UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | None |
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 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | 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 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 14, 2024, there were shares of the Registrant’s common stock outstanding.
Table of Contents
i
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Quarterly Report on Form 10-Q of Unicoin Inc. (hereinafter referred to as “Unicoin Inc.”, “we”, “our”, or the “Company”) discuss future expectations, contain projections of our plan of operation or financial condition or state other forward-looking information. In this Quarterly Report on Form 10-Q, forward-looking statements are generally identified by the words such as “anticipate”, “plan”, “believe”, “expect”, “estimate”, and the like. Forward-looking statements involve future risks and uncertainties. There are factors that could cause actual results or plans to differ materially from those expressed or implied. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. A reader, whether investing in the Company’s securities or not, should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Important factors that may cause actual results to differ from projections include, for example:
| ● | the success or failure of management’s efforts to implement the Company’s plan of operation; |
| ● | the ability of the Company to fund its operating expenses; |
| ● | the ability of the Company to compete with other companies that have a similar plan of operation; |
| ● | the effect of changing economic conditions impacting our plan of operation; and |
| ● | the ability of the Company to meet the other risks as may be described in future filings with the SEC. |
Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Quarterly Report on Form 10-Q to be accurate as of the date hereof. Changes may occur after that date. We will not update that information except as required by law in the normal course of our public disclosure practices.
Additionally, the following discussion regarding our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.
ii
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
UNICOIN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Trade receivables payable in cash | ||||||||
| Unicorn Hunters non-cash receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Indemnification asset | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Investments in privately-held companies | ||||||||
| Investments in land | ||||||||
| Operating lease right-of-use assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Accounts payable | $ | $ | ||||||
| Income tax payable | ||||||||
| Accrued expenses | ||||||||
| Accrued payroll liabilities | ||||||||
| Deferred revenue | ||||||||
| ITSQuest, Inc. tax liability | ||||||||
| Short-term debt | ||||||||
| Loan from related party | ||||||||
| Operating lease liabilities, current | ||||||||
| Other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Deferred income tax liability, net | ||||||||
| Unicoin Rights financing obligation | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common stock, $ par value; authorized; and issued; and outstanding, net of treasury stock as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Treasury stock, at cost; and shares as of September 30, 2024 and December 31, 2023, respectively | ( |
) | ( |
) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| TOTAL UNICOIN INC. STOCKHOLDERS’ DEFICIT | ( |
) | ( |
) | ||||
| Non-controlling interest | ( |
) | ( |
) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
1
UNICOIN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING COSTS AND EXPENSES | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| TOTAL OPERATING COSTS AND EXPENSES | ||||||||||||||||
| LOSS FROM OPERATIONS | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest income (expense), net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense), net | ( |
) | ( |
) | ||||||||||||
| LOSS BEFORE INCOME TAXES | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| NET LOSS AND COMPREHENSIVE LOSS | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net income (loss) attributable to the non-controlling interest | ||||||||||||||||
| NET LOSS ATTRIBUTABLE TO UNICOIN INC. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share attributable to Unicoin Inc., basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding used to compute basic and diluted loss per share | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
UNICOIN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
| Common Stock | Additional Paid-In |
Treasury Stock | Accumulated | Unicoin Inc. Stockholders’ Equity |
Unicoin Inc. Non-controlling |
Total Stockholders’ Equity |
||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Deficit | (Deficit) | Interest | (Deficit) | ||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||||||||||
| Repurchase of common stock (Note 8) | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Common stock issued for services | ( |
) | - | |||||||||||||||||||||||||||||||||
| Net Income (Loss) | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Common Stock issued for services | ( |
) | - | |||||||||||||||||||||||||||||||||
| Net Income (Loss) | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Repurchase of common stock | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Common Stock issued for services | - | |||||||||||||||||||||||||||||||||||
| Net Income (Loss) | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||
| Balance as of December 31, 2023 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Ownership interest increase in Unicorns Inc. | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net Income (Loss) | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | ( |
) | - | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Issuance of common stock upon release of restricted stock units | ( |
) | - | |||||||||||||||||||||||||||||||||
| Net Income (Loss) | - | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Issuance of common stock upon release of restricted stock units | ( |
) | - | |||||||||||||||||||||||||||||||||
| Net Income (Loss) | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
UNICOIN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, |
||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Stock-based compensation expense | ||||||||
| Interest expense accrued on the ten-year prepaid plan | ||||||||
| Operating expenses paid with Unicoin Rights | ||||||||
| Transaction loss on reacquisition of Unicoin Rights | ||||||||
| Operating expenses paid with digital assets and USDC | ||||||||
| Customer payments with digital assets | ( |
) | ||||||
| Non-cash consideration | ( |
) | ||||||
| Impairment and write-off of digital assets and USDC | ||||||||
| Depreciation and amortization expense | ||||||||
| Realized loss on disposal of digital assets | ||||||||
| Non-cash operating lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade receivables payable in cash | ||||||||
| Prepaid expenses and other current assets | ( |
) | ||||||
| Indemnification asset | ( |
) | ( |
) | ||||
| Operating lease right-of-use assets / liability | ( |
) | ( |
) | ||||
| Accounts payable | ( |
) | ||||||
| Accrued expenses and payroll liabilities | ( |
) | ||||||
| Deferred revenue | ( |
) | ( |
) | ||||
| ITSQuest, Inc. tax liability | ||||||||
| Other liabilities | ( |
) | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( |
) | ||||||
| Purchases of digital assets and USD Coin, net of proceeds from sales | ( |
) | ||||||
| Net cash (used in) provided by investing activities | ( |
) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of private placement unsecured notes | ||||||||
| Payment of short-term debt | ( |
) | ( |
) | ||||
| Net proceeds from sales and repurchases of Unicoin Rights | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Repurchase of common stock | ( |
) | ||||||
| Proceeds from exercise of stock options and warrants | ||||||||
| Repayment of related party loan payable | ( |
) | ( |
) | ||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | ( |
) | ||||||
| CASH AND CASH EQUIVALENTS—Beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS—End of period | $ | $ | ||||||
| Supplemental Non-Cash Disclosures: | ||||||||
| Reduction of non-controlling interest upon ownership interest increase in Unicorns, Inc. | $ | $ | ||||||
| Market value of digital assets and USD Coin received as proceeds from issuance of common stock | $ | $ | ||||||
| Market value of digital assets received as proceeds from sales of Unicoin Rights | $ | $ | ||||||
| Receipt (i.e., “collection”) of private company equity securities | $ | $ | ||||||
| Recognition of operating lease right-of-use assets and operating lease liabilities in relation to new operating leases | $ | $ | ||||||
| Real estate investments in exchange of Unicoin Rights | $ | $ | ||||||
| Ownership interest increase in Unicorns Inc. | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
Unicoin Inc. AND SUBSIDIARIES
NOTES TO CONDENSED Consolidated FINANCIAL STATEMENTS
(UNAUDITED)
AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023 AND
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
NOTE 1 – ORGANIZATION AND OPERATIONS
Description of Business
Unicoin Inc. (“Unicoin” or the “Company”) is a Delaware corporation incorporated in 2015. In addition to a wholly owned operating company running a Software-as-a-Service (“SaaS”) and Talent-as-a-Service (“TaaS”) platform, and a majority-owned staffing agency, the Company is also the majority owners of Unicorns Inc., a media production company producing Unicorn Hunters, a business and investing reality show.
In addition to the businesses it operates through its subsidiaries, the Company is developing a security token called unicoin (“unicoin”), whose value is intended to be collateralized in part by certain of the Company’s current and future assets, which assets will include certain equity positions acquired or to be acquired from Unicorn Hunters show participants. The unicoins will also be supported in part by certain ownership rights in various real estate positions either currently owned or to be acquired by the Company in the future in connection with its “140% Program.”. The Company is currently determining the structure that will be utilized to provide the collateral to support the unicoins. There can be no assurance, however, that such current or prospective collateral will equal or exceed the fair market value of the unicoins or whether such collateral will be subject to liens of its other creditors. The Company intends that when equity and real estate positions that support the value of the unicoins are liquidated, the resulting proceeds (less fees and expenses, including a 20% fee to be maintained by the Company) will be distributed to holders of the unicoins. The terms and timing of such distributions will be determined by the Company’s board of directors and subject to its collateralization agreements with the collateral agent it engages.
To date, the Company has been working on the actual technological development or coding of the tokens using its existing contractors. The Company reasonably expects that completion of the technical development can happen in a relatively short time, assuming regulatory readiness for launch. On August 28, 2024, the Company notified its existing investors that it had postponed its initial coin offering of unicoins in order to conduct a thorough review of its public statements, offering materials and its business in general. The Company has been conducting a thorough review of its compliance with applicable regulatory requirements with the assistance of a leading national law firm. The Company cannot assess at this time the exact length of the review and will work with outside legal counsel and the appropriate regulators as expeditiously as possible toward a path to continue its efforts and plans for the launch of unicoins. As of September 30, 2024 and through the filing date of this Quarterly Report on Form 10-Q, the Company has not developed or issued any unicoins and there is no assurance as to whether, or at what amount, or on what terms, unicoins will be available to be issued, if ever.
Business Organization
Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, or decision-making group in deciding how to allocate resources and in assessing performance. The Company evaluates operating results based on measures of performance, including revenues and gross profit (loss). The Company currently operates in the following three reporting segments: SaaS, TaaS and Unicorn Hunters. Refer to Note 16 – Segment Information. The legacy operations of the SaaS business are currently being phased out of operations through customer attrition, and are no longer the focus of the Company’s efforts.
5
Going Concern
These condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has incurred net losses of $(29,254) thousand and $(10,671) thousand and used cash in operating activities of $(
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s long-term success is dependent upon its ability to successfully raise additional capital, market its existing services, increase revenues, and, ultimately, to achieve profitable operations.
The Company is evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, issuing Unicoin Rights, obtaining equity financing, issuing debt, or entering other financing arrangements, and restructuring of operations to grow revenues and decrease expenses. However, in view of uncertainties in U.S. and global financial markets, the Company may be unable to access further equity or debt financing when needed. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all.
The condensed consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.
Other Events
On August 9, 2024, the Company detected an unknown threat actor had gained access to the Company’s Google G-Suite account and therefore the Company’s G-Suite products (i.e., G-Mail, G-Drive and other related G-Suite functionality). The Company previously disclosed that the unknown actor changed passwords and access to all users having an “@unicoin.com” email address (the “Event”). Upon further investigation, it was determined that the unknown actor did not in fact change passwords, but rather the Company’s IT team disabled all passwords when the unauthorized access was discovered, and implemented stricter verification and access protocols for its users. On or about August 13, 2024, the Company was able to remove the threat actor’s access to the G-Suite accounts and restore access to its internal users. The Company examined the information accessed to determine and mitigate the impact of the Event, and determined that no data or funds were accessed or taken from its systems, and therefore the Event was immaterial. The Company determined the following details in connection with the Event:
| 1. | Unauthorized access to corporate G-Suite services was gained by unknown persons. | |
| 2. | During a personal check of corporate users of internal services, discrepancies were found in the personal data of employees and/or contractors in the Company’s accounting department. | |
| 3. | Traces of hacked messages and email accounts of certain managers of the Company were found. | |
| 4. | Traces of identity forgery of one of the contractors of the Company were found and such contractor subsequently was terminated. |
As of the date of this Quarterly Report on Form 10-Q, the Event has not had a material impact on the Company’s financial condition or results of operations. To the knowledge of the Company’s management, no traces of loss of any of the Company’s cash or crypto assets have been found as a result of the Event.
6
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company, its wholly owned subsidiaries, SheWorks! and Yandiki (for periods prior to its June 2023 merger with SheWorks!), as well as ITSQuest and Unicorns. These entities are consolidated in accordance with Accounting Standards Codification (“ASC”) 810, Consolidations (“ASC 810”). All significant intercompany accounts and transactions have been eliminated in consolidation. For ITSQuest, which is
On February 21, 2024, the Company’s majority owned subsidiary, Unicorns, issued common stock shares to an Executive Producer for the Unicorn Hunters show. This issuance was compensation in connection with the completion of Season 1 of the Unicorn Hunters show. This transaction decreased the Company’s ownership interest from
On March 11, 2024, Moe Vela sold his entire
ownership in Unicorns of
common stock shares to the Company, in exchange for 1,500,000 Unicoin Rights. This transaction increased the Company’s
ownership interest from
Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the years ended December 31, 2023 and 2022 included in the Company’s Form 10-K for the year ended December 31, 2023. The audited condensed consolidated balance sheet as of December 31, 2023, included herein, was derived from the audited consolidated balance sheet of the Company as of that date.
Variable Interest Entity
The Company’s policy is to consolidate all subsidiaries or other entities in which it has a controlling financial interest. The consolidation guidance under ASC 810 requires an analysis to determine if an entity should be evaluated for consolidation under the voting interest entity (“VOE”) model or the variable interest model (“VIE”). Under the VOE model, controlling financial interest is generally defined as majority ownership of voting interests. The consolidated financial statements include the accounts of all subsidiaries or other entities in which the Company has a direct or indirect controlling financial interest.
7
The Company assesses all entities in which it has a significant economic, ownership or other financial interest for consolidation on a case-by-case basis depending on the specific facts and circumstances surrounding each entity. Pursuant to ASC 810, the Company first evaluates whether it holds a variable interest in an entity. The Company considers all economic interests, including proportionate interests through related parties, to determine if such interests are considered a variable interest.
