UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from __________ to __________
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(Exact Name of Registrant as Specified in its Charter)
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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 ☐
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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.
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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.
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As of May 15, 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
TABLE OF CONTENTS
| Page | ||
| UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2024 AND DECEMBER 31, 2023 AND FOR THE THREE MONTHS ENDED MARCH 31, 2024 and 2023: | ||
| Condensed Consolidated Balance Sheets (Unaudited) | 2 | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | 3 | |
| Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited) | 4 | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) | 5 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 |
1
UNICOIN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Trade receivables payable in cash | ||||||||
| Unicorn Hunters non-cash receivables (Note 4) | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Indemnification asset | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Investments in privately-held companies (Note 4) | ||||||||
| Investment 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 tax liability | ||||||||
| Short-term debt | ||||||||
| Loan from related party (Note 13) | ||||||||
| Operating lease liabilities, current | ||||||||
| Other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Deferred income tax liability, net | ||||||||
| Unicoin Rights financing obligation (Note 7) | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Common stock, $ par value; authorized; and issued; and outstanding, net of treasury stock as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Treasury stock, at cost; and shares as of March 31, 2024 and December 31, 2023, respectively | ( |
) | ( |
) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| TOTAL UNICOIN INC. STOCKHOLDERS’ EQUITY (DEFICIT) | ( |
) | ( |
) | ||||
| Noncontrolling interest | ( |
) | ( |
) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
UNICOIN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| Three months ended March 31, |
||||||||
| 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 expense, net | ( |
) | ( |
) | ||||
| Other expense, net | ( |
) | ( |
) | ||||
| LOSS BEFORE INCOME TAXES | ( |
) | ( |
) | ||||
| Income tax expense | ( |
) | ( |
) | ||||
| NET LOSS AND COMPREHENSIVE LOSS | ( |
) | ( |
) | ||||
| Less: net income attributable to the noncontrolling 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.
3
UNICOIN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
| Additional | Unicoin
Inc. Stockholders’ |
Unicoin Inc. | Total Stockholders’ |
|||||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury Stock | Accumulated | Equity | Noncontrolling | 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 | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Ownership interest increase in Unicorns holdings | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net Income (Loss) | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
UNICOIN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended March 31, |
||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Stock-based compensation expense | ||||||||
| Operating expenses paid with Unicoin Rights (Note 7) | ||||||||
| Operating expenses paid with digital assets (Note 5) | ||||||||
| Noncash consideration (Note 4) | ( |
) | ||||||
| Impairment of digital assets (Note 5) | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of right-of-use assets (Note 11) | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade receivables payable in cash | ||||||||
| Prepaid expenses and other current assets | ( |
) | ||||||
| Accounts payable | ||||||||
| Accrued expenses and payroll liabilities | ( |
) | ||||||
| Deferred revenue | ( |
) | ||||||
| Operating lease liability (Note 11) | ( |
) | ( |
) | ||||
| Other liabilities | ( |
) | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payment of short-term debt | ( |
) | ( |
) | ||||
| Proceeds from sales of Unicoin Rights (Note 7) | ||||||||
| Proceeds from sales of common stock | ||||||||
| Repurchase of common stock | ( |
) | ( |
) | ||||
| Repayment of related party loan payable (Note 13) | ( |
) | ||||||
| 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 | $ | $ | ||||||
| Non-cash investing and financing activity: | ||||||||
| Digital assets received as proceeds from issuance of Unicoins Rights (Note 5) | $ | $ | ||||||
| Receipt (i.e., “collection”) of private company equity securities (Note 4) | ||||||||
| Real estate investments and related commissions in exchange of Unicoin Rights (Note 7) | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
5
Unicoin Inc. AND SUBSIDIARIES
NOTES TO CONDENSED Consolidated FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION AND OPERATIONS
Description of Business
Unicoin Inc. is an operating and holding company. Unicoin also launched a security token project in early 2022, as a complement to its Unicorns, Inc. (hereinafter “Unicorns” or “Unicorn Hunters”) subsidiary. As a holding company, Unicoin wholly owns one Talent-as-a-Service (“TaaS”) operating company and platform: SheWorks! In June 2023, Unicoin merged Yandiki, previously the Company’s second TaaS operating company, into the SheWorks! operating company. As a holding company, Unicoin is also the majority owner of a traditional staffing agency, ITSQuest, with a regional presence in the U.S. Southwest. Finally, as a holding company, Unicoin also became the majority owner in 2021 of Unicorns, a media production company producing Unicorn Hunters, a business and investing reality show. The legacy operations of our SaaS business (engaged in providing workforce management software to better monitor and manage a remote workforce) are currently being phased out of our operations through customer attrition, and are no longer the focus of our efforts.
