Accounts receivable  11 
Equipment  37 
Other receivable  2,022 
Liabilities assumed:    
Accounts payable  (288)
  $1,824 
Bargain purchase gain $930 

On February 4, 2019, the Company sold its interest in Banana Whale for $2.0 million, of which $1.5 million was in cash on completion and the balance was in the form of a promissory note receivable for $500,000 payable by December 31, 2019 (see below). The note is secured by a pledge of Banana Whale shares held in the name the four founding shareholders of Banana Whale. The pledged shares are held in escrow pending the payout of the promissory note.

In December 2019, an agreement regarding the remaining amount due on the promissory note of $500,000 was reached whereby the Company received $250,000 in December 2019 and the balance payable over the 2 years ending December 2021 whereby the Company will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to customers inreceive an amount that reflectsequal to 25% of reported earnings before income tax, depreciation and amortization (“EBITDA”) each quarter up to a maximum amount of $250,000 in aggregate.

Browning Production & Entertainment

In October 2018, the consideration to whichCompany completed the entity expects to be entitledacquisition of 51% ownership of Browning in exchange for those goods or services. This ASU also requires additional disclosure about$10,000 cash and an allocation of 12,000 fully paid shares of common stock with a fair value of $101,100. Of these shares, 6,000 have been issued with the nature, amount, timingremaining balance of 6,000 to be issued upon receipt of audited financial statements of Browning. The Company had previously paid a deposit of $10,000 cash and uncertainty35,000 fully paid shares of revenue and cash flows arising from customer contracts, including significant judgements and changes in judgements and assets recognized from costs incurred to obtain or fulfillcommon stock with a contract.fair value of $18,200.

 

The originalfollowing table summarizes the consideration paid and the fair value of the assets acquired and liabilities assumed as of October 22, 2018 (In thousands):

Consideration Paid:

Common stock $119 
Cash  20 
Non-controlling interest  134 
  $273 

Fair values of identifiable assets acquired and (liabilities) assumed:

Assets acquired:   
Cash $ 
Accounts receivable  43 
Other assets  23 
Equipment  2 
Goodwill  622 
Liabilities assumed:    
Accounts payable  (42)
Deferred revenue  (72)
Loans and advances  (303)
     
Net Assets Acquired $273 

Note 4. Discontinued Operations

In November 2018, the management of the Company’s then 51% controlled subsidiary, Banana Whale, entered into discussions whereby the Company would sell its shares of BWS to a third party. Under the agreement, which had an effective date for ASU 2014-09 would have requiredof January 1, 2019, the Company to adopt beginning in its first quarter 2017. In July 2015,received cash of $1,500,000 and a promissory note of $500,000 and the FASB voted to amend ASU 2014-09 by approving a one year deferralreturn of the effective date as well as providing the option to early adopt the standard295,320 Company shares issued on the original effective date. Accordingly, the Company may adopt the standard in either its first quarter of 2017 or 2018. The new revenue standard may be applied retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the timing of its adoption and the impact of adopting the new revenue standard on it consolidated financial statements.

Note 3. Suzhou Aishuo Network Information Co. Ltd.acquisition.

 

The Company has controlrealized a gain of $553,000 on the sale of its 51% interest in BWS during the year ended December 31, 2019.

In December 2019, an agreement regarding the remaining amount due on the Promissory note of $500,000 was reached whereby the Company received $250,000 in December 2019 and the balance payable over the 2 years ending December 2021 whereby the Company will receive an amount equal to 25% of reported EBITDA each quarter up to a Chinese entity Suzhou Aishuo Network Information Co. Ltd. (“Aishuo”) through various contractual arrangements. As a resultmaximum amount of $250,000 in aggregate.

During the year ended December 31, 2019, the Company decided to sell its interests in its subsidiaries, Love Media House and Browning .. In connection with this control, one hundred percentdetermination, the Company concluded the intangible assets related to these subsidiaries were impaired. Accordingly, the Company recorded an impairment charge of $2,440,000 which is included in the loss from discontinued operations.