For any entity where the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether it qualifies as a VIE. The Company consolidates a VIE if it is the primary beneficiary having the power to direct the activities that most significantly affect the economic performance of the VIE as well as the obligation to absorb losses and the right to receive benefits that could be significant to the VIE.
Management evaluated whether Unicorns meets the criteria for classification as a VIE or as VOE and concluded that Unicorns meets the criteria of a VIE. Management further concluded that the Company is the primary beneficiary of Unicorns because the Company has the power to direct the activities that most affect its economic performance and further has the obligation to absorb losses and the right to receive benefits that could be significant to the VIE. Accordingly, the Company is required to consolidate Unicorns as a VIE.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions in the condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions made by the Company include: the valuation of Unicoin Rights and the related embedded feature, valuation of non-cash contract consideration received from certain investors in Unicoin Rights, the valuation of non-cash consideration received from Unicorns customers and the associated revenue recognition; valuation of investments in private companies; valuation of land and other real estate received in exchange for Unicoin Rights; valuation of the Company’s common stock as a private company, valuation of the NCI in ITSQuest; valuation of the ITSQuest contingent divestiture; determination of the useful lives assigned to intangible assets; assessments for potential impairment of goodwill and acquisition related intangible assets; assessments of the recoverability of accounts receivable and determination of the fair value of certain stock awards issued. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the result of which forms the basis for making judgements about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.
Risks and Uncertainties
The Company is subject to a number of risks that are similar to those which other companies of similar size in its industry are facing, including, but not limited to, the need for additional capital (or financing) to fund operations, competition from substitute products and services from larger companies, protection of proprietary technology, dependence on key customers, dependence on key individuals, and risks associated with changes in information technology.
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and accounts receivable. The Company’s cash and cash equivalents are held in accounts with major financial institutions, and, at times, exceed federally insured limits. As of September 30, 2024 and December 31, 2023, respectively, the Company had $
8
As discussed in Note 5, the Company has accepted digital assets as consideration from certain investors in exchange for equity, debt or Unicoin Rights issued by the Company. Digital asset market values are subject to significant fluctuations based on supply and demand for such digital assets and other factors. The Company can either hold, sell, or use digital assets as payment to vendors. Digital asset price risk could adversely affect future operating results including earnings, cash flows and the Company’s ability to meet its ongoing obligations.
The following table summarizes the Company’s revenues from customers that contributed to at least 10% of total revenues:
| Revenues as a % of Total Revenues | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Customer Reference | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Customer A | % | % | % | % | ||||||||||||
| Customer B | % | % | ||||||||||||||
| * |
The following table summarizes the Company’s accounts receivable from customers that contributed to at least 10% of total accounts receivable, net:
Accounts
Receivable | ||||||||
| Customer Reference | September 30, 2024 | December 31, 2023 | ||||||
| Customer A | % | |||||||
| Customer B | % | |||||||
| Customer C | % | |||||||
| Customer D | % | |||||||
| * |
The Share Exchange Agreement (“SEA”) that the Company entered into in order to acquire a majority stake in ITSQuest, as amended on December 28, 2022 (as amended, the “Amended SEA”), contains a contingent divestiture provision whereby if by December 31, 2024, the Company does not either (i) engage in an initial public offering of its securities at a price of at least $10.00 per share or (ii) cause the Company’s proposed security tokens (unicoins) to become tokenized and listed on a cryptocurrency exchange with a quoted price at or above $1.00 per token, then the Company will be required to divest itself of the acquired ITSQuest equity by returning the same to the founders of ITSQuest, and such founders shall be entitled to retain the shares of the Company received pursuant to the SEA.
As of the filing date of this
Quarterly Report on Form 10-Q, the Company has assessed that it is unlikely it will achieve either of the two trigger
events necessary to avoid divestiture of ITSQuest. If the Company is not able to achieve an initial offering of its Common
Stock or an initial registration of its unicoins, sufficient to meet the criteria outlined in the Amended SEA, or is unable to negotiate an extension with ITSQuest, on or before
December 31, 2024, the Company’s business, financial condition, results of operations and liquidity will be materially
impacted as ITSQuest represented Company assets of $
On August 28, 2024, the Company notified the public that it is postponing its initial coin offering (“ICO”) of unicoins in order to conduct a thorough review of its public statements, offering materials and its business in general. The Company anticipates conducting this thorough review of its compliance with applicable regulatory requirements with the assistance of a leading national law firm. The Company cannot assess at this time the exact length of the review and will work with outside legal counsel and the appropriate regulators as expeditiously as possible toward a path to continue its efforts and plans for the launch of unicoins.
Loss of digital assets and USDC
During the three months ended September 30, 2024, the Company identified a loss of digital assets and USDC amounting to $8 thousand and $159 thousand, respectively. The Company completed its investigation of the matter and concluded that related digital assets were misappropriated by an unknown and unauthorized outside party that bypassed the Company’s security procedures and operational infrastructure. The Company has determined it will not be able to recover those assets. Accordingly, the Company recorded a write-off of $168 thousand within the General and Administrative Expenses line item of the Statement of Operations for the three and nine months ended September 30, 2024.
9
Accounting Pronouncements Recently Adopted
Financial Instruments – Credit Losses
The Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit losses on financial instruments later codified as Accounting Standard codification (“ASC”) 326, effective January 1, 2023, using a modified retrospective approach. The guidance introduces a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. There was no significant impact on the date of adoption of ASC 326.
Under ASC 326, Accounts receivable is recorded at the invoiced amount, net of allowance for expected credit losses. The allowance for expected credit losses reduces the Account receivable balance to the estimated net realizable value. The Company regularly reviews the adequacy of the allowance for expected credit losses based on a combination of factors. In establishing any required allowance, management considers historical losses adjusted for current market conditions, the Company’s customer financial condition, the amount of any receivables in dispute, the current receivables aging, current payment terms and expectations of forward-looking loss estimates.
All provisions for the allowance for expected credit losses are included as a component of general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. Accounts receivable deemed uncollectible are charged against the allowance for expected credit losses when identified. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered.
The allowance for expected credit losses related to Unicorns non-cash receivables is subject to uncertainty because the fair value of the underlying private company options, warrants or shares could change subsequent to the initial determination of fair value and before receipt of the related option, warrant or share certificates. In addition, unforeseen circumstances could arise after contract inception which could impact the customer’s intent or ability to pay. Because the value of any one of the receivables associated with Unicorn’s contracts may be material, changes such as these could have a material effect on the Company’s future financial condition, results of operations and cash flows.
Since the inception of Unicorn Hunters, the Company has recognized revenue in connection with seven Unicorn Hunters agreements. The total revenue amount related to these agreements was $
The Company reviews each outstanding customer’s non-cash receivable balance with management of the private company customer, and records an allowance for expected credit losses if either of the following are noted:
| a. | A specific milestone, equity financing or other event has occurred that is a clear indication that there has been a material change in the enterprise value of the private company customer since the original recording of the Unicorns accounts receivable balance and before the Company has received the underlying stock option, warrants or shares certificates. |
| b. | The Company’s review identifies facts and circumstances that have substantially changed either the private company customers’ intent or its ability to issue the stock option, warrants or shares certificates due in satisfaction of their related accounts receivable balance. |
To date, the Company has not recorded any credit loss expense or allowance for expected credit losses related to Unicorn Hunters non-cash receivables and the Company has not experienced any fluctuations or significant matters, relating to any of its businesses, that would require recording a material allowance for expected credit losses in any period to date.
10
Significant Accounting Policies
Other than the discussion of the Company’s accounting policy for Asset Swap Agreement and Related Commission within Note 7 – Unicoin Rights Financing Obligation, there have been no material changes to the Company’s significant accounting policies disclosed in its audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023.
Revenue Recognition
Revenue Sources
The Company primarily derives its revenues from three revenue streams:
| 1. | Subscription Revenue (SaaS) – which are comprised of subscription license fees from customers accessing the Company’s all-in-one cloud-based solution to manage remote workers (“software platform”). |
| 2. | Staffing Revenue (TaaS) – whereby enterprise customers are connected to individuals who are able to assist them in projects. |
| 3. | Unicorns Revenue – which generally consists of the fair value of stock options or warrants received as consideration from companies presenting on the Unicorn Hunters show. |
Refer to Note 16 – Segment Information for disaggregated revenue information.
Revisions to Investment in Land and the Unicoin Rights Financing Obligation
During the three months ended September 30, 2024,
in relation to the California City asset swap agreement (as described in Note 7), the Company recorded an adjustment to decrease the fair
value of the California City land parcel initially recorded within the Investment in Land line item. The California City land parcel was
initially recorded at $
| September 30, 2024 | ||||||||||||
| As Previously Reported | Adjustments | As Adjusted | ||||||||||
| Investment in land | $ | $ | ( | ) | $ | |||||||
| Total Assets | $ | $ | ( | ) | $ | |||||||
| Unicoin Rights Financing Obligation | $ | $ | ( | ) | $ | |||||||
| Total Liabilities | $ | $ | ( | ) | $ | |||||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ( | ) | $ | |||||||
The adjustment noted above did not impact the Company’s Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2024.
11
NOTE 3 – FAIR VALUE MEASUREMENT
The Company measures the fair value for financial instruments under ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements.
To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels, as follows:
| Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| Level 2 | Significant other inputs that are directly or indirectly observable in the marketplace. | |
| Level 3 | Assets and liabilities whose significant value drivers are unobservable. |
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.
As of April 1, 2023, the Company has revised its Intangible Assets and Financial Assets accounting policies to account for USD Coin (“USDC”) as a financial asset. As a result, USDC will be measured at fair value in future periods with changes in fair value reported in earnings as they occur. The Company previously reported USDC within Intangible assets, net, and has reclassified USDC to prepaid expenses and other current assets beginning in the third quarter of 2023. The Company’s USDC balance as of September 30, 2024 and December 31, 2023 amounted to $
The following table is a summary of financial assets measured at fair value on a recurring basis and their classification within the fair value hierarchy.
| As of September 30, 2024 | Carrying Value |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| Money market funds (included within Cash and Cash Equivalents in the condensed consolidated balance sheets) | $ | $ | $ | $ | $ | |||||||||||||||
| As of December 31, 2023 | Carrying Value |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| Money market funds (included within Cash and Cash Equivalents in the consolidated balance sheets) | $ | $ | $ | $ | $ | |||||||||||||||
As discussed in Note 7, the obligation to settle the Company’s Unicoin Rights liability through the exchange of a fixed number of unicoins, when and if all contingencies are resolved and unicoins are launched, represents an embedded feature that may result in additional charges to the Company’s condensed consolidated statements of operations and comprehensive loss upon settlement. The embedded feature was initially valued at $
12
Assets Measured at Fair Value on a Non-Recurring Basis
As discussed in Notes 2 and 4, consideration from Unicorns customers generally consists of commitments to issue stock options or warrants from customers which appear on the Unicorn Hunters show. This non-cash consideration is recognized in accounts receivable at the estimated fair values at or near the dates of contract inception using Level 3 inputs. The fair value of these commitments, as well as the options or warrants of private companies, held upon settlement of such receivables, as measured using Level 3 inputs, may fluctuate as discussed in Note 4. Certain other items such as goodwill, intangible assets, contingent divestiture and NCI resulting from the ITSQuest acquisition are recognized or disclosed at fair value on a non-recurring basis. The Company determines the fair value of these items using Level 3 inputs. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions.
NOTE 4 – INVESTMENTS IN PRIVATELY-HELD COMPANIES
Revenue and accounts receivable for Unicorns generally consists of the fair value of stock options or warrants committed from companies that have appeared on the Unicorn Hunters show. The options or warrants underlying the commitments typically have a term of five to ten years and accounts receivable are recorded at the estimated fair value of such options or warrants as determined at contract inception. Subsequent to issuance of the option or warrant certificates to the Company, the related receivables are reclassified to investments in privately-held companies, a long-term asset account representing investments in private company equity securities or rights to acquire private company equity securities.
The Company’s non-cash receivables and the underlying investments in privately-held companies do not have readily determinable fair values. The initial amount measured and recognized (i.e., estimated fair value at or near contract inception) is subsequently adjusted to fair value on a nonrecurring basis based on observable price changes from orderly transactions of identical or similar securities of the same issuer or upon impairment. These investments are classified within Level 3 of the fair value hierarchy as the Company estimates the value based on valuation methods using the observable transaction price at the transaction date and other significant unobservable inputs, such as volatility, rights and obligations related to these securities. These valuations require management judgment due to the absence of an observable market price and lack of liquidity.