The Company is developing a security token called Unicoin, whose value is intended to be supported by the equity positions purchased from Unicorn Hunters show participants, as well as equity positions acquired from non-show participants for other services. In the future, such equity positions may be held in a fund (the “Fund”), that has yet to be created, in order to facilitate proper management of the asset portfolio. The Unicoins will have a utility function in what is referred to as the “Unicorn Hunters Ecosystem,” in that holders may use Unicoins to purchase media inventory at our discounted rate. The Company plans to purchase media inventory and resell it to Unicoin holders in exchange for Unicoins and/or cash, thereby giving such holders preferred access and pricing for media inventory and allowing the Company to retain a portion of the “spread” in pricing for its effort. Exact pricing and spreads will be determined on a case-by-case basis and have not been predetermined. The Company expects that when equity positions held in the Fund are liquidated through a liquidity event, a specified portion of the resulting proceeds will be distributed to holders of Unicoins.
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.
Going Concern
These condensed consolidated financial statements have been prepared in accordance with 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.
6
The Company incurred net losses of $(3,818) thousand and $(2,522)
thousand and used cash in operating activities of $(
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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States (“U.S. GAAP”) and include the accounts of Unicoin Inc., its wholly owned subsidiary, 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 condensed consolidated financial statements prepared in accordance with U.S. 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 unaudited 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.
7
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.
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 us to make estimates and assumptions in the condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions made by us 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. We base our 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.
8
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 March 31, 2024 and December 31, 2023, respectively, the Company had $
In addition, as discussed in Note 4, as of March 31, 2024 and December 31, 2023 the Company has non-cash receivables consisting of options and warrants to purchase common stock in privately-held companies. The options and warrants underlying these non-cash receivables are subject to significant fluctuations in market values.
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.
During the three months ended March 31,
2024, the Company had two customers (“Customer A” and “Customer B”) for which revenue accounted for more than
10% of total revenue. Customer A and Customer B accounted for
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, 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 cannot yet assess the likelihood or probability of achieving either of the two trigger events necessary to avoid divestiture if ITSQuest.
As a result of the extended deadline provided in
the Amended SEA, the Company cannot yet assess the likelihood or probability of achieving either of the two trigger events necessary
to avoid divestiture if ITSQuest. However, 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 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 $
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 Company’s primary allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful accounts reduces the Account receivable balance to the estimated net realizable value. The Company regularly reviews the adequacy of the allowance for 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 customers 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 doubtful accounts are included as a component of general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. Accounts receivable deemed uncollectable are charged against the allowance for credit losses when identified. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered.
The allowance for doubtful accounts 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 doubtful accounts 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 bad debt expense or allowance for doubtful accounts 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 doubtful accounts in any period to date.
10
Significant Accounting Policies
Other than the discussion of our 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 our 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 (Software-as-a-Service or “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 (Talent-as-a-Service or “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.
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 U.S. 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.
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 March 31, 2024 and December 31, 2023 amounted to $
11
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 March 31, 2024 | Carrying Value |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | |||||||||||||||
| As of December 31, 2023 | Carrying Value |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | |||||||||||||||
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 consolidated statements of operations and comprehensive loss upon settlement. The embedded feature was
initially valued at $
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 5. 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 we estimate 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.
12
The following tables summarize the Company’s non-cash receivables and investments in privately-held companies as of March 31, 2024 and December 31, 2023, respectively:
| March 31, 2024 |
December 31, 2023 |
|||||||
| Unicorn Hunters non-cash receivables | $ | $ | ||||||
| Investments in privately-held companies* | ||||||||
| Carrying value of non-cash receivables and investments in privately-held companies | $ | $ | ||||||
| * |
As of March 31, 2024 and
December 31, 2023, the Company has outstanding non-cash receivables from one Unicorn Hunters’ customer amounting to $
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS INCLUDING DIGITAL ASSETS
Goodwill and Acquisition-Related Intangible Assets
As of March 31, 2024 and December 31, 2023,
the Company’s goodwill balance was $
Acquisition-related intangible assets consisted of the following as of March 31, 2024 and December 31, 2023:
| March 31, 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 | ||||||||||||||
| $ | $ | $ | ||||||||||||
13
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 $
| Schedule of amortization expense: | Amortization | |||
| 2024 (April 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.