On February 24, 2020, the Company completed the sale of its interest in Browning to William J. Browning, the holder of the operations, assets, liabilitiesremaining Browning shares. Under the agreement, Browning and cash flows of Aishuo have been consolidated inMr. Browning agreed to repay advances totaling $210,000 made to Browning by the accompanying consolidated financial statements.Company over a 24-month period ending January 31, 2022 with an early repayment discount given during the six months ending August 31, 2020. Mr. Browning also agreed to return to the Company shares given to Mr. Browning under the original acquisition for cancellation by the Company.

    

Summarized assets, liabilitiesThe Company has accounted for the operations of BWS, Love Media House and resultsBrowning as discontinued operations. The Statements of Operations for year ended December 31, 2019 and 2018 for discontinued operations prior to eliminations in consolidation, of Aishuo areis as follows:(in thousands)

 

  December 31  December 31 
  2016  2015 
         
Assets $5  $43 
Intercompany receivables/(payables)  (355)  (123)
Other liabilities  (12)  (60)
Revenue  224   56 
Net Loss  (292)  (286)

  Years Ended
December 31,
 
  2019  2018 
       
Revenue $467  $637 
Cost of revenue        
Hardware  193   596 
Amortization  150   166 
   343   762 
Gross Profit/(deficit)  124   (125)
Expenses        
General and administrative  987   1,054 
Depreciation  8   10 
Other expenses  19   (23)
Impairment  2,440   - 
   3,454   1,041 
Loss from Discontinued Operations $(3,330) $(1,166)
F-14


Note 4. PropertyThe balance sheet of discontinued operations as of December 31, 2019 and Equipment, net

Property and equipment consist of the following:2018 is as follows:(in thousands)

 

  December 31  December 31 
  2016  2015 
         
Equipment $285  $291 
Less accumulated depreciation  (243)  (195)
Property and equipment, net $42  $96 
  December 31, 
  2019  2018 
Current Assets      
Cash $2  $58 
Accounts Receivable  -   436 
Other current assets  27   92 
   29   586 
Property and equipment  34   39 
Intangible assets  -   830 
Goodwill  -   1,659 
  $63  $3,114 
         
Current Liabilities        
Accounts payable and accrued expenses $36  $59 
Deferred revenue  15   177 
Loans payable  115   401 
Finance contracts, due within one year  51   - 
Notes payable – related parties  211   205 
         
  $428  $842 

  

Note 5. Intangible Assets

 

Intangible assets consist primarily of software development costs and customer and reseller relationships which are amortized over the estimated useful life, generally on a straight-line basis with the exception of customer relationships, which are generally amortized over the greater of straight-line or the related asset’s pattern of economic benefit.(infollowing (in thousands):

 

  December 31  December 31 
  2016  2015 
         
Horizon software $18,634  $17,879 
ZTEsoft Telecom software  438   469 
Customer lists  885   885 
   19,957   19,233 
Less accumulated amortization  (11,550)  (9,410)
Intangible assets, net $8,407  $9,823 

Amortization of intangible assets for each of the next four years is estimated to be approximately $2,100,000 per year

  December 31, 
  2019  2018 
       
Touchpoint software $2,950  $2,894 
Goodwill  419   419 
         
   3,347   3,313 
Less accumulated amortization  (958)  (405)
         
Intangible assets, net $2,411  $2,908 
F-15


Note 6. Convertible DebentureNotes Payable

 

In December 22, 2014 the Company closed a private placement of $3,500,000 under Regulation S whereby we issued to an investor a convertible debenture that is convertible into 1,555,556 shares of common stock, Class C warrant to purchase 388,889 shares of common stock, Class D warrant to purchase 388,889 shares of common stock and the potential for performance warrants.a) Promissory notes, related parties

 

The unsecured convertible debenture is for a termpromissory notes due to Zhanming Wu ($500,000) and the Company’s CEO, Mark White ($500,000), both considered related parties, including accrued interest of three years from date of issue and has an interest rate of 8%7% per annum payable quarterlyfrom issuance, were due for repayment on August 31, 2019. Such payments were not made and the parties are in arrears in either cash, sharesnegotiations to extend the maturity dates of common stock or a combinationthe promissory notes, but there can be no guarantee that commercially reasonable terms will agreed upon. As of cash and sharesDecember 31, 2019, the counterparties had not demanded repayment of common stock. The Company has the right to repurchase the convertible debenture upon notice at any time after the first twelve months.promissory notes.

b) Century River Limited

 

The Class C and Class D warrants have a term of four years and are each entitled to purchase one-fourth of a share of common stock. In total the Company issued 388,889 Class C warrants and 388,889 Class D warrants.