The following tables summarize the Company’s non-cash receivables and investments in privately-held companies as of September 30, 2024 and December 31, 2023, respectively:
| September 30, 2024 |
December 31, 2023 |
|||||||
| Non-cash receivables | $ | $ | ||||||
| Investments in privately-held companies* | ||||||||
| Carrying value of non-cash receivables and investments in privately-held companies | $ | $ | ||||||
| * |
13
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS INCLUDING DIGITAL ASSETS
Goodwill and Acquisition-Related Intangible Assets
As of September 30, 2024 and December 31, 2023, the Company’s goodwill balance was $
Acquisition-related intangible assets consisted of the following as of September 30, 2024 and December 31, 2023:
| September 30, 2024 | |||||||||||||||
| Useful life |
Gross carrying amount |
Accumulated amortization |
Net carrying amount |
||||||||||||
| Intangible assets with finite lives: | |||||||||||||||
| Customer Relationships | $ | $ | $ | ||||||||||||
| Trade Names | |||||||||||||||
| $ | $ | $ | |||||||||||||
| December 31, 2023 | |||||||||||||||
| Useful life |
Gross carrying amount |
Accumulated amortization |
Net carrying amount |
||||||||||||
| Intangible assets with finite lives: | |||||||||||||||
| Customer Relationships | $ | $ | $ | ||||||||||||
| Trade Names | |||||||||||||||
| $ | $ | $ | |||||||||||||
Intangible assets were recorded at fair value consistent with the requirements of ASC 805 as a result of the acquisition of ITSQuest. Pursuant to ASC 820, the fair value measurement of the assets was based on significant inputs not observable in the market and represent Level 3 measurements within the fair value measurement hierarchy. Level 3 fair market values were determined using a variety of information, including estimated future cash flows and market comparable data and companies.
Amortization expense related to intangible assets was $
As of September 30, 2024, estimated future amortization was as follows:
| Schedule of amortization expense: | Amortization | |||
| 2024 (October 1 to December 31) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
The Company performed its most recent qualitative assessments of goodwill and intangible assets as of December 31, 2023, to determine if the carrying values of these assets exceeded their fair values, noting there were no indicators of impairment for goodwill or intangible assets.
14
Digital Assets
The Company records the initial cost basis of digital assets at their original purchase price or the then-current quoted market prices and presents all digital asset holdings as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other, except USDC. The Company performs an analysis to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that the Company’s digital assets are impaired. In determining if an impairment has occurred, we consider the quoted price of the digital asset. If the then-current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.
As of April 1, 2023, the Company has revised its impairment loss assessment methodology for digital assets to record write-downs to the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset (i.e., on a daily basis rather than quarterly). This revision would be consistent with the requirements of ASC 350-30-35-19, which indicates impairment exists whenever carrying value exceeds fair value. It also indicates that after an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Management assessed the potential difference in impairment loss that would have resulted in prior periods if this impairment methodology had been applied retroactively, noting the amounts were immaterial.
During the nine months ended September 30, 2024
and 2023 the Company received digital assets and USD Coin as consideration from customers and investors for the purchases of Unicoin
Rights, common stock and private placement unsecured notes issued by the Company. These digital assets included Bitcoin (“BTC”),
Ethereum (“ETH”), Wrapped Ethereum (“WETH”) and Tether (“USDT”). Unicoin Rights are more fully discussed
in Note 7. The Company utilized $
The table below summarizes the Company’s digital asset activity for the three months ended as of September 30, 2024 and 2023:
| Bitcoin | Ethereum | Tether | Wrapped Ethereum | Three Months Ended September 30, |
||||||||||||||||||||
| (BTC) | (ETH) | (USDT) | (WETH) | 2024 | 2023 | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Returns of digital assets for cancelled deferred payment plans | ( |
) | ( |
) | ||||||||||||||||||||
| Vendor Payments | ( |
) | ||||||||||||||||||||||
| Purchases of digital assets, net of proceeds from sales | ( |
) | ||||||||||||||||||||||
| Fees and Other | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Impairments and write-offs | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
15
The table below summarizes the Company’s digital asset activity for the nine months ended as of September 30, 2024 and 2023:
| Bitcoin | Ethereum | Tether | Wrapped Ethereum | Nine
Months Ended September 30, |
||||||||||||||||||||
| (BTC) | (ETH) | (USDT) | (WETH) | 2024 | 2023 | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Received as consideration in issuance of common stock | ||||||||||||||||||||||||
| Payments from customers | ||||||||||||||||||||||||
| Received as consideration in sales of Unicoin Rights, net of returns for cancelled deferred payment plans | ( |
) | ||||||||||||||||||||||
| Purchases of digital assets, net of proceeds from sales | 58,445 | 58,445 | (29,553 | ) | ||||||||||||||||||||
| Vendor Payments | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Fees and Other | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Impairments and write-offs | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The table below summarizes the carrying values for the Company’s digital asset holdings as of September 30, 2024 and December 31, 2023:
| September 30, 2024 |
December 31, 2023 |
|||||||
| Bitcoin (BTC) | $ | $ | ||||||
| Ethereum (ETH) | ||||||||
| Wrapped Ethereum (WETH) | ||||||||
| Total | $ | $ | ||||||
NOTE 6 – DEBT
As of September 30, 2024 and December 31,
2023 the Company held short-term debt of $
The Unsecured Notes generally rank pari-passu relative to other unsecured obligations. As follows is a schedule of outstanding balances by the maturity date:
| Outstanding Balance | Issuance Date | Maturity Date Extended to | ||||
| $ | ||||||
| $ | ||||||
Interest expense on Unsecured Notes of $
16
NOTE 7 – UNICOIN RIGHTS FINANCING OBLIGATION
As of September 30, 2024 and through the filing date of this Quarterly Report on Form 10-Q, the Company has not issued any unicoins and there is no assurance as to whether, or at what amount, or on what terms, unicoins will be available to be issued, if ever.
The Company is offering rights to receive unicoins upon tokenization (“Unicoin Rights” or “Rights”) with terms and conditions set forth in a confidential private placement memorandum initially dated February 2022 and updated periodically thereafter (“the Offering”). The Offering is being conducted pursuant to an exemption from U.S. securities registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506(c) thereunder. Each U.S. domiciled investor in Unicoin Rights must be an “accredited investor,” as defined in Rule 501 of the Securities Act.
The Company accounts for Unicoin Rights by recording a liability representing the amount that management believes the Company would be obligated to pay or refund (i.e., the amount holders have a right to claim and would likely be awarded in settlement) for fair value exchanged as consideration for Rights to receive unicoins in the future and in the event the unicoin is never launched. The Company concluded that it has a legal or contractual obligation and recorded an amount necessary to refund the amount originally paid by investors if holders’ reasonable expectation to receive unicoins is not achieved.
As of September 30, 2024 and December 31,
2023, the Company has issued rights to acquire
During the three months ended September 30, 2024 and 2023, the Company
paid operating expenses to employees and service providers by issuing Unicoin Rights with a fair value of $
17
The following table summarizes the components of the Unicoin Rights financing obligation recorded on the Company’s condensed consolidated balance sheet as of September 30, 2024 and December 31, 2023:
| Outstanding Unicoin Rights and Related Financing Obligation |
||||||||||||||||||
| Nature / Category of | September 30, 2024 |
December 31, 2023 |
||||||||||||||||
| Unicoin Right Holder | Form of Consideration | Units | Amount | Units | Amount | |||||||||||||
| Sales to Investors | Cash, Digital Assets and Treasury Stock | $ | $ | |||||||||||||||
| Unicoin Inc. Shareholders | Non-Cash Dividends | |||||||||||||||||
| Employee, Contractors, Directors | Discretionary Compensation | |||||||||||||||||
| Service Providers, Influencers and Employees | Services and Employee Labor | |||||||||||||||||
| Subtotal | $ | $ | ||||||||||||||||
| ITSQuest Contingent Divestiture Amendment | Contract Amendment | |||||||||||||||||
| Five-Year Deferred Payment Plan | Cash and Treasury Stock | * | * | |||||||||||||||
| Ten-Year Prepaid Plan | Cash | * | ||||||||||||||||
| Asset Swap Agreement and Related Commissions | Land | |||||||||||||||||
| Total | $ | $ | ||||||||||||||||
| * |
Sales to Investors
As of September 30, 2024 and December 31, 2023, the Unicoin Rights financing obligation associated with sales to investors amounted to $
Dividend Issued to Shareholders
The Company declared and issued a non-cash dividend of Unicoin Rights, on a pro-rata basis, to all shareholders of record as of the dividend declaration date of February 10, 2022. This non-cash dividend was the initial issuance of Unicoin Rights, prior to finalizing any plan to market and sell Rights in connection with any of the Company’s financing rounds, and at the time of the pro-rata distribution, management and the Board had not yet ascribed a value to such Rights. As a result, the Company has ascribed a de minimis value to all Unicoin Rights issued to shareholders on February 10, 2022. As of September 30, 2024 and December 31, 2023, the Unicoin Rights financing obligation associated non-cash dividend of Unicoin Rights amounted to $ thousand.
18
Discretionary Payments to Employees, Contractors and Directors
The Company has issued Unicoin Rights to certain employees, Board members and external contractors/consultants as discretionary awards. These Unicoin Rights were issued on a discretionary basis and do not indicate that employees, Board members or contractors/consultants are being rewarded with a specific value attributable to past or future services rendered by such individuals. The Unicoin Rights were also not issued as a replacement for, or in lieu of, cash or equity awards due under any type of pre-determined bonus or other incentive plan that quantifies a value that the holders are entitled to as a result of their services or performance. The Company believes that, because of the nature of these discretionary awards (i.e., nothing of specific value was exchanged to the Company in return), together with the legal disclaimer of any obligation to launch the unicoin within the terms of the Unicoin Rights agreement, on a per Unicoin Right basis, the amount that holders would be entitled to if the Unicoin is not ultimately launched is de minimis in relation to the actual fair value per Unicoin Right. As of September 30, 2024 and December 31, 2023, the Unicoin Rights financing obligation associated with discretionary payments to employees, contractors and directors amounted to $
Issued to Service Providers, Influencers and Employees
The Company has issued Unicoin Rights in exchange for services from advertising agencies, marketing firms and other vendors. Also, the Company has issued Unicoin Rights as part of the compensation package negotiated with certain employees. The related contracts for these third-party providers and employees specify the value provided, as negotiated by these parties, and the number of Unicoin Rights accepted as compensation for the dollar value of those services.
Similar to investors, service providers exchanged a specified, negotiated value in exchange for Unicoin Rights and has rights to receive either 1) the negotiated number of unicoins upon development or launch, or 2) payment of cash equivalent to the value of services provided. In addition, from time to time the Company engages Influencers to promote unicoins and/or the Unicorn Hunters show in exchange for Unicoin Rights. The form of Influencer engagement may include promoting unicoin in a social media post, making brief reference in a speech, posting about unicoin on a website or any other media form.
These contracts do not specify the value of services rendered by Influencer nor the specific format of engagement required. Because an “engagement” can represent something as simple as brief mention in a speaking engagement, or posting on a social media account, etc. management determined there is very little effort involved by the Influencer in order to perform services in a manner consistent with the contractual terms. As of September 30, 2024 and December 31, 2023, the Unicoin Rights financing obligation associated with Unicoin Rights issued to service providers, influencers and employees amounted to $
Five-Year Deferred Payment Plan
In August 2022 the Company began offering a five-year deferred payment plan (the “deferred payment plan”) to investors in its ongoing Unicoin Rights offering. The deferred payment plan permits investors to purchase Unicoin Rights immediately and pay for such Unicoin Rights in five equal annual installments, with the first installment due one year after the date of purchase. Purchases through the deferred payment plan requires that investors provide collateral to the Company having a value of up to 20% of the total purchase price of the purchased Unicoin Rights. Collateral can be in the form of Company common stock owned by the investor, Unicoin Rights already owned by the investor, cash, digital assets or other assets with a demonstrable value, at the Company’s discretion, if such assets can be transferred to the Company or a valid lien on such assets can be secured. Pursuant to the terms of the installment payment plan, both the pledged collateral and the Unicoin Rights being purchased under the installment plan will be forfeited to the Company if the investor fails to make any of the five annual installment payments.
19
The following table summarizes the pledged collateral pursuant to the deferred payment plan as of September 30, 2024 and December 31, 2023:
| Estimated Fair Value of Collateral Received as of: |
||||||||
| Form of Collateral Received | September 30, 2024 |
December 31, 2023 |
||||||
| Cash | $ | $ | ||||||
| Digital Assets | ||||||||
| Non-Unicoin Inc. Stock | ||||||||
| Unicoin Inc. Shares of Common Stock | ||||||||
| Unicoin Rights | ||||||||
| Real Estate | ||||||||
| Total | $ | $ | ||||||
The fair value of the collateral received by Company is determined as follows:
| ○ | Cash – Based on the value of cash received. |
| ○ | Digital Assets – Fair value is determined based on quoted prices on the active exchanges as of the balance sheet date for the reporting period. |
| ○ | Non Unicoin Inc. Stock – Fair value is determined based on quoted prices on the active exchanges as of the balance sheet date for the reporting period. |
| ○ | Unicoin Inc. Common Stock – Based on fair value of common stock, as of the balance sheet date for the reporting period, determined with the assistance of a third-party valuation firm. |
| ○ | Unicoin Rights – Based on fair value of Unicoin Rights, as of the balance sheet date for the reporting period, determined with the assistance of a third-party valuation firm. |
| ○ | Real Estate – Based on third-party appraisal near the date the real estate was accepted as collateral. |
Ten-Year Prepaid Plan
In November 2022 the Company began offering
a ten-year prepaid plan (the “prepaid plan”) to investors in its Unicoin Rights offering. Under the prepaid plan,
the investor remits cash or digital asset deposits (the “principal”) for a period of up to ten years. After the first year
(the “maturity date”), the investor can either withdraw the principal or apply it towards the purchase of unicoins at 20
cents per unit. Five years after the deposit (the “maturity”), the investor earns a cumulative interest of 50% of the principal,
which qualifies toward the withdrawal or purchase of unicoins. As of September 30, 2024 and December 31, 2023, cumulative cash
receipts of $
20
ITSQuest Contingent Divestiture Amendment
In December 2022, the Company issued 20 million Unicoin Rights to the previous owners of ITSQuest as part of the consideration given in exchange for amending ITSQuest’s contingent divestiture provision. A total of $
Asset Swap Agreement and Related Commission
On October 9, 2023,
On February 9, 2024,
On August 7, 2023, Unicoin entered into an
Asset Swap Agreement with Electroquimica del Neuquen S.A., an Argentine corporation (the “Argentina Seller”), pursuant to
which the Argentina seller acquired rights to obtain
On December 20, 2023, a deed of assignment (the “Deed”) of rights to explore for copper deposits in the Argentina Real Estate Assets was signed by the Argentina Seller and the Company. According to Argentine law, the Deed is required to be filed with and approved by the State Government, Mining Registry (Provice of Neuquen), for the transfer to be effective. Pursuant to the terms of the Deed, the Argentina Seller was required to register the transfer of ownership of the Argentina Real Estate Assets to the Company with the local mining registry within 10 business days of the execution of the Deed, and as of February 23, 2024, did not do so. On July 23, 2024, the Company formally registered with the Province of Neuquen the transfer of the exploration rights to the Company. Therefore, the Company deems this transaction as executed on July 23, 2024. Because of the contingencies regarding the registration and the fact that management had not become the owner of record until July 23, 2024, management had not previously recorded this transaction on the Company’s balance sheet. Upon the registration on July 23, 2024, the Company recorded the mining exploration rights within the Investment in Land asset of and a corresponding Unicoin Rights Financing Obligation in its consolidated balance sheet amounting to $7,100 thousand, which consisted of the fair value of the mining exploration rights as determined by a third-party appraisal. In addition, the Company issued 42 million Unicoin Rights to a Real Estate broker, recording commission expense and the corresponding Unicoin Rights Financing Obligation of $710 thousand.