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 USD Coin. 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 our 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.
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 three months ended March 31, 2024 and 2023 the Company
received digital assets as consideration from 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), Tether (USDT) and Wrapped Ethereum (WETH). Unicoin
Rights are more fully discussed in Note 7. The Company utilized $
During the three months ended March 31, 2024 and 2023, the Company
recorded $
14
The table below summarizes the Company’s digital asset activity for the three months ended as of March 31, 2024 and 2023:
| March 31, 2024 | March 31, 2023 | |||||||
| Bitcoin | $ | $ | ||||||
| Ethereum | ||||||||
| Tether | ||||||||
| Wrapped Ethereum | ||||||||
| Total | $ | $ | ||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||
| BTC | ETH | USDT | WETH | 2024 | 2023 | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Payments from customers | ||||||||||||||||||||||||
| Received as consideration for sale of Unicoin Rights | ||||||||||||||||||||||||
| Vendors payments | ( | ) | ( | ) | ||||||||||||||||||||
| Fees and other | ||||||||||||||||||||||||
| Impairments | ( | ) | ( | ) | ||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The market value of the Company’s digital assets, based on quoted
prices on active exchanges, was approximately $
NOTE 6 – DEBT
As of March 31, 2024 and December 31, 2023
the Company held short-term debt of $
During the years ended December 31,
2023, 2022 and 2021, the Company issued unsecured promissory notes in separate private placements with aggregate principal of $
15
The Unsecured Notes generally rank pari-passu
relative to other unsecured obligations. As of March 31, 2024, $
| Outstanding Balance | Issuance Date | Maturity Date Extended to | |||||
Interest expense on Unsecured Notes of $
NOTE 7 – UNICOIN RIGHTS FINANCING OBLIGATION
The Company is developing a security token called Unicoin (“Unicoins” or “Tokens”) whose value is intended to be supported by the returns generated by equity positions received from Unicorn Hunters show participants, as well as the returns from equity positions acquired from non-show participants for other services. Such equity positions may be held in a to-be-created investment fund (the “Fund”), to facilitate proper management of the equity portfolio. The intention of the Company is that when equity positions held by the Fund are liquidated through a liquidity event, some or all of the realized gains are to be distributed to holders of the Unicoins.
The holders of Unicoins will only realize a gain in the event of a liquidity event of such equity positions. Unicoin Rights do not represent an equity interest in the company or any other entity, there are no voting rights granted to the holder of Unicoin Rights, the Unicoin Rights Certificate currently does not trade on any stock exchange or cryptocurrency exchange platform. Unicoins may never be developed or launched, as a result, this investment could result in total loss of invested funds.
The Company is offering Unicoin Right Certificates (“Unicoin Rights” or “Rights”) with terms and conditions which are set forth in a confidential private placement memorandum initially dated February 2022 (“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.
As of March 31, 2024,
As of March 31, 2024 and December 31, 2023, the Company has issued rights to acquire
16
The Company has begun exploring possible service providers and exchanges which can assist with the tokenization of Unicoins and eventual launch but has not yet begun actual technological development or coding of the tokens. The Company reasonably expects that technical development can happen in a relatively short time, assuming regulatory readiness for launch, and hopes to complete this process by the end of the 2024 calendar year. Neither the Unicoin Rights nor the tokenized Unicoins will grant any intellectual property rights to holders. As of March 31, 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 of March 31, 2024 and December 31,
2023 the outstanding financing obligation related to Unicoin Rights was $
The expected fair value measurement of the embedded feature applicable to the Company’s 6.2 billion Unicoin Rights and 6.2 billion Unicoin Rights issued and outstanding as of March 31, 2024 and December 31, 2023, respectively, 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.