Performance Warrants associated with the convertible debenture were potentially issuable and exercisable based on the Company’s annual reported subscriber numbers, twenty-four (24) months after December 22, 2014, as reflected in our 2014 Form 10-K. In the first quarter of 2016 the Company announced it has achieved the required number subscriber downloads and therefore the additional performance warrants are not issuable by the Company.

Proceeds received in 2014 from the convertible debentures were allocated between the convertible debenture and warrants based on their relative fair values. The resulting debt discount is amortized using the effective interest method over the life of the debentures. The relative fair value of Class C and Class D warrants resulted in a discount of $598,500 at the date of issuance. After allocating a portion of the proceeds to the warrants, the effective conversion price of the convertible debentures was determined to result in a beneficial conversion feature. The beneficial conversion feature has a relative fair value of $302,994 at the date of issuance and is being amortized over the life of the convertible debenture. The beneficial conversion feature discount is amortized using the effective interest method over the life of the debentures. The amortization of the debt discount is included in interest expense in the consolidated statements of operations.

A total of 1,555,556 shares of common stock have been reserved for the potential conversion of the convertible debenture.

Note 7. Related-Party Transactions

Amounts due to related parties include the following:(in thousands)

  December 31  December 31 
  2016  2015 
         
Loans due to stockholders (current officers and directors) $2,343  $2,354 

F-16

At December 31, 2016, $2,343,000 of related party debt was outstanding and will mature on April 1, 2018, which is unsecured and is interest free.

In the quarter ended March 31, 2015 the Company entered into a sales contract in the normal course of business$500,000 loan payable with a customer (Horizon Latin America) which the Company holds minority ownership interest. The customer purchased perpetual software license for $500,000. Asremaining principal balance of $10,000 at December 31, 2015 Horizon Latin America owed2019 is due to Century River Limited, a company controlled by the Company $250,000 (2015: $400,000)Company’s CEO, Mark White. This loan is due on demand and bears interest of 3% per annum.

c) Bespoke Growth Partners

 

The Company owns a cost based investmentloan payable in the amount of $100,000 is due to Bespoke Growth Partners. This loan was due on January 26, 2020 and bore interest of 10%20% per annum. During 2020 the loan is in the customer with limited voting rights or board representation.

Note 8. Share Capital

Preferred Stock

The Company’s authorized capital includes 50,000,000 sharesprocess of preferredrepayment by way of stock issuances to Bespoke Growth Partners. As at April 21, 2020 the Company repaid $64,382 by issuing a total of $0.0001 par value. The designation of rights including voting powers, preferences, and restrictions shall be determined by the Board of Directors before the issuance of any shares.

The holders of Series A Preferred Stock were entitled to receive cumulative dividends during a period of twenty-four (24) months from and after the Issuance Date (the “Dividend Period”). The Dividend Period ended on July 21, 2016. During the Dividend Period for each outstanding share of Series Preferred Stock, dividends were payable quarterly in cash, at the rate of 10% per annum on or before each ninety (90) day period following the Issuance Date (each a “Dividend Payment Date”), with the first Dividend Payment Date to occur promptly following the three month period following the Issuance Date, and continuing until the end of the Dividend Period. Following the expiration of the Dividend Period, the holders of Series A Preferred Stock shall not be entitled to any additional dividend payment or coupon rate.

Shares of Series A Preferred Stock are convertible in whole or in part, at the option of the holders, into shares of common stock at $5.85 per share prior to the Maturity, and all outstanding shares of Series A Preferred Stock shall automatically convert to shares of common stock upon Maturity, provided however, at no time may holders convert shares of Series A Preferred Stock if the number of7,424,213 shares of common stock to be issued pursuant to such conversion would cause the number of shares of common stock beneficially owned by such holder and its affiliates to exceed 9.99% of the then issued and outstanding shares of common stock outstanding at such time, unless the holder provides us with a waiver notice in such form and with such content specified in the Series A Certificate of Designation.Bespoke Growth Partners.