21
Unicoin Rights Issued to Related Parties
The Unicoin Rights issuances discussed above include a total of 892 million Unicoin Rights, and the respective Unicoin Rights Financing Obligation of $3,428 thousand, which represent the cumulative amounts issued to related parties during the nine months ended September 30, 2024. The composition of this is summarized in the following table:
| Outstanding Unicoin Rights and Related Financing Obligation |
||||||||||||||||||
| September 30, 2024 |
December 31, 2023 |
|||||||||||||||||
| Nature / Category | Relationship | Units | Amount | Units | Amount | |||||||||||||
| Sales to Investors | Officers and Directors | $ | $ | |||||||||||||||
| Unicoin Inc. Shareholders (Dividends) | Officers and Directors | |||||||||||||||||
| Discretionary Awards | Officers and Directors | |||||||||||||||||
| Consideration for Services | Officers and Directors | |||||||||||||||||
| ITSQuest Contingent Divestiture Amendment | Former Owners of ITSQuest | |||||||||||||||||
| Five-Year Deferred Payment Plan | Officers and Directors | |||||||||||||||||
| Total | $ | $ | ||||||||||||||||
As of September 30, 2024 and December 31, 2023, the Company held approximately $
Transaction loss on Repurchase of Unicoin Rights
During the three and nine months ended September 30,
2024, the Company recorded a transaction loss on repurchase of Unicoin Rights amounting to $
| - | During the three and nine months ended September 30, 2024, the transaction loss included $719 thousand and $6,452 thousand, respectively, due to investors under the five-year deferred payment plan that paid installments using previously acquired Unicoin Rights as consideration. This component of the transaction loss results from differences between the fair value of the Unicoin Rights as of the time of installment under the five-year deferred payment plan compared to the initial acquisition cost of such Unicoin Rights. |
| - | During the three and nine months ended September 30, 2024, the transaction loss included $0 and $99 thousand, respectively, from repurchased Unicoin Rights from investors. This component of the transaction loss represented the excess of cash proceeds over the Unicoin Right Financing Obligation that was previously recorded when the investor initially acquired the Unicoin Rights. |
22
NOTE 8 – COMMON STOCK
The Company is authorized to issue shares of common stock with and shares of common stock issued and and outstanding, net of treasury stock, as of September 30, 2024, and December 31, 2023, respectively. Stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders. Stockholders have no conversion, pre-emptive, or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock.
Issuance of Common Stock
For the three months ended September 30, 2024 and 2023, the Company issued common stock as follows:
| Three Months Ended September 30, 2024 | ||||||||||||
| Common Stock Issuances by Round | Shares | Weighted Average Price per Share |
Proceeds | |||||||||
| Round 6 | $ | $ | ||||||||||
| Round 7 | ||||||||||||
| Total stock issued | $ | |||||||||||
The Company did not issue any common stock to investors during the three months ended September 30, 2023.
For the nine months ended September 30, 2024 and 2023, the Company issued common stock as follows:
| Nine Months Ended September 30, 2024 | ||||||||||||
| Common Stock Issuances by Round | Shares | Weighted Average Price per Share |
Proceeds | |||||||||
| Round 6 | $ | |||||||||||
| Round 7 | ||||||||||||
| Total stock issued | $ | * | ||||||||||
| * |
|
23
| Nine Months Ended September 30, 2023 | ||||||||||||
| Common Stock Issuances by Round | Shares | Weighted Average Price per Share |
Proceeds | |||||||||
| Round 4a and 4b | $ | |||||||||||
| Round 5* | ||||||||||||
| Total stock issued | $ | |||||||||||
| * |
All shares were issued from the Company’s pool of authorized common stock, which rights and privileges are discussed above and were the same for all shares issued to date. Each funding round was available for a defined period with a specified price per share and did not overlap with other funding rounds. Investors that subscribed during a specific round, locked the pricing offered for that round and Company had a limited time to close on the issuance of shares. Once a funding round was fully subscribed to and committed, management evaluated capital needs and determined the price for the following round.
Repurchases of Common Stock
During the three months ended September 30, 2024
and 2023, the Company repurchased
and
shares in exchange for $
Shares of common stock reserved for future issuance were as follows:
| September 30, 2024 |
December 31, 2023 |
|||||||
| Stock options outstanding (Note 9) | ||||||||
| Warrants for common stock (Note 10) | ||||||||
| Restricted stock units (Note 9) | ||||||||
Non-cash Dividend of Unicoin Rights
As discussed in Note 7, in connection with a February 10, 2022 board consent, the Company declared a non-cash dividend of one Unicoin Right per each common share of record held on February 10, 2022.
24
Stock Options
Options to purchase common stock are granted at the discretion of the Board of Directors, a committee thereof or, subject to defined limitations, an executive officer of the Company to whom such authority has been delegated. The Company provides discretionary awards such as nonqualified stock options as well as stock awards, any or all of which may be made contingent upon the achievement of performance criteria. The Company at its discretion determines the terms and conditions of the award, including the time or times at which an option may be exercised, the methods by which such exercise price may be paid, and the form of such payment. Options are generally granted with an exercise price ranging from $ to $. Upon exercise, the option exercise price may be paid in cash or by the delivery of previously owned shares of common stock, through an option exercise arrangement. The Administrator determines the terms relating to the exercise, cancellation, or other disposition of options and stock awards upon a termination of employment, whether by reason of disability, retirement, death, or any other reason.
The Company recorded stock-based compensation expense of $ relating to stock option awards during the three and nine months ended September 30, 2024 and 2023. The Company measures the expense using the Black-Scholes option-pricing model. The Black-Scholes option pricing model requires the use of a number of assumptions, including expected volatility, risk-free interest rate, expected dividends, and expected term. Expected volatility is based on the historic volatility of a basket of certain publicly traded comparable companies. Management estimates the expected term of the award based on the contractual as well as the exercise price of the options. The risk-free interest rate is based on the U.S. Treasury yield curve applicable to a period equal to the expected term of the award. The Company accounts for forfeitures as they occur.
The following is a summary of stock option activity for the nine months ended September 30, 2024:
| Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (Years) |
Aggregate Intrinsic Value |
|||||||||||||
| Beginning balance January 1, 2024 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( |
) | ||||||||||||||
| Cancelled | ||||||||||||||||
| Adjustments | ||||||||||||||||
| Ending balance September 30, 2024 | $ | $ | ||||||||||||||
| Vested and exercisable as of September 30, 2024 | $ | $ | ||||||||||||||
Restricted Stock Units (“RSUs”)
RSUs Classified as Equity
During 2021, the Company amended certain employment agreements for some of its employees that enabled those employees to receive stock awards worth a fixed dollar amount, either: (i) at end of every month in certain instances; or (ii) on the first anniversary of their respective employments in other instances. The revised employment agreement specifies the maximum number of shares to be issued upon vesting to the respective employees. Equity-classified RSUs’s have a grant-date fair value equal to the fair market value of the underlying stock on the grant date less present value of expected dividends. These awards vest immediately.
25
The following is a summary of RSU activity for the nine months ended September 30, 2024:
| Number of RSU’s |
||||
| Beginning balance - January 1, 2024 | ||||
| Granted | ||||
| Vested | ( |
) | ||
| Forfeited | ||||
| Ending balance - September 30, 2024 | ||||
The Company recorded $ thousand and $ thousand of stock-based compensation expense relating to RSU’s during the three months ended September 30, 2024 and 2023, respectively. The Company recorded $ thousand and $ thousand of stock-based compensation expense relating to RSU’s during the nine months ended September 30, 2024 and 2023, respectively.
Unicorns Common Stock Awards
On March 14, 2021, Unicorns, a
majority-owned subsidiary of the Company, granted Unicorns Common Stock Awards to the executive producers of the Unicorn Hunters TV
show. These awards have a grant-date fair value equal to the fair market value of the underlying Unicorns stock on the grant date
less present value of expected dividends. During the three and nine months ended September 30, 2024, the Company recorded
stock-based compensation expense within the Cost of Revenues line item of $ and $
thousand, respectively, in relation to the vesting of five million Unicorns Common Stock Awards. As of September 30, 2024,
five million Unicorns Common Stock Awards remain outstanding. The total grant-date fair value of the outstanding Unicorns Common
Stock Awards amount to $
During the three and nine months ended September 30, 2024 and 2023 substantially all stock-based compensation expense was classified as general and administrative expense.
NOTE 10 – WARRANTS
In connection with the execution of multiple Private Placement Memoranda during the years ended December 31, 2018 and 2017, the Company granted sales commission warrants to purchase shares of the Company’s common stock at exercise prices ranging from $0.001 to $1.00 per share with a term of 10 years from the closing date of each offer. These were considered to be share issuance costs and were recognized in Additional Paid in Capital.
Common stock purchase warrants issued and currently outstanding are recorded at their initial fair value and reported in stockholders’ equity (deficit) as increases to additional paid-in capital. These warrants were reported as equity, rather than liabilities, since (i) the warrants may not be net-cash settled, (ii) the warrant contractually limits the number of shares to be delivered in a net-share settlement, and (iii) the Company has sufficient unissued common shares available to settle outstanding warrants. Subsequent changes in fair value from the warrants’ initial fair value are not recognized as long as the warrants continue to be classified as equity. As of September 30, 2024 and December 31, 2023 all warrants were classified as equity with a weighted average grant date fair value of $0.02.
The table below summarizes warrant activity for the three months and nine months ended September 30, 2024:
| Number of Warrants |
||||
| Beginning balance as of January 1, 2024 | ||||
| Granted | ||||
| Exercised | ( |
) | ||
| Forfeited | ||||
| Ending balance as of September 30, 2024 | ||||
26
NOTE 11 – LEASES
The Company leases its office facilities under operating lease arrangements with varying expiration dates through 2028. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. ROU assets also include adjustments related to prepaid or deferred lease payments. As the Company’s leases do not provide an implicit rate, it uses the incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. Options to extend a lease are included in the lease term when it is reasonably certain that the Company will exercise such options. As of September 30, 2024, the remaining lease term of the Company’s operating leases ranges from less than one year to five years.
The components of operating lease expense are as follows:
| Nine Months Ended September 30, |
||||||||
| 2024 | 2023 | |||||||
| Operating lease expense | $ | $ | ||||||
| Short-term lease expense | ||||||||
| Total operating lease expense | $ | $ | ||||||
| Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease expense | $ | $ | ||||||
| Short-term lease expense | ||||||||
| Total operating lease expense | $ | $ | ||||||
The Company excludes leases with a term of 12 months or less from its consolidated balance sheets. For the nine months ended September 30, 2024 and September 30, 2023, the Company recorded operating lease expense of $140 thousand and $148 thousand for those short-term leases. For the three months ended September 30, 2024 and September 30, 2023, the Company recorded operating lease expense of $62 thousand and $40 thousand, respectively, for those short-term leases.
Supplemental balance sheet information related to operating leases was as follow:
| As of | ||||||||
| September 30, 2024 |
December 31, 2023 |
|||||||
| Operating leases | ||||||||
| Assets: | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Current portion of operating lease liabilities | $ | $ | ||||||
| Operating lease liabilities, noncurrent | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Other information: | ||||||||
| Weighted-average remaining lease term (in years) | ||||||||
| Weighted-average discount rate % | % | % | ||||||
27
As of September 30, 2024, future maturities of operating lease liabilities were as follows:
| Amount | ||||
| 2024 (October 1 through December 31) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Future operating lease payments | ||||
| Imputed interest | ( |
) | ||
| Total operating lease liabilities | ||||
| Current portion | ( |
) | ||
| Operating lease liabilities, noncurrent | $ | |||
The Company did
NOTE 12 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company is currently not aware of any legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on its condensed consolidated business, financial condition, operation results or cash flows.