The following table summarizes the components of the Unicoin Rights financing obligation recorded on the Company’s condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023:
| Nature / Category of Unicoin Right Holder |
Form of Consideration | Outstanding Unicoin Rights and Related Financing Obligation |
||||||||||||||||
| March 31, 2024 |
December 31, 2023 |
|||||||||||||||||
| Units | Amount | Units | Amount | |||||||||||||||
| Sales to Investors | Cash and Digital Assets | $ | $ | |||||||||||||||
| 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 | * | * | |||||||||||||||
| Ten-Year Prepaid Plan | Cash | * | * | |||||||||||||||
| Asset Swap Agreement and Related Commissions | Land | |||||||||||||||||
| Total | $ | $ | ||||||||||||||||
| * |
17
Sales to Investors
As of March 31, 2024 and December 31, 2023, the Unicoin Rights financing obligation associated with sales 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 March 31, 2024 and December 31, 2023, the Unicoin Rights financing obligation associated non-cash dividend of Unicoin Rights amounted to $ thousand and $ thousand, respectively.
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 March 31, 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 Sales to Investors, service providers exchanged a specified, negotiated value relating to services provided to the Company 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 March 31, 2024 and December 31, 2023, the Unicoin Rights financing obligation associated with Unicoin Rights issued to service providers, influencers and employees amounted to $
18
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.
During the three months ended March 31, 2024, investors under the five-year deferred payment plan paid installments using previously acquired Unicoin Rights as consideration. The difference between the fair value of the Unicoin Rights as of the time of payment compared to the initial acquisition cost of such, resulted in the recognition of a transaction loss for the Company which was recorded within the general and administrative line item, which amounted to $163 thousand during the three months ended March 31, 2024.
The following table summarizes the pledged collateral pursuant to the deferred payment plan as of March 31, 2024 and December 31, 2023:
| Estimated Fair Value of Collateral Received as of: |
||||||||
| Form of Collateral Received | March 31, 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. |
19
Ten-Year Prepaid Plan
In November 2022 the Company began offering
a ten-year prepaid plan (the “prepaid plan”) to investors in its ongoing Unicoin Rights offering. Under the prepaid plan,
the investor remits a 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. As of March 31, 2024 and December 31, 2023, cumulative cash receipts of $
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,
Unicoin Rights Issued to Related Parties
The Unicoin Rights issuances discussed above include a total of 978 million Unicoin Rights, and the respective Unicoin Rights Financing Obligation of $15,022 thousand, which represent the cumulative amounts issued to related parties during the three months ended March 31, 2024. The composition of this is summarized in the following table:
| Nature / Category | Relationship | Outstanding Unicoin Rights and Related Financing Obligation |
||||||||||||||||
| March 31, 2024 |
December 31, 2023 |
|||||||||||||||||
| Units | Amount | Units | Amount | |||||||||||||||
| Accredited Investors | Officers and Directors | $ | $ | |||||||||||||||
| Unicoin Inc. Shareholders (Dividends) | Officers and Directors | |||||||||||||||||
| Discretionary Awards | Officers, Directors & their Families | |||||||||||||||||
| Consideration for Services | Officers, Directors & their Families | |||||||||||||||||
| ITSQuest Contingent Divestiture Amendment | Former Owners of ITSQuest | |||||||||||||||||
| Five-Year Deferred Payment Plan | Officers, Directors & their Families | |||||||||||||||||
| Total | $ | $ | ||||||||||||||||
As of March 31, 2024 and December 31, 2023,
the Company held approximately $
20
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 March 31, 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 March 31, 2024, the Company did not issue any common stock.
For the three months ended March 31, 2023, Company raised $
| 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 the Company had a limited time to close on the issuance of shares. Once a funding round was fully subscribed and committed, management evaluated capital needs and determined the price for the following round.
Repurchases of Common Stock
For the three months ended March 31, 2024 and 2023, the Company repurchased and shares in exchange for $
Shares of common stock reserved for future issuance are as follows:
| March 31, 2024 |
December 31, 2023 |
|||||||
| Stock options outstanding (Note 9) | ||||||||
| Warrants for common stock (Note 10) | ||||||||
| Restricted stock units (Note 9) | ||||||||
Dividend of Unicoins
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.
21
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 no stock-based compensation expense relating to stock option awards during the three months ended March 31, 2024 and 2023, respectively. 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 three months ended March 31, 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 | ||||||||||||||||
| Ending balance March 31, 2024 | $ | $ | ||||||||||||||
| Vested and exercisable as of March 31, 2024 | $ | $ | ||||||||||||||
Restricted Stock Units
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 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.