 

Shares of Series A Preferred Stock are redeemable, at the option of the holders commencing any time after 12 months from and after the closing at a price equal to the original purchase price plus all accrued but unpaid dividends. In the event that the Company completes a financing of $10 million or greater prior to Maturity, the Series A Preferred Stock will be redeemed at a price equal to the original purchase price plus all accrued but unpaid dividends.

170,940 shares of Series A preferred stock are issued and outstanding as of December 31, 2016.

F-17

Mandatorily Redeemable Preferred Shares (Deferred Stock)d) Labrys Fund

 

The Company’s subsidiary OHG hasloan payable in issue 50,000 sharesthe amount of deferred stock, par value$180,000 is due to Labrys Fund LP. This loan was due on January 24, 2020 and bore interest of £1 to third parties. These shares are non-voting, non-participating, redeemable and have been presented as a long-term liability.12% per annum. The Loan was repaid in full on the due date.


Note 7. Share Capital

 

Common Stock

The Company is authorized to issue 200 million shares of common stock, par value of $0.0001.

 

During the year ended December 31, 20162019, the Company issued shares of common stock as follows:

81,933 shares of common stock, with a fair value of $126,760, as additional compensation related to acquisition of Browning.
200,000 shares of common stock, with a fair value of $150,000, for consulting services to be provided.
100,000 shares of common stock with a fair value of $38,750 for consulting services to be provided
179,104 shares of common stock as security against the loan payable to Labrys Fund LP. The shares were received back by the Company for cancellation in February 2020.
370,000 shares of common stock for a commitment fee payable to Crownbridge Partners

During the year ended December 31, 2019, 340,000 shares of common stock, issued in December 2018 was returned to the company for cancellation and the related share subscription due was cancelled.

During the year ended December 31, 2018, the Company:

 

·issued 200,000Issued 9,000 shares of common stock for services with a fair value of $357,750

Issued 53,334 shares of common stock, with a fair value of $1.4 million, for the acquisition of 51% of Once in a Lifetime

Issued 4,000 shares of common stock for services provided with a fair value of $204,000

Issued 20,167 shares of common stock for conversion of convertible note and accrued interest in the amount of $302,500

Issued 6,889 shares of common stock for conversion of convertible note and accrued interest in the amount of $103,000

Issued 6,889 shares of common stock for services provided with a fair value of $200,000

Issued 30,000 shares of common stock for exercise of warrants at a price of $18.75 per share.

Issued 2,000 shares of common stock for services provided with a fair value of $80,000.

Issued 55,046 shares of common stock, with a fair value of $1,541,285, as part consideration for the acquisition of Love Media House, Inc.

Issued 4,000 shares of common stock for services to be provided with a fair value of $133,960$85,000.
Issued 9,000 shares of common stock for services to be provided with a fair value of $168,750
Issued 34,000 shares of common stock for services provided with a fair value of $425,000

·issued 1,018,925Issued 295,320 shares of common stock, for the acquisition of 51% of Banana Whale Studios Pte., Ltd see note 3.
Issued 63,000 shares of common stock for services provided with a fair value of $787,500
Issued 34,000 shares of common stock for exercise of warrants at a price of $12.50 per share
Issued 24,000 shares of common stock for services provided with a fair value of $306,000
Issued 12,000 shares of common stock for services provided with a fair value of $150,000
Issued 70,000 shares of common stock for cash proceeds of $400,000$5.00 per share

·issued 45,000Issued 74,000 shares of common stock for exercise of warrants at a price of $2.50 per share
Issued 1,400 shares of common stock, with a fair value of $18,200, for an option to acquire an interest in Browning Productions.
Issued 61,000 shares of common stock for cash of $114,375
Issued 39,000 shares of common stock for exercise of warrants at a price of $1.88 per share
Issued 180,000 shares of common stock for cash of $360,000
Issued 40,000 shares of common stock for services receivedprovided with a fair value of $33,750$175,000
·issued 457,366
Issued 120,000 shares of common stock in partfor acquisition of software with a fair value of $548,000
Issued 6,000 shares of common stock, with a fair value of $51,000, for the acquisition of 51% of Browning Productions.
Issued 222,000 shares of common stock for services provided with a fair value of $1,148,000
Issued 170,000 shares of common stock for cash of $324,500
Issued 170,000 shares of common stock for exercise of warrants at a price of $5.00 per share
Issued 14,176 shares of common stock, with a fair value of $96,000, pursuant to a settlement
Issued 80,000 shares of accrued compensation incommon stock, with a fair value of $344,000, as an adjustment to the amountpurchase price of $160,535Love Media House, Inc.
Issued 380,000 shares of common stock for subscription receivable of $1,425,000