The Company has agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
As discussed in Note 2, the Share Exchange Agreement that the Company entered into in order to acquire a majority stake in ITSQuest, contains a contingent divestiture provision whereby if certain conditions are not met the Company will be required to divest itself of the acquired ITSQuest equity by returning the same to the founders of ITSQuest, and such founders shall be entitled to retain the shares of the Company received pursuant to the Exchange Agreement. The Company has assessed that it is unlikely it will achieve either of the two trigger events necessary to avoid divestiture of ITSQuest. If the Company is not able to achieve an initial offering of its Common Stock or an initial registration of its unicoins, sufficient to meet the criteria outlined in the Amended SEA , or is unable to negotiate an extension with ITSQuest, on or before December 31, 2024, the trigger event would cause the loss of ITSQuest-associated revenue to the Company while resulting in the Company having issued equity to the ITSQuest founders for only nominal consideration. The Company anticipates the divestiture of ITSQuest may lead to a loss on disposition and such loss may be material to the Company’s future financial position, results of operations and cash flows for periods including the disposition and thereafter. As of the filing date of this Quarterly Report on Form 10-Q, the Company has assessed that it is unlikely it will achieve either of the two trigger events necessary to avoid divestiture of ITSQuest. For further details regarding the potential impact of a divestiture, refer to the Risk and Uncertainties section of Note 2 – Summary of Significant Accounting Policies.
Asset Swap Agreements
As of September 30, 2024, the Company has signed certain asset swap agreements where consideration consisted of unicoins. Because the unicoin has not been launched yet, management can’t yet ascertain control over the assets included in such Asset Swap Agreements. Accordingly, management has not recorded these transactions in the balance sheet. The following represents summaries of each transaction:
28
| - | In relation to an Asset Swap Agreement the Company entered on July 27, 2023 with Eugenio de la Torre, a U.S. resident, wherein the Company agreed to provide a total of 36,400,000 Unicoin rights in exchange for real estate assets consisting of an agricultural farm called La Esperanza in Cumaribo, Vichada, Colombia. The agreement includes a project failure clause in which if the unicoin is not tokenized, the agreement would be deemed as terminated. Upon the agreement termination, the asset and the Unicoin Rights would go back to the seller and purchaser, respectively. Accordingly, management has not met control criteria for recognition of this transaction in the balance sheet. |
| - | In February 2024, the Company acquired vacant farmland in Puerto Carreño Guacamayas, Colombia, having an appraised value of approximately $1,300,000. Final transfer of title for such land is contingent upon tokenization and release of unicoins to the seller within twelve months of the closing date, and therefore if such condition is not met, the transaction may be terminated. The agreement includes a project failure clause in which if the unicoin is not tokenized, the agreement would be deemed as terminated. Upon the agreement termination, the asset and the Unicoin Rights would go back to the seller and purchaser, respectively. Accordingly, management has not met control criteria for recognition of this transaction in the balance sheet. |
| - | On April 2, 2024, the Company closed a transaction with New World Properties SPV, Inc., a Bahamas corporation (“New World”), wherein the Company acquired the beneficial interests in two entities that each own specified parcels of land in the Bahamas – Long Island Investments Ltd, and Newport Harbour Ltd., both Bahamian entities, for a combined purchase price of $554,431 thousand, payable in Unicoin Rights. The agreement includes a project failure clause in which if the unicoin is not tokenized, the agreement would be deemed as terminated. Upon the agreement termination, the asset and the Unicoin Rights would go back to the seller and purchaser, respectively. Accordingly, management has not met control criteria for recognition of this transaction in the balance sheet. |
| - | On June 26, 2024, the Company entered into an Asset Swap Agreement (the “Asset Swap Agreement”) dated June 26, 2024, by and between the Company and Victor Raul Montenegro Criado, an individual citizen of Peru, and Villa Paradiso S.A.C., a company established under the laws of Peru (together, the “Seller”) pursuant to which Seller shall acquire rights to obtain 61,795,216 rights to receive unicoin security tokens from the Company in exchange for the disposition of 100% of the ownership interest in Buona Vista – Casas Club & Resort S.A.C., a Peruvian entity that owns certain real estate assets described in the Asset Swap Agreement (the “Real Estate Assets”) of the Seller to the Company (the “Transaction”). Consideration is payable in three tranches, based upon construction milestones with respect to the Real Estate Assets. As of the date of this report, this agreement remains subject to due diligence and has not yet closed, title has not transferred, and no unicoin rights have been issued in connection therewith. Accordingly, management has not met control criteria for recognition of this transaction in the balance sheet. |
NOTE 13 – RELATED PARTY TRANSACTIONS
Unicoin Rights Issued to Related Parties
As discussed in Note 7, a total of million Unicoin Rights valued at $
Loan from Chief Executive Officer
During the nine months ended September 30, 2024, the Company paid in full a $
29
NOTE 14 – INCOME TAXES
The Company recorded income tax expense of $
Net loss per common share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted-average shares outstanding, as the inclusion of common share equivalents would be antidilutive. The common share equivalents consist of stock options, restricted stock units, warrants for common stock, and common stock.
Calculation of net loss per share is as follows for the three months and nine months ended September 30 2024 and September 30, 2023 respectively:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| Basic and Diluted: | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Numerator: | ||||||||||||||||
| Net loss attributable to Unicoin Inc. per consolidated statements of operations | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Denominator: | ||||||||||||||||
| Weighted average common shares outstanding used to compute basic and diluted loss per share | ||||||||||||||||
| Net loss per common share attributable to Unicoin Inc., basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
The following table presents the potentially dilutive shares that were excluded from the computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Stock options outstanding (Note 9) | ||||||||||||||||
| Warrants for common stock (Note 10) | ||||||||||||||||
| Restricted stock units (Note 9) | ||||||||||||||||
30
NOTE 16 – SEGMENT INFORMATION
Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, or decision-making group in deciding how to allocate resources and in assessing performance. The Company evaluates operating results based on measures of performance, including revenues and profit (loss). The Company currently operates in the following three reporting segments: SaaS, TaaS and Unicorn Hunters. The legacy operations of the SaaS business are currently being phased out of operations through customer attrition, and are no longer the focus of the Company’s efforts.
The Company’s reportable segments consist of SaaS, TaaS and Unicorn Hunters. The Company determines its operating segments based on how the chief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance. The Company’s CODM is the Chief Executive Officer. The Company’s CODM reviews financial information presented on a consolidated basis accompanied by information about revenue and cost of revenue by services type along with gross profit for purposes of allocating resources and evaluating financial performance, as such the Company has disclosed segment information up to gross profit for each operating segment. Furthermore, the Company’s revenues are derived from the United States and foreign countries which includes the South American and European regions (“Foreign countries”).
The following tables set forth certain reportable segment information relating to where the Company derived its revenue for the three months ended September 30, 2024, and 2023:
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| United States |
Foreign countries |
Consolidated | United States |
Foreign countries |
Consolidated | |||||||||||||||||||
| Staffing revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Subscription revenues | ||||||||||||||||||||||||
| Unicorn Hunters | ||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following tables set forth certain reportable segment information relating to where the Company derived its revenue for the nine months ended September 30, 2024, and 2023:
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| United States |
Foreign countries |
Consolidated | United States |
Foreign countries |
Consolidated | |||||||||||||||||||
| Staffing revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Subscription revenues | ||||||||||||||||||||||||
| Unicorn Hunters | ||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
31
The following tables set forth certain reportable segment information relating to the Company’s operations for the three months ended September 30, 2024 and 2023:
| Three Months Ended September 30, 2024 | ||||||||||||||||
| SaaS | TaaS | Unicorn Hunters |
Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit (loss) | $ | $ | $ | ( |
) | $ | ||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||
| SaaS | TaaS | Unicorn Hunters |
Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
The following tables set forth certain reportable segment information relating to the Company’s operations for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, 2024 | ||||||||||||||||
| SaaS | TaaS | Unicorn Hunters |
Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit (loss) | $ | $ | $ | ( |
) | $ | ||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||
| SaaS | TaaS | Unicorn Hunters |
Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | $ | $ | $ | ( |
) | $ | ||||||||||
There were no material transactions between reportable segments during the nine months ended September 30, 2024 and 2023.
Assets by reportable segment and operating costs by reportable segment are not presented as the Company does not allocate assets to its reportable segments, nor is such information used by management for purposes of assessing performance or allocating resources.
32
NOTE 17 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of issuance of these condensed consolidated financial statements and has determined that there are no subsequent events outside the ordinary scope of business that require adjustment to, or disclosure in, the condensed consolidated financial statements.
33
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes which are included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. See “Cautionary Note on Forward-Looking Statements”.
Our Company
Unicoin Inc. (“Unicoin”, “we”, “us”, “our” or the “Company”) is a Delaware corporation incorporated in 2015. In addition to a wholly owned operating company running a Software-as-a-Service (“SaaS”) and Talent-as-a-Service (“TaaS”) platform, and a majority-owned staffing agency, we are also the majority owners of Unicorns Inc., a media production company producing Unicorn Hunters, a business and investing reality show.
In addition to the businesses we operate through our subsidiaries, we are developing a security token called unicoin (“unicoin”), whose value is intended to be collateralized in part by certain of our current and future assets, which assets will include certain equity positions acquired or to be acquired from Unicorn Hunters show participants. The unicoins will also be supported in part by certain ownership rights in various real estate positions either currently owned or to be acquired by us in the future in connection with our “140% Program.” We are currently determining the structure that will be utilized to provide the collateral to support the unicoins. There can be no assurance, however, that such current or prospective collateral will equal or exceed the fair market value of the unicoins or whether such collateral will be subject to liens of our other creditors. We intend that when equity and real estate positions that support the value of the unicoins are liquidated, the resulting proceeds (less fees and expenses, including a 20% fee to be maintained by us) will be distributed to holders of the unicoins. The terms and timing of such distributions will be determined by our board of directors and subject to our collateralization agreements with the collateral agent we engage.
The organization chart below shows the operating subsidiaries and the interests held in them by the Company:
34
The Company has accepted digital assets including Bitcoin (“BTC”), Ethereum (“ETH”), Wrapped Ethereum (“WETH”) and Tether (“USDT”) as consideration from certain investors in exchange for equity or debt issued by the Company. The Company has ownership of and control over its digital assets and uses the third-party custodial services of Coinbase Global, Inc (“Coinbase”), which is a publicly-traded company that operates a cryptocurrency exchange platform and provides custodial wallets to hold the digital assets. Coinbase provides us protection through dual authentication security, which controls account access through requiring separate authentication from two authorized individuals. Management monitors transactions and account balances through the Coinbase client portal, as applicable.
On August 28, 2024, the Company notified its existing investors that it is postponing its initial coin offering (“ICO”) of unicoins to conduct a thorough review of its public statements, offering materials and its business in general. The Company has been conducting a thorough review of its compliance with applicable regulatory requirements with the assistance of a leading national law firm. The Company cannot assess at this time the exact length of the review and will work with outside legal counsel and the appropriate regulators as expeditiously as possible toward a path to continue its efforts and plans for the launch of unicoins.
As of September 30, 2024 and through the filing date of this Quarterly Report on Form 10-Q, the Company has not issued any unicoins and there is no assurance as to whether, or at what amount, or on what terms, unicoins will be available to be issued, if ever.
We may accept certain cryptocurrencies, such as BTC, ETH, USDT and WETH, among others, as payment for the purchase of Unicoin Rights or unicoins when launched. The Company intends to hold these cryptocurrencies without converting into fiat currencies, in a MetaMask wallet linked to its INX account. Upon future liquidity needs, through INX, the Company could pay a vendor for goods or services or convert the digital assets to a fiat currency, using the proceeds for general business operational purposes.
35
Key Factors and Measures We Use to Evaluate Our Business
Sources of Revenue
The Company primarily derives its revenues from three revenue streams:
| 1. | Subscription Revenue (SaaS) – which is comprised of subscription license fees from customers accessing the Company’s all-in-one cloud-based solution to manage remote workers (“software platform”). |
| 2. | Staffing Revenue (TaaS) – whereby enterprise customers are connected to individuals who are able to assist them in projects. |
| 3. | Unicorns Revenue – which generally represents the fair value of private company stock options or warrants, committed to be granted to the Company, as consideration for the right to present and promote those private companies on the Unicorn Hunters show. |
SaaS Revenue. For SaaS contracts, the typical subscription term is one year or less and the Company generally invoices its customers at the start of the subscription period when access to the software platform is provided. Amounts that have been invoiced are recorded in accounts receivable and deferred revenue and revenue is recognized over the subscription period. The legacy operations of the SaaS business are currently being phased out of operations through customer attrition and are no longer the focus of the Company’s efforts.
TaaS Revenue. For TaaS contracts, the Company’s staffing contracts are typically for a duration of less than a year and are either on a fixed hourly rate basis or on a fixed cost basis billed upon satisfaction of respective milestones. The Company typically invoices its customers at the end of each month in cases where the contracts involve billing based on fixed hourly rates and/or once a milestone is reached. An over-time method is used to measure progress because the Company’s obligation is to provide continuous service over the contractual period when fixed hourly rate billing is involved. For time-and-materials contracts, revenue from contracts with customers is recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s remote workers in such cases. For milestone-based contracts, revenue is recognized over time using an output method based upon milestones achieved. Revenue is recognized once a milestone is reached for an amount of the transaction price that is proportionate to the total milestones in the contract. Milestones reached represent work performed and thereby best depicts the transfer of control to the customer.