On August 10, 2015, in connection with an Underwriting Agreement dated August 4, 2015 (the “Underwriting Agreement”) with Aegis Capital Corp. (“Aegis”), as representative of the several underwriters named therein (the “Underwriters”), the Company closed a firm commitment underwritten public offering of 1,714,286 shares of Common Stock, and warrants to purchase up to an aggregate of 857,143 shares of Common Stock at a combined offering price of $1.75 per share and accompanying warrants. Pursuant to the Underwriting Agreement, the Underwriters exercised an option to purchase 151,928 additional shares of Common Stock and 75,964 additional warrants. The net proceeds of the offering were approximately $2.89 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The warrants offered have a per share exercise price of $2.50 (subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Stock and also upon any distributions of assets, including cash, stock or other property to our stockholder), are exercisable immediately and will expire three years from the date of issuance. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without the Company’s consent.

Stock Purchase Warrants

AtAs at December 31, 2016,2019, the Company had reserved 3,898,9412,890 shares of its common stock for the following outstanding warrants:warrants with weighted average exercise price of $20.00. Such warrants expire at various times through July 2020.

Number of Warrants   Weighted average
exercise price
  Expiry Intrinsic value
           
 3,898,941   2.73  To December 2019 -

 

During the year ended December 31, 2016 160,0002019, no warrants were issued or exercised and 4,518 warrants were forfeited.

During the year ended December 31, 2018, 209,000 warrants were issued, 12,099 warrants were forfeited 764,195and 347,000 warrants were issued and none exercised.exercised, for proceeds of $2,096,000.

 

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If, atDuring the timeyear ended December 31, 2018, the Company agreed to reduce the exercise price on 0.26 million outstanding warrants, which resulted in additional compensation cost of exercise of warrants issued pursuant$544,000, in order to the financing of August 2015, wherein a total of 933,107 warrants were issued, that the shares issued upon exercise are not able to be included in a registration statement then the holder may request that the warrants so exercised be done on a cashless basis.obtain additional funding.

   

Note 9.8. Stock-Based Compensation

 

The shareholders approved a stock option plan onOn August 6, 2013, the Company’s shareholders approved the 2013 Equity Incentive Plan (“2013 Plan”). The 2013 Plan isprovides 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 are 3,000,000 shares of common stock available for granting awards under the 2013 Plan. Each year, commencing 2014, until 2016, the number of shares of common stock available for granting awards shall be increased by the lesser of 1,000,000 shares of common stock and 5% of the total number of shares of common stock outstanding. On each of January 1, 2014, 2015 and 2016 the number of shares available for granting awards under the 2013 Plan has been increased by 1,000,000 shares.

There have beenwere no options issued in the year ended December 31, 2016.

A summary of the 2013 Plan for the years ended December 31, 20152019 and 2016, is2018 and there are no options outstanding as follows:

  Number of  Weighted
Average
 
  Options  Exercise Price 
       
Outstanding at January 1, 2015  500,000  $4.54 
Options issued  564,000   1.09 
Options forfeited  (120,000)  4.54 
Outstanding at December 31, 2015  944,000  $2.48 
Options forfeited  (96,500)  2.52 
Outstanding at December 31, 2016  847,500   2.47 

As at December 31, 2016 there was unrecognized compensation expense of approximately $167,000 to be recognized over the remaining vesting periods.2019.

 

At December 31, 2016, 4,936,000 shares of common stock were reserved for all outstanding options and future commitments underIn March 2018, the 2013Company adopted the 2018 Equity Incentive Plan.

PriorPlan (the “2018 Plan”) to provide additional incentives to the 2013 Planemployees, directors and consultants of the Company issued stock options to employees “Other Stock Options”.