Unicorns Revenue. For Unicorns contracts, customers are billed when an episode is distributed for broadcast or streaming. The promise to the customer is fulfilled and revenue is recognized for the entire transaction price when an episode is distributed online or via social media.
Gross Profit
We define gross profit as the difference between total revenue and cost of revenue.
For the SaaS and TaaS segments, cost of revenue includes salaries, and personnel compensation costs, associated with the Company’s website hosting and other costs including providing technical support, materials, and supplies. For Unicorns, cost of revenue includes salaries and personnel compensation costs as noted for SaaS and TaaS but also includes third party costs for production team, celebrity hosts and travel. The Company evaluates if Unicorn Hunters show production costs are expected to be recovered. Costs are capitalized if expected to be recovered and otherwise are expensed as incurred. Any capitalized costs are expensed when the related show is distributed on the Unicorn Hunters website.
36
Operating Expenses
Research and development costs are related to maintaining and improving the Company’s software platform and primarily consist of personnel-related costs, including salaries and bonuses, benefits and stock-based compensation expense. Research and development costs related to internal use software are not material and are expensed as they are incurred.
Sales and marketing costs principally consist of third-party marketing, advertising, and branding in addition to compensation and benefits of the Company’s own marketing personnel. Sales, marketing and advertising costs are expensed as incurred.
General and administrative costs primarily consist of compensation, employee benefits, and stock-based compensation related to executive management, finance, administration and human resources, facility costs, professional service fees, and other general overhead costs.
Global Pandemic Conditions
The coronavirus pandemic has given rise to increased remote work for millions of companies around the world. In light of the major shift to home office models without protocols, our platform was designed to increase remote workers’ productivity, protect client budgets from overbilling, allow coordination and monitoring of their remote workforce and provide real-time information on the cost and status of all tasks and projects. However, going forward, we expect our remote workforce management business to produce lower returns than those we deem achievable through Unicorn Hunters and Unicoin. Accordingly, we plan to wind down our SaaS and TaaS services as our primary business segments beginning in 2024. Phasing out by attrition cannot be planned with precision, as it depends on the client’s decision to discontinue use of our services.
As we don’t make efforts to replace the departing clients, such attrition will eventually phase out our remote workforce management operations, with the exception of ITSQuest. No plans have been made to dispose of ITSQuest, as such decision depends on its respective financial performance. If profitable, it may remain a profit-generating unit in our portfolio of assets indefinitely, assuming the Company achieves either of the two trigger events necessary to avoid the forced divestiture of ITSQuest by December 31, 2024. In the event that ITSQuest diverts back to its sellers on December 31, 2024, it would no longer be a profit-generating unit in our portfolio and the impact is expected to be material. Refer to additional disclosure in the Going Concern disclosure on Note 1 to the Condensed Consolidated Financial Statements.
We intend to focus our efforts to make Unicorn Hunters the most widely watched business show in the business media markets and worldwide entertainment, while generating value for the Company’s shareholders through equity acquisitions and syndication, sales of preferred-access memberships, advertisement and merchandising revenues.
Economic and Labor Trends
Demand for our talent pool, consultants, and growth of placement services are dependent upon general economic and labor trends. We believe that the Company is well positioned in the current macroeconomic environment, particularly as economies continue to reopen and demand for services increase. We expect greater geographical work flexibility and the legacy of the coronavirus pandemic to continue and help drive business growth.
Demand for Diversity and Demographic Changes
Diversity and talent form the bedrock of our company. We believe that female engagement in the workplace will increase and become a major feature of the corporate environment going forward as female workforce participation and higher education opportunities increase.
37
Dynamic and Evolving Technology
The ability to respond in time to technology trends and new developments is a key determinant of our business and operational performance. We believe this will widen our platform’s appeal to new customers, while expanding our potential opportunities for investment, resulting in greater revenue growth.
Majority-Owned Subsidiaries
ITSQuest
The Company is the majority owner of ITSQuest. The Company’s ownership interest is 51%. We acquired ITSQuest as an information technology staffing company, providing staffing services and solutions. ITSQuest, has an outstanding tax liability of $5.0 million. As part of the acquisition agreement, the sellers and owners of the non-controlling interest of 49% agreed to indemnify the Company for such outstanding tax liability. The Company holds in reserve 2,000,000 shares of the Company’s common stock owned by the sellers of ITSQuest, until the tax liability has been settled. Our ownership interest In ITSQuest includes a contingent divestiture clause that, in the event that the Company did not conduct a registered public offering of its Common Stock in which the Company’s shares issued to the sellers of ITSQuest are registered with the SEC and listed for trading on a national securities exchange in the United States, with an initial listing price of at least $10 per share (the “trigger event”), on or before December 31, 2024, the Company shall transfer to ITSQuest all of the Company’s rights, title and interest in ITSQuest, including ITSQuest equity as well as any of the Company’s shares that remain subject to a holdback provision regarding tax liabilities, thus completely divesting itself of all ownership in ITSQuest. In addition, there is an alternative trigger event, that if achieved on or before December 31, 2024, the Company would not be required to divest its interest in ITSQuest back to the sellers if the Company’s proposed security tokens “unicoins” are tokenized and listed on an available Alternative Trading System or cryptocurrency exchange (whichever is applicable), with a quoted price at or above $1.00 per token. As of the filing date of this Quarterly Report on Form 10-Q, the Company has assessed that it is unlikely it will achieve either of the two trigger events necessary to avoid divestiture of ITSQuest. If the Company is not able to achieve an initial offering of its Common Stock or an initial registration of its unicoins, sufficient to meet the criteria outlined in the Amended SEA, or is unable to negotiate an extension with ITSQuest, on or before December 31, 2024,
On August 28, 2024, the Company notified its existing investors that it is postponing its ICO of unicoins to conduct a thorough review of its public statements, offering materials and its business in general. The Company has been conducting a thorough review of its compliance with applicable regulatory requirements with the assistance of a leading national law firm. The Company cannot assess at this time the exact length of the review and will work with outside legal counsel and the appropriate regulators as expeditiously as possible toward a path to continue its efforts and plans for the launch of unicoins. As of September 30, 2024 and through the filing date of this Quarterly Report on Form 10-Q, the Company has not developed or issued any unicoins and there is no assurance as to whether, or at what amount, or on what terms, unicoins will be available to be issued, if ever.
As a result of the extended deadline provided in the Share Exchange Agreement, as amended on December 28, 2022 (the “Amended SEA”), the Company has assessed that it is unlikely it will achieve either of the two trigger events necessary to avoid divestiture of ITSQuest. If the Company is not able to achieve an initial offering of its Common Stock or an initial registration of its unicoins, sufficient to meet the criteria outlined in the Amended SEA, or is unable to negotiate an extension with ITSQuest, on or before December 31, 2024, the Company’s business, financial condition, results of operations and liquidity will be materially impacted as ITSQuest represented Company assets of $10,255 thousand or 28% of total assets, revenues of $13,610 thousand or 88% of total revenues, and generated gross profit of $2,739 thousand or 90% of total gross profit as of and for the nine months ended September 30, 2024.
Unicorns
The Company is the majority owner of Unicorns. On February 21, 2024, the Company’s majority owned subsidiary, Unicorns, issued 5,000,000 common stock shares to an Executive Producer for the Unicorn Hunters show. This issuance was compensation in connection with the completion of Season 1 of the Unicorn Hunters show. This transaction decreased the Company’s ownership interest from 66.67% to 62.50%. On March 11, 2024, Moe Vela sold his entire ownership in Unicorns of 7,500,000 common stock shares to the Company, in exchange for 1,500,000 Unicoin Rights. This transaction increased the Company’s ownership interest from 62.50% to 71.88%. Accordingly, the Company’s ownership interest as of September 30, 2024 and December 31, 2023 was 71.88% and 66.67%, respectively.
38
Unicorns produces a reality television/streaming show called Unicorn Hunters that showcases private companies seeking to obtain publicity for their private offerings by appearing on the show and attempting to raise capital by advertising their exempt offerings to a wide audience. The revenue consideration from Unicorns customers is fixed at contract inception and has historically been received in one of two forms: 1) either a pre-determined number of stock options, warrants or shares or 2) options or warrants or shares representing a specific percentage of the customer’s common stock outstanding as of a particular point in time. Non-cash consideration is recognized at the estimated fair value at or near the date of contract inception. As of the date hereof, we have collected all securities as payment for Unicorns services.
Other Events
On August 9, 2024, the Company detected an unknown threat actor had gained access to the Company’s Google G-Suite account and therefore the Company’s G-Suite products (i.e., G-Mail, G-Drive and other related G-Suite functionality). The Company previously disclosed that the unknown actor changed passwords and access to all users having an “@unicoin.com” email address (the “Event”). Upon further investigation, it was determined that the unknown actor did not in fact change passwords, but rather the Company’s IT team disabled all passwords when the unauthorized access was discovered and implemented stricter verification and access protocols for its users. On or about August 13, 2024, the Company was able to remove the threat actor’s access to the G-Suite accounts and restore access to its internal users. The Company examined the information accessed to determine and mitigate the impact of the Event and determined that no data or funds were accessed or taken from our systems, and therefore the Event was immaterial. The Company determined the following details in connection with the Event:
| 1. | Unauthorized access to corporate G-Suite services was gained by unknown persons. | |
| 2. | During a personal check of corporate users of internal services, discrepancies were found in the personal data of employees and/or contractors in the Company’s accounting department. |
| 3. | Traces of hacked messages and email accounts of certain managers of the Company were found. | |
| 4. | Traces of identity forgery of one of the contractors of the Company were found and such contractor subsequently was terminated. |
As of the date of this Quarterly Report on Form 10-Q, the Event has not had a material impact on the Company’s financial condition or results of operations. To the knowledge of the Company’s management, no traces of loss of any of the Company’s cash or crypto assets have been found as a result of the Event.
39
Results of Operations
The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales.
We derived the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2024 and 2023 from our condensed consolidated financial statements, respectively. Our historical results are not necessarily indicative of the results that may be expected in the future.
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | % of Total Revenues | 2023 | % of Total Revenues | |||||||||||||
| REVENUES: | ||||||||||||||||
| Staffing revenues | $ | 15,485,639 | 100 | % | $ | 14,403,694 | 100 | % | ||||||||
| Subscription revenues | 23,700 | 0 | % | 9,916 | - | % | ||||||||||
| Unicorns revenues | 2,676 | 0 | % | 2,765 | - | % | ||||||||||
| Total Revenues | 15,512,015 | 100 | % | 14,416,375 | 100 | % | ||||||||||
| COST OF REVENUES: | ||||||||||||||||
| Staffing cost of revenues | 12,337,669 | 80 | % | 11,437,379 | 79 | % | ||||||||||
| Subscription cost of revenues | - | - | - | - | % | |||||||||||
| Unicorns cost of revenues | 122,565 | 1 | % | 29,634 | - | % | ||||||||||
| Total Cost of Revenues | 12,460,235 | 80 | % | 11,467,013 | 80 | % | ||||||||||
| GROSS PROFIT | 3,051,780 | 20 | % | 2,949,362 | 20 | % | ||||||||||
| OPERATING COSTS AND EXPENSES | ||||||||||||||||
| General and administrative | 18,543,193 | 120 | % | 10,887,459 | 76 | % | ||||||||||
| Sales and marketing | 13,373,417 | 86 | % | 2,842,164 | 20 | % | ||||||||||
| Research and development | 12,375 | 0 | % | 233,087 | 2 | % | ||||||||||
| TOTAL OPERATING COSTS AND EXPENSES | 31,928,985 | 206 | % | 13,962,710 | 97 | % | ||||||||||
| LOSS FROM OPERATIONS | (28,877,205 | ) | (186 | )% | (11,013,348 | ) | (76 | )% | ||||||||
| Interest income (expense), net | (125,701 | ) | (1 | )% | (154,385 | ) | (1 | )% | ||||||||
| Other income (expense), net | (15,176 | ) | 0 | % | 647,601 | 4 | % | |||||||||
| LOSS BEFORE INCOME TAXES | (29,018,082 | ) | (187 | )% | (10,520,132 | ) | (73 | )% | ||||||||
| Income tax expense | (236,381 | ) | (2 | )% | (151,010 | ) | (1 | )% | ||||||||
| NET LOSS AND COMPREHENSIVE LOSS | (29,254,463 | ) | (189 | )% | (10,671,142 | ) | (74 | )% | ||||||||
| Net income (loss) attributable to the non-controlling interest | 15,078 | 0 | % | 334,236 | 2 | % | ||||||||||
| NET LOSS ATTRIBUTABLE TO THE COMPANY | $ | (29,269,541 | ) | (189 | )% | $ | (11,005,378 | ) | (76 | )% | ||||||
40
Revenues
The following table presents our revenue for the periods indicated.