A summarypromote the success of the Company’s other stock options for the years ended December 31, 2015 and 2016, is as follows:

  Number of  Weighted
Average
 
  Options  Exercise Price 
       
Outstanding at January 1, 2015  584,650  $0.53 
Options issued  291,900  $0.53 
Options forfeited  (850) $0.51 
Outstanding at December 31, 2015  875,700  $0.53 
Options issued  -   - 
Options forfeited  -   - 
Outstanding at December 31, 2016  875,700  $0.53 

F-19

As of December 31, 2016 there was unrecognized compensation expense of approximately $64,000, related to Other Stock Options, to be recognized over the remaining vesting period.

The following table summarizes all stock options outstanding at December 31, 2016:

   Number  Average  Number  Intrinsic 
   Outstanding  Remaining  Exercisable  Value 
   at  Contractual  at  at 
   December 31,  Life  December 31,  December 31, 
Exercise Price  2016  (Years)  2016  2016 
                   
$0.53   291,900   3.50   291,900   - 
 0.53   291,900   5.50   291,900   - 
 0.53   291,900   8.75   291,900   - 
 4.54   340,000   7.00   -   - 
 1.09   507,500   8.50   -   - 
Total   1,723,200       875,700   - 

The fair value of each option granted is estimated at the date of grant using the Black-Scholes option-pricing model.

The assumptions used in calculating the grant date fair value of options and other stock options granted duringbusiness. During the year ended December 31, 2015 were as follows:2019, no common stock of the Company was issued under the 2018 Plan.


·Risk free interest rate2.50%
·Expected term2–3 years
·Volatility95–123%
·Dividend
·forfeiture rate0–30%

Note 10.9. Income Taxes

 

Income tax benefit of $43,000 and $20,000 in 2016 and 2015, respectively, is recognized for the impact of deferred tax assets and liabilities, which represent consequences of events that have been recognized differently in the financial statements under GAAP than for tax purposes. The difference between the U.S.applicable statutory federal tax rate of 34% in 2016 and 2015rates and the provision for income tax recorded by the Company is primarily attributable to the change in the Company’s valuation allowance against its deferred tax assets and to a lesser extent to the tax the differential ontreatment of certain gains and losses in foreign countries.recorded under GAAP.

  

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Deferred Tax Assets

The Company’s United Kingdom subsidiary has non-capital losses of approximately $10.9 million available for future deductions from taxable income derived in the United Kingdom, which do not expire. The potential benefit of net operating loss carryforwards has not been recognized in the combinedconsolidated financial statements since the Company cannot determine that it is more likely than not that such benefit will be utilized in future years. The tax years 2006 through 20152019 remain open to examination by federal authorities and otherin certain jurisdictions in which the Company operates, namely United Kingdom, Switzerland, Ireland, China and Hong Kong. The components of the net deferred tax assetassets and the amount of the valuation allowance are as follows:(in thousands)

 

 December 31  December 31, 
 2016 2015  2019  2018 
          
Deferred tax assets                
Net operating loss carryforwards - International  6,097   4,527 
Net operating loss carryforwards  4,494   3,577 
Valuation allowance  (6,097)  (4,527)  (4,494)  (3,577)
Net deferred tax assets $-  $-  $  $ 

  

The increaseCompany continually evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in the valuation allowance was $529,000 for the year ended December 31, 2016an income tax return. Estimated interest and $449,000 for the year ended December 31, 2015.penalties are recorded as a component of interest expense and other expense, respectively.

 

Note 11. CommitmentsBecause tax laws are complex and Contingencies

Contractual Commitments

The Company incurred rent expense of $63,000 and $86,000, respectively, for the years ended December 31, 2016 and 2015.

There are no minimum contractual lease commitments in excess of one year from December 31, 2016.

Legal Proceedings

Since 2014 the Company has been involved in legal proceedings with Broadband Satellite Services Limited (“BSS”)subject to whom we sold had sold former subsidiaries in 2012.  In December 2016 the parties agreed to drop their respective claims and counterclaims without any payment required to paid by either party.different interpretations, significant judgment is required. As a result, the Company makes certain estimates and assumptions in: (1) calculating its income tax expense, deferred tax assets, and deferred tax liabilities; (2) determining any valuation allowance recorded against deferred tax assets; and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company’s estimates and assumptions may differ significantly from tax benefits ultimately realized. Historically, the Company has written off receivable amounts due by BSS totaling approximately $455,000not filed income tax returns and the related required informational filings in the U.S. Certain informational filings if not filed contain penalties. The Company is currently addressing this issue with advisors to determine the amount of potential payments due. Given the complexity of the issue the Company is unable to quantify a range of potential loss. Accordingly, no liability has been recorded in the accompanying consolidated balance sheets in respect of this matter. However, such potential penalties may be material to the Company’s books having provided previously an amount totaling approximately $605,000 against the original unpaid sales invoices.

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Note 12. Restatementsfinancial statements.

  

In the first quarter of 2017, management’s working with the Company’s advisers and auditors’ reviewed the pace of rollout of the Company’s licensed software with respect to revenue share customers over the previous two years. Based on the review and the slower than forecasted commercial roll out by some of the customers during the past two years management determined that the timing of the write off of slow paying account receivable balances should be altered. Accordingly the previously reported balances as outlined below have been restated. As a result, the allocation of the provision for uncertain accounts receivable made in 2015 and 2016 was restated as follows.

Annual Balance Sheet data:

  December 31, 2014  December 31, 2015 
  As reported  As restated  As reported  As restated 
   $000’s   $000’s   $000’s   $000’s 
                 
Accounts receivable  9,072   2,644   3,560   1,760 
Total current assets  12,820   6,392   5,734   3,934 
Total assets*  24,406   17,978   15,934   14,134 
Retained earnings deficit  (15,227)  (21,655)  (26,201)  (28,001)
Total stockholders’ equity  17,080   10,652   9,837   8,037 

Quarterly Balance Sheet data:

  March 31, 2015  June 30, 2015  September 30, 2015 
  As reported  As restated  As reported  As restated  As reported  As restated 
   $000’s   $000’s   $000’s   $000’s   $000’s   $000’s 
                         
Accounts receivable current portion  5,879   2,567   5,448   2,476   3,811   2,510 
Total current assets  8,386   5,074   6,887   3,915   6,903   5,206 
Accounts receivable, net of current portion  3,116   0   3,456   0   5,127   0 
Total assets*  23,024   16,596   21,823   15,395   22,870   16,442 
Retained earnings deficit  (16,185)  (22,613)  (17,758)  (24,186)  (19,386)  (25,814)
Total stockholders’ equity  16,305   9,877   15,287   8,859   16,321   9,893 

  March 31, 2016  June 30, 2016  September 30, 2016 
  As reported  As restated  As reported  As restated  As reported  As restated 
   $000’s   $000’s   $000’s   $000’s   $000’s   $000’s 
                         
Accounts receivable current portion  3,058   1,258   2,963   1,163   3,037   1,237 
Total current assets  5,114   3,314   4,552   2,752   3,840   2,040 
Total assets*  14,943   13,143   13,806   12,006   12,793   10,993 
Retained earnings deficit  (27,484)  (29,284)  (28,927)  (30,727)  (30,420)  (32,220)
Total stockholders’ equity  9,114   7,314   7,795   5,995   6,586   4,786 

* = Prior to giving effect to the implementation of ASU 2015-03 (Note 2).

F-22

Statement of operations data:

  December 31, 2015 
  As reported  As restated 
   $000’s   $000’s 
         
Increase in allowance for doubtful accounts  5,562   934 
Loss from operations  (10,229)  (5,601)
Loss from operations before income taxes  (10,944)  (6,316)
Net loss for the year  (10,924)  (6,296)
Net loss for the year attributable to One Horizon Group, Inc  (10,874)  (6,246)
Net loss attributable to One Horizon Group Inc common stockholders  (10,974)  (6,346)
Earnings per share – basic $(0.32) $(0.18)
Earnings per share – diluted $(0.30) $(0.16)

There was no impact of the restatement on the previously reported quarterly income statements during the years ended December 31, 2015 and 2016 as previously filed on Form 10-Q as the allowance was initially recorded the fourth quarter of each year. Accordingly such information has not been presented in this restatement

Note 13. Segment Information10. Legal Proceedings

 

The Company has two business segments, bothreceived a claim from the landlord of a property leased by Maham LLC, under which involve the developmentCompany is a guarantor. The Company has taken legal advice and licensing of software for mobile VoIP. One for businessits counsel is liaising with the landlord regarding the claim and is also discussing a solution to business line and one for business to consumer line, primarily represented by Aishuo. For the years ended December 31, 2016 and 2015 activity in the business to consumer line is not material for separate segment presentation.Maham’s financial difficulty.