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| TAAS revenues | $ | 15,485,639 | $ | 14,403,694 | $ | 1,081,945 | 8 | % | ||||||||
| SAAS revenues | 23,700 | 9,916 | 13,784 | 139 | % | |||||||||||
| Unicorns revenues | 2,676 | 2,765 | (89 | ) | (3 | )% | ||||||||||
| Total Revenues | $ | 15,512,015 | $ | 14,416,375 | $ | 1,095,640 | 8 | % | ||||||||
Total revenues increased by $1,096 thousand, or 8%, to 15,512 thousand for the nine months ended September 30, 2024, from $14,416 thousand for the nine months ended September 30, 2023.
TaaS. TAAS revenues increased by $1,082 thousand, or 8%, to $15,486 thousand for the nine months ended September 30, 2024, from $14,404 thousand for the nine months ended September 30, 2023. The increase was primarily due to an increase in ITSQuest related revenues of $1,318 thousand, partially offset by a decrease in SheWorks! related revenue of $236 thousand for the nine months ended September 30, 2024. The increase in ITSQuest was mainly driven by government customers.
SaaS. SaaS revenues increased by $14 thousand, or 139% to $24 thousand for the nine months ended September 30, 2024, from $9 thousand for the nine months ended September 30, 2023. The legacy operations of the SaaS business (engaged in providing workforce management software to better monitor and manage a remote workforce) are currently being phased out of operations through customer attrition, and are no longer the focus of the Company’s efforts.
Unicorns. Unicorns revenues for the nine months ended September 30, 2024 and 2023 were $3 thousand. Unicorns recognizes revenues when an episode of Unicorn Hunters is distributed for broadcast or streaming. The Company did not record any significant revenue during the nine months ended September 30, 2024 and 2023, as there were no episodes distributed during that period.
Cost of Revenues
The following table presents our cost of revenues for the periods indicated.
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| TAAS cost of revenues | $ | 12,337,669 | $ | 11,437,379 | $ | 900,290 | 8 | % | ||||||||
| SAAS cost of revenues | - | - | - | - | ||||||||||||
| Unicorns cost of revenues | 122,565 | 29,634 | 92,931 | 314 | % | |||||||||||
| Total Cost of Revenues | $ | 12,460,235 | $ | 11,467,013 | $ | 993,222 | 9 | % | ||||||||
Total cost of revenues increased by $993 thousand, or 9%, to $12,460 thousand for the nine months ended September 30, 2024, from $11,467 thousand for the nine months ended September 30, 2023.
TaaS. TAAS cost of revenues increased by $900 thousand, or 8%, to $12,338 thousand. The increase was proportional to the increase in TAAS revenues.
Unicorns. Unicorns cost of revenues increased by $93 thousand to $123 thousand for the nine months ended September 30, 2024, compared to $30 thousand, for the nine months ended September 30, 2023. The increase in Cost of Revenues was mainly due to the stock-based compensation expense of $100 thousand in relation to the earning of five million Unicorns Common Stock Awards by executive producers of Unicorn Hunters. No episodes were produced during each of the nine months ended September 30, 2024 and 2023.
41
General and administrative
General and administrative expenses increased by $7,656 thousand, or 70%, to $18,543 thousand for the nine months ended September 30, 2024, from $10,887 thousand for the nine months ended September 30, 2023. The increase was primarily due to the increase in transaction loss on reacquisition of Unicoin Rights of $6,551 thousand, as explained on Note 7 to the condensed consolidated financial statements.
Sales and marketing
Sales and marketing expenses increased by $10,531 thousand, or 371%, to $13,373 thousand for the nine months ended September 30, 2024. The increase was primarily due to the increase in sales & marketing expenses paid with Unicoin Rights as consideration, which amounted to $8,671 thousand. These service providers agreed to provide their advertising media services in exchange for payment in the form of Unicoin Rights. During the nine months ended September 30, 2023, the Company did not engage in these type of advertising media services as providers were not as willing to accept Unicoin Rights as consideration.
Research and development
Research and development expense decreased by $221 thousand, or 95%, to $12 thousand for the nine months ended September 30, 2024. Internally developed software costs for internal use and other research and development costs are not material and are expensed as they are incurred.
Interest income (expense), net
Net interest expense decreased by $29 thousand, or 19% to $126 thousand for the nine months ended September 30, 2024, from $154 thousand for the nine months ended September 30, 2023. The change was primarily due to the net reduction in outstanding Unsecured Notes during the nine months ended September 30, 2024. Repayments of short-term debt during the nine months ended September 30, 2024 and 2023 amounted to $192 thousand and $593 thousand, respectively.
Provision for Income Taxes
| Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| Income tax expense | $ | (236,381 | ) | $ | (151,010 | ) | $ | 85,371 | 57 | % | ||||||
| Effective tax rate | (0.8) | % | (1.4 | )% | ||||||||||||
The Company recorded income tax expense of $236 thousand and $151 thousand for the nine months ended September 30, 2024 and 2023, respectively. The resulting effective tax rate was (0.8%) and (1.4%) for the nine months ended September 30, 2024 and 2023, respectively. The Company’s estimated effective tax rate differs from the U.S. federal statutory rate of 21%, primarily due to the valuation allowance recorded against the company’s deferred tax assets and the tax expense recorded for ITSQuest’s separate federal income tax return because ITSQuest is not included in the Company’s condensed consolidated U.S. federal income tax return and is not able to utilize Unicoin’s deferred tax assets to offset taxable income. During the nine months ended September 30, 2024 and 2023, there were no significant changes to the total amount of unrecognized tax benefits.
Net income (losses) attributable to the non-controlling interest
Net income attributable to the non-controlling interest decreased by $(319) thousand, or (95)%, to a net loss of $(15) thousand for the nine months ended September 30, 2024. Our non-controlling interest holders in ITSQuest were allocated income of $271 thousand and $215 thousand for the nine months ended September 30, 2024 and 2023, respectively. Our non-controlling interest holders in Unicorns were allocated a loss of $(256) thousand and income of $119 thousand for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, non-controlling interest in ITSQuest and Unicorns represented an ownership interest of 49% and 28.12%, respectively. As of September 30, 2023, non-controlling interest in ITSQuest and Unicorns represented an ownership interest of 49% and 33.3%, respectively.
42
Comparison of the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023
The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales.
We derived the condensed consolidated statements of operations and comprehensive loss for the three months ended September 30, 2024 and 2023 from our condensed consolidated financial statements, respectively. Furthermore, our condensed consolidated statements of operations include the post-acquisition period activity for ITSQuest and Unicorns. Our historical results are not necessarily indicative of the results that may be expected in the future.
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | % of Total Revenues | 2023 | % of Total Revenues | |||||||||||||
| REVENUES: | ||||||||||||||||
| Staffing revenues | $ | 4,918,553 | 100 | % | $ | 5,630,296 | 100 | % | ||||||||
| Subscription revenues | 8,862 | - | 3,042 | - | ||||||||||||
| Unicorns revenues | 9 | - | (1,423 | ) | - | |||||||||||
| Total Revenues | 4,927,423 | 100 | % | 5,631,915 | 100 | % | ||||||||||
| COST OF REVENUES: | ||||||||||||||||
| Staffing cost of revenues | 3,928,387 | 80 | % | 4,500,314 | 80 | % | ||||||||||
| Subscription cost of revenues | - | - | - | - | ||||||||||||
| Unicorns cost of revenues | 5,850 | 0 | % | - | - | |||||||||||
| Total Cost of Revenues | 3,934,238 | 80 | % | 4,500,314 | 80 | % | ||||||||||
| GROSS PROFIT | 993,185 | 20 | % | 1,131,601 | 20 | % | ||||||||||
| OPERATING COSTS AND EXPENSES | ||||||||||||||||
| General and administrative | 4,973,286 | 101 | % | 4,053,193 | 72 | % | ||||||||||
| Sales and marketing | 2,769,054 | 56 | % | 2,230,935 | 40 | % | ||||||||||
| Research and development | 2,327 | 0 | % | 118,480 | 2 | % | ||||||||||
| TOTAL OPERATING COSTS AND EXPENSES | 7,744,667 | 157 | % | 6,402,608 | 114 | % | ||||||||||
| LOSS FROM OPERATIONS | (6,751,482 | ) | (137 | )% | (5,271,007 | ) | (94 | )% | ||||||||
| Interest income (expense), net | (46,002 | ) | (1 | )% | (36,979 | ) | (1 | )% | ||||||||
| Other income (expense), net | (8,656 | ) | 0 | % | 647,601 | 11 | % | |||||||||
| LOSS BEFORE INCOME TAXES | (6,806,140 | ) | (138 | )% | (4,660,385 | ) | (83 | )% | ||||||||
| Income tax benefit (expense) | (61,345 | ) | (1 | )% | (43,168 | ) | (1 | )% | ||||||||
| NET LOSS AND COMPREHENSIVE LOSS | (6,867,485 | ) | (139 | )% | (4,703,553 | ) | (84 | )% | ||||||||
| Less: net income (loss) attributable to the non-controlling interest | 83,776 | 2 | % | 249,290 | 4 | % | ||||||||||
| NET LOSS ATTRIBUTABLE TO THE COMPANY | $ | (6,951,261 | ) | (141 | )% | $ | (4,952,843 | ) | (88 | )% | ||||||
Revenues
The following table presents our revenue for the periods indicated.
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| TAAS revenues | $ | 4,918,553 | $ | 5,630,296 | $ | (711,743 | ) | (13 | )% | |||||||
| SAAS revenues | 8,862 | 3,042 | 5,820 | 191 | % | |||||||||||
| Unicorns revenues | 9 | (1,423 | ) | 1,432 | 101 | % | ||||||||||
| Total Revenues | $ | 4,927,423 | $ | 5,631,915 | $ | (704,492 | ) | (13 | )% | |||||||
43
Total revenues decreased by $704 thousand, or 13%, to $4,927 thousand for the three months ended September 30, 2024, from $5,632 thousand for the three months ended September 30, 2023.
TaaS. TAAS revenues decreased by $712 thousand, or 13%, to $4,919 thousand for the three months ended September 30, 2024, from $5,630 thousand for the three months ended September 30, 2023. The decrease was primarily due to a decrease in ITSQuest related revenues of $663 thousand, and a decrease in SheWorks! related revenue of $49 thousand for the three months ended September 30, 2024. The decrease in ITSQuest was mainly driven by light industrial and government customers.
Unicorns. Unicorns revenues increased by $1 thousand, or 101%, to $0 thousand for the three months ended September 30, 2024. Unicorns recognizes revenues when an episode of Unicorn Hunters is distributed for broadcast or streaming. The Company did not record any significant revenue during the three months ended September 30, 2024 and 2023, as there were no episodes distributed during that period.
Cost of Revenues
The following table presents our cost of revenues for the periods indicated.
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| TAAS cost of revenues | $ | 3,928,387 | $ | 4,500,314 | $ | (571,927 | ) | (13 | )% | |||||||
| SAAS cost of revenues | - | - | - | - | % | |||||||||||
| Unicorns cost of revenues | 5,850 | - | 5,850 | - | % | |||||||||||
| Total Cost of Revenues | $ | 3,934,238 | $ | 4,500,314 | $ | (566,076 | ) | (13 | )% | |||||||
Total cost of revenues decreased by $566 thousand, or 13%, to $3,934 thousand for the three months ended September 30, 2024.
TaaS. TAAS cost of revenues decreased by $572 thousand, or 13%, to $3,928 thousand for the three months ended September 30, 2024. The decrease was proportional to the increase in TAAS revenues.
Unicorns. The Company did not record any significant cost of revenues during the three months ended September 30, 2024 and 2023, as there were no episodes distributed during that period.
General and administrative
General and administrative expenses increased by $920 thousand, or 23%, to $4,973 thousand for the three months ended September 30, 2024. The increase was partially due to the increase in transaction loss on reacquisition of Unicoin Rights of $719 thousand, as explained on Note 7 to the condensed consolidated financial statements.
Sales and marketing
Sales and marketing expenses increased by $538 thousand, or 24%, to $2,769 thousand for the three months ended September 30, 2024. The increase was primarily due to the increase in sales & marketing expenses paid with Unicoin Rights as consideration, which amounted to $708 thousand . These service providers agreed to provide their advertising media services in exchange for payment in the form of Unicoin Rights. During the three months ended September 30, 2023, the Company did not engage in these type of advertising media services as providers were not as willing to accept Unicoin Rights as consideration.
Research and development
Research and development expenses decreased by $116 thousand to $2 thousand for the three months ended September 30, 2024. Internally developed software costs for internal use and other research and development costs are not material and are expensed as they are incurred.
44
Provision for Income Taxes
| Three Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| Income tax expense | $ | (61,345 | ) | $ | (43,168 | ) | $ | (18,177 | ) | 42 | % | |||||
| Effective tax rate | (0.9 | )% | (0.93 | )% | ||||||||||||
The Company recorded income tax expense of $61 thousand and $43 thousand for the three months ended September 30, 2024 and 2023, respectively. The resulting effective tax rate was (0.9%) and (0.9%) for the three months ended September 30, 2024 and 2023, respectively. The Company’s estimated effective tax rate differs from the U.S. federal statutory rate of 21%, primarily due to the valuation allowance recorded against the company’s deferred tax assets and the tax expense recorded for ITSQuest’s separate federal income tax return because ITSQuest is not included in the Company’s condensed consolidated U.S. federal income tax return and is not able to utilize Unicoin’s deferred tax assets to offset taxable income. During the three months ended September 30, 2024 and 2023, there were no significant ITSQuest changes to the total amount of unrecognized tax benefits.