 

The Company’s revenues were generatedCompany has also been served a claim from the former management of Love Media regarding a claim for unpaid wages. The Company disputes the validity of their claim in the following geographic areas:(in thousands)its entirety. 

  Year ended December 31, 
  2016  2015 
       
China $224  $57 
Rest of Asia  1,325   900 
Europe and Russia  48   25 
The Americas  7   550 
  $1,615  $1,532 

 

Note 14.11. Subsequent eventsEvents

 

On February 28, 2017, One Horizon Group, Inc. (the “Company”)  received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) Listing Qualifications Staff (the “Staff”) stating that the Staff has determined, unlessAugust 5, 2019, the Company timely requests an appeal of the Staff’s determination, before Nasdaq’s Hearing Panel (the “Panel”), by March 7, 2017,entered into a Consulting Agreement pursuant to delist the Company’s common stock from the Nasdaq Capital Market becausewhich, the Company is not in compliance withagreed to issue and immediately and irrevocably deliver to the $1.00 minimum bid price requirement (the “Minimum Bid Price”) for continued listing set forth in the Nasdaq Listing Rule 5550(a)(2).Theconsultant 2,500,000 restricted shares of Company filed a request for a hearing before the Panel, on March 2, 2017, which request will stay any delisting or suspension action by the Staff pending the issuance of the Panel’s decision and the expiration of any extension granted by the Panel.

F-23

common stock. On March 3, 2017, the Staff informedApril 21, 2020, the Company that they were granted a hearingentered into the Accord and First Amended Consulting Agreement, dated as of April 16, 2020, pursuant to be held on April 20, 2017 (the “Hearing”). As such, the delisting action, referenced above, has been stayed, pending a final written decision by the Panel at the Hearing.

At the Hearing,which the Company will present its planagreed to regain compliance with the Minimum Bid Price by effecting a reverse stock split. On March 3, 2017, the Company filed a preliminary proxy statement with the Securities and Exchange Commission in connection with special meeting of stockholders (the “Stockholders’ Meeting”) to be held on April 14, 2017.  One of the proposals being submitted to a vote of the stockholders at the Stockholders’ Meeting is the approval of a 6 to 1 reverse stock split of all of the issued and outstandingissue 5,000,000 shares of the Company’s common stock. Management believesstock to the consultant. In addition, pursuant to the terms of the Consulting Agreement, the parties agreed that effecting the 2,500,000 shares that were issued would not be subject to a reverse split. As previously disclosed, on September 26, 2019, the Company effected a 1-for-25 reverse stock split will allowof the Company’s common stock (the “Reverse Split”). Pursuant to regain compliance with Nasdaq Listing Rule 5550(a)(2), which should allow the Company’sterms of the Accord and First Amended Consulting Agreement, the Company agreed to issue to the consultant an additional 2,400,000 shares of Company common stock to continue to trade onas a corrective share issuance that the Nasdaq Capital Market. Assuming the reverse stock split proposal is approvedparties agreed was fully earned by the Company’s stockholders, the Company’s boardconsultant as of directors currently intends to effect the reverse stock split, unless it determines that doing so would not have the desired effect of satisfying the Minimum Bid Price requirement.August 20, 2019.

 

On April 20, 2020, the Company entered into an Agreement, dated as of April 16, 2020, pursuant to which the Company agreed to issue and immediately and irrevocably deliver to a consultant 2,000,000 restricted shares of Company common stock. With regard to any acquisition of a company introduced by the consultant that results in ownership by the Company of not less than 20% of such company, the Company agreed to compensate the consultant within three business days of closing of such transaction by that amount of cash that equates to 5% of the anticipated total purchase price or deal value or that amount of Company stock that equates to 7.5% of the anticipated purchase price or deal value.

On April 24, 2020, the Company issued an aggregate of 5,000,000 shares to an employee in advance of stock awards due to him.

F-22

F-24