Net income (losses) attributable to the non-controlling interest
Net income attributable to the non-controlling interest increased by $(1,619) thousand, or (36)%, to a net loss of $(6,074) thousand for the three months ended September 30, 2024. Our non-controlling interest holders in were allocated income of $88 thousand and $56 thousand for the three months ended September 30, 2024 and 2023, respectively. Our non-controlling interest holders in Unicorns were allocated a loss of $(5) thousand and income of $192 thousand for the three months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, non-controlling interest in ITSQuest and Unicorns represented an ownership interest of 49% and 28.12%, respectively. As of September 30, 2023, non-controlling interest in ITSQuest and Unicorns represented an ownership interest of 49% and 33.3%, respectively.
Liquidity and Capital Resources
Our primary future uses of cash will be to fund working capital requirements and expenditures of Unicorns.
We had cash and cash equivalents of $4,205 thousand available as of September 30, 2024. Based on currently available capital resources (cash and cash equivalents on hand as of September 30, 2024), we estimate that at our current cash “burn rate”, we would be able to conduct our planned operations for approximately six additional months without raising additional equity or debt financing, assuming we do not fail to develop and launch the unicoin during that period or we do not fail to negotiate an extension to avoid a divestiture from ITSQuest. If we do fail to launch unicoins during that period, the Company will need to obtain additional financing to continue its operations. and if we do not launch unicoins at any point in the future, we believe the Company would be required to pay the significant financing obligation that it has incurred with respect to the unicoin rights, which would also require additional financing. For the company to maintain operations for at least twelve months, we would need to receive further equity or debt financing of approximately $4,206 thousand. However, given the impact of the economic downturn on the U.S. and global financial markets, the Company may be unable to access further equity or debt financing when needed. In addition, the Company has recorded a significant financing obligation that we believe the Company would be required to pay in the event the unicoin is not launched and there remains significant uncertainty as to if, and when, this launch may occur. There can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all. Our auditors have included an explanatory paragraph in their audit opinion, included as part of our Annual Report on Form 10-K for the year ended December 31, 2023, that our current liquidity position raises substantial doubt about our ability to continue as a going concern for the next twelve months unless we obtain additional capital. The Company anticipates that such conditions will continue to exist until either significant financing has been obtained and/or the uncertainty surrounding the development and launch of the unicoin has been resolved.
45
From January 1, 2024 through September 30, 2024, the Company issued 900 million Unicoin Rights (units) to receive unicoins, to investors and service providers in exchange of consideration consisting of cash $4,709 thousand and operating expenses paid with Unicoin Rights amounting to approximately $12,634 thousand.
During 2020, ITSQuest entered an account receivable financing arrangement with a financial institution (“Factor”). Pursuant to the terms of the arrangement, the Company sells amounts of its accounts receivable balances to the Factor as absolute owner with full recourse against ITSQuest. In accordance with ASC 860, Transfers and Servicing (“ASC 860”), we concluded that the transaction with the Factor represents a transfer of financial assets in which the Company retains effective control over the transferred receivables. As such it was determined that the transfer of financial asset should be recorded as a secured borrowing. Furthermore, the Company shall continue to report the transferred financial asset in its statement of financial position with no change in the asset’s measurement. Accordingly, the Company records the receivable as is on its Consolidated Balance Sheets and records a liability for the amount received from the Factor towards factored receivables in a manner similar to secured borrowing with pledge of a collateral. The Factor remits 95% of the account receivable balance to the Company and retains 5% factoring fee for the invoices factored. As of September 30, 2024, the Company recorded a liability of $82 thousand towards the Factor. The cost of factoring is included as a component of general and administrative expenses in the accompanying consolidated statements of operations.
As part of the agreement in which the Company received 50,000,001 shares of Unicorns stock, the Company extended an initial line of credit to Unicorns in the amount of $10,000 thousand to fund production of the Unicorn Hunters show and related expenses. Further additional ongoing funding has been provided by the Company to Unicorns, since the initial line of credit, to fund the production- related expenses of Unicorn Hunters show. This intercompany loan, which is eliminated in consolidation, amounted to $26,878 thousand as of September 30, 2024. Beyond the initial $10,000 thousand line of credit, the Company does not have any contractual commitments to fund the operations of Unicorns. However, it is the Company’s intention to continue funding the operations of Unicorns, until Unicorns begins generating sufficient cash flows to sustain its own business operations without using additional funding from the Company.
Summary of Cash Flows
The following table sets forth our cash flows for the periods indicated:
| Nine Months Ended September 30, | ||||||||
| (In thousand) | 2024 | 2023 | ||||||
| Cash flows provided by (used in) continuing operations: | ||||||||
| Net cash used in operating activities | $ | (10,016 | ) | $ | (7,447 | ) | ||
| Net cash (used in) provided by investing activities | (243 | ) | 29 | |||||
| Net cash provided by financing activities | 8,002 | 13,462 | ||||||
| Net increase in cash and cash equivalents | $ | (2,257 | ) | $ | 6,044 | |||
Cash Used in Operating Activities
Cash flows used for operating activities increased by $(2,569) thousand to $(10,016) thousand for the nine months ended September 30, 2024, from $(7,447) thousand for the nine months ended September 30, 2023. Net cash used in operating activities of $(10,016) thousand for the nine months ended September 30, 2024, was mainly due to our net loss of $(29,254) thousand and decreases in working capital of $(122) thousand, partially offset by the non-cash items of $19,360 thousand. Net cash used in operating activities of ($7,447) thousand for the nine months ended September 30, 2023, was due to our net loss of ($10,671) thousand, decreases in working capital of $(1,438) thousand, partially offset by the non-cash items of $4,661 thousand.
46
Cash (Used in) Provided by Investing Activities
Net cash flows (used in) provided by investing activities decreased by $(272) thousand to $(243) thousand for the nine months ended September 30, 2024, compared to $29 thousand for the nine months ended September 30, 2023. The decrease in net cash (used in) provided by investing activities was mainly due to purchases of digital assets and USD Coin, net of proceeds from sales of $240 thousand during the nine months ended September 30, 2024.
Cash Provided by Financing Activities
Net cash flows provided by financing activities decreased by $(5,460) thousand to $8,002 thousand for the nine months ended September 30, 2024, compared to $13,462 thousand for the nine months ended September 30, 2023. The decrease in net cash provided by financing activities was mainly due to a decrease in proceeds from the issuance of Unicoin Rights of $(9,285) thousand, partially offset by an increase in the proceeds from issuances of common stock of $3,496 thousand.
Cash and Cash Equivalents
We maintain cash with several high credit quality financial institutions. Temporary cash investments with original maturities of 90 days or less are considered cash equivalents. Temporary cash investments consist of money market accounts stated at cost, which approximates fair value. These investments are not subject to significant market risk. We maintain our cash and cash equivalents in bank accounts which, at times, exceed the federally insured limits. We have not experienced any losses in such accounts.
Off-Balance Sheet Arrangements
As of September 30, 2024 we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 2 to the consolidated financial statements presented in the Annual Report on Form 10-K. Our critical accounting policies and estimates are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report on Form 10-K. Our significant and critical accounting policies and estimates have not changed significantly since the filing of the Annual Report on Form 10-K, except for as described in Note 2 to the consolidated condensed financial statement included in this Quarterly Report on Form 10-Q.
Recent accounting pronouncements
See “Significant Accounting Policies” in Note 2 of the notes to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We had cash and cash equivalents of $4,205 thousand available as of September 30, 2024, which consists of cash on hand and temporary cash investments with original maturities of three months or less, which are unrestricted as to withdrawal and use. Temporary cash investments consist of money market accounts stated at cost, which approximates fair value. These investments are not subject to significant market risk. The Company maintains its cash and cash equivalents in bank accounts which, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
47
Foreign Currency Exchange Risk
Our reporting currency is the United States dollar. The functional currency of our foreign subsidiaries is the U.S. dollar. The majority of our sales are currently denominated in U.S. dollars, although we also have sales internationally. Therefore, our revenue is not currently subject to significant foreign currency risk, but that may change in the future. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which is primarily in the United States. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. We do not believe a 10% increase or decrease in the relative value of the U.S. dollar would have a material impact on our operating results.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company’s cash and cash equivalents are held in accounts with major financial institutions, and, at times, exceed federally insured limits. We have not experienced any losses on our deposits of cash and cash equivalents, and accounts are monitored by management to mitigate risk. We are exposed to credit risk in the event of default by the financial institutions holding our cash and cash equivalents.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, and due to the material weakness in internal controls over financial reporting described below, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective for the period ended September 30, 2024 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Inherent Limitations Over Internal Controls
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; | |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of condensed consolidated financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and | |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the condensed consolidated financial statements. |
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
48
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(d) or 15d-15(d) of the Exchange Act) identified in connection with management’s evaluation during the quarter ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation Initiatives
In an effort to address the identified material weakness and enhance our internal controls related to our Internal Control Over Financial Reporting, The Company has continued to address the material weaknesses reported our Annual Report on Form 10-K through the following actions:
| - | Engaging third-party consultants with appropriate expertise to assist the finance and accounting department on an interim basis until key roles are filled; | |
| - | Assessing finance and accounting resources to identify the areas and functions that lack sufficient personnel and recruiting for experienced personnel to assume these roles; | |
| - | Developing further training on segregation of duties; and | |
| - | Designing and implementing additional compensating controls where necessary. |
While we are working diligently to remediate these material weaknesses, there is no assurance that these material weaknesses will be fully remediated by December 31, 2024.
49
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
We may from time to time be involved in various claims and legal proceedings of a nature we believe are normal and incidental to our business. These matters may include product liability, intellectual property, employment, personal injury caused by our employees, and other general claims. We are not presently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K and Part II, Item 1A Risk Factors in our Quarterly Report on Form 10-Q for the period ended June 30, 2024 (the “Risk Factors”). These Risk Factors could materially affect our business, financial condition, and future results. These Risk Factors are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may materially and adversely affect our business, financial condition or operating results in the future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Capital Raising Transactions – Common Stock
| Price | Common Stock Shares Issued |
Dates | Exemption | ||||||||||
| $ | 0.40 | * | 5,253,029 | 5/1/24 to 9/7/24 | Rule 506(c); Reg. S | ||||||||
| $ | 1.00 | 1,541,965 | 5/22/24 to 9/7/24 | Rule 506(c); Reg. S | |||||||||
| * | Shareholders as of April 15, 2024 were granted a right to purchase a limited number of common stock shares at $0.40, which approximates the fair value of the common stock. |
50
Fundraising Transaction – Offering of Unicoins Rights
On February 7, 2022, we commenced a private placement of rights to receive unicoins, in the form of a Token Purchase Agreement or Unicoin Grant Agreement. Amounts sold to investors or issued to service providers through the day of this quarterly report on Form 10-Q are as follows:
| Price per Unicoin Right* | Total Number of Unicoin Rights Sold** | Accounted Dates*** | Exemption | |||||||
| $ | 0.0074 | 747,600 | 9/1/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.01 | 1,368,121,280 | 2/24/22 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.017 | 77,690,886 | 4/1/22 to 3/31/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.02 | 490,410,600 | 8/1/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.03 | 440,000 | 3/01/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.04 | 41,080,000 | 8/1/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.05 | 54,846,000 | 3/12/22 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.055 | 29,867,260 | 9/1/22 to 8/6/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.06 | 576,667 | 8/1/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.07 | 14,680,000 | 4/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.08 | 2,515,000 | 4/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.089 | 30,396,447 | 12/1/22 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.09 | 5,000,000 | 8/1/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.1 | 128,269,168 | 3/18/22 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.101 | 7,182,006 | 3/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.11 | 565,000 | 4/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.122 | 6,628,306 | 6/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.13 | 125,000 | 9/1/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.14 | 1,415,000 | 4/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.18 | 100,000 | 9/1/22 to 8/6/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.2 | 11,530,395 | 9/8/22 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.3 | 10,000 | 9/1/22 to 8/6/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.35 | 1,116,314 | 6/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.395 | 3,251,000 | 9/1/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.4 | 5,234,221 | 11/2/22 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.494 | 0 | 6/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.5 | 8,102,231 | 3/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.52 | 9,334 | 9/1/22 to 8/6/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.75 | 7,819,403 | 4/1/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.36 | 1,746,497 | 3/01/24 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| $ | 0.05 | 243,586,226 | 5/1/23 to 9/30/24 | Rule 506(c); Reg. S | ||||||
| * | The price per Unicoin Right was determined by a tiered pricing schedule based on volume. Each transaction on each of these issuances had at least a certain number of Unicoin Rights issued at the specified price. |
| ** | Unicoin Rights issued as a non-cash distribution to shareholders and as discretionary compensation to employees are not included in this table. Refer to Note 7 – Unicoin Rights Financing Obligation of “Notes to Condensed Consolidated Financial Statements”, for details regarding the issuance of those Unicoin Rights. |
| *** | The date represents when the Unicoin Right transaction was funded by the investor. The price was agreed at a previous date when the investor subscribed to such price with a commitment to purchase soon after. In the future, there might be additional transactions funded at each of these prices listed. |
51
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
52
Item 6. Exhibits
Exhibit Index
| * | Previously filed |
53
SIGNATURES
Pursuant to the requirements 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.
| Unicoin Inc. | ||
| Date: November 14, 2024 | By: | /s/ Alex Konanykhin |
| Alex Konanykhin | ||
| Chief Executive Officer | ||
54