22
The following is a summary of RSU activity for the three months ended March 31, 2024:
| Number of RSUs |
||||
| Beginning balance – January 1, 2024 | ||||
| Granted | ||||
| Vested | ( |
) | ||
| Forfeited | ||||
| Ending balance – March 31, 2024 | ||||
The Company recorded $ thousand and $ thousand of stock-based compensation expense relating to RSUs during the three months ended March 31, 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 months ended June 30, 2021, management recorded de minimis stock-based
compensation expense within the Cost of Revenues line item in relation to the vesting of five million Unicorns Common Stock Awards.
During the three months ended March 31, 2024, management recorded stock-based compensation expense within the Cost of Revenues
line item of $
thousand in relation to the vesting of five million Unicorns Common Stock Awards. As of March 31, 2024, five million Unicorns
Common Stock Awards remain outstanding. The total grant-date fair value of the outstanding Unicorns Common Stock Awards amount to
$
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 March 31, 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 ended March 31, 2024:
| Number of Warrants |
||||
| Beginning balance as of January 1, 2024 | ||||
| Granted | ||||
| Exercised | ( |
) | ||
| Forfeited | ||||
| Ending balance as of March 31, 2024 | ||||
23
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 March 31, 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:
| March 31, | ||||||||
| 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 periods ended March 31, 2024 and March 31, 2023, the Company recorded operating lease expense of $26 thousand and $47 thousand for those short-term leases.
Supplemental balance sheet information related to operating leases was as follow:
| As of | ||||||||
| March 31, 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 % | % | % | ||||||
As of March 31, 2024, future maturities of operating lease liabilities were as follows:
| Amount | ||||
| 2024 (April 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
24
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 maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. 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. Refer to Note 13 for discussion regarding the trigger events of the contingent divestiture agreement. Such an 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.
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 three months ended March 31, 2024, the
Company paid in full a $
Extension of ITSQuest’s Contingent Divestiture Provision
On December 28, 2022, the Company and the sellers
of ITSQuest amended the SEA (the “Amended SEA”) to delay the date of the trigger event to December 31, 2024 (i.e., by an additional
24 months). The original trigger event provided that if the Company did not engage in a public offering of its securities at a price of
at least $
Because the measurement period for the ITSQuest
acquisition ended, at the latest, on November 30, 2021, the impact of the Amended SEA was not considered as an adjustment to the original
purchase price allocation. The Company recorded a Unicoin Rights financing obligation of $
25
The Company compared the fair value of the shares subject to the holdback provision immediately before and after the amendment, concluding that the release of these shares prior to the resolution of the ITSQuest tax liability would result in immaterial incremental fair value. As a result, the Company did not record any additional expense associated with the early release of these shares in connection with the amended divestiture provision terms.
As a result of the extended deadline provided
in the Amended SEA, the Company cannot yet assess the likelihood or probability of achieving either of the two trigger events necessary
to avoid divestiture if ITSQuest. However, 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 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 $
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 losses per share is as follows for the three months ended March 31, 2024 and March 31, 2023 respectively:
| Three months ended March 31, |
||||||||
| Basic and Diluted: | 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 March 31, |
||||||||
| 2024 | 2023 | |||||||
| Stock options outstanding (Note 9) | ||||||||
| Warrants for common stock (Note 10) | ||||||||
| Restricted stock units (Note 9) | ||||||||
26
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.
Our reportable segments consist of SaaS, TaaS and Unicorn Hunters. We determine our 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. Our 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 we have disclosed segment information up to gross profit for each operating segment. Furthermore, our revenues are derived from the United States and foreign countries which includes the South American and European regions (“Foreign countries”).
As discussed in Note 1, the Company operates in three business segments – SaaS, which consists of operations related to the Company’s fully integrated all-in-one cloud-based solution to manage remote workers; TaaS, which consists of operations related to the Company’s staffing service offerings, whereby customers are connected to individuals by the Company who are able to assist them in projects; and Unicorns, which consists of operations relative to production and streaming of the Unicorn Hunters show which provides publicity and exposure to customers through their appearances on the Unicorn Hunters show.
The following tables you set forth certain reportable segment information relating to where the Company derived its revenue for the three months ended March 31, 2024, and 2023:
| Three Months Ended March 31, | ||||||||||||||||||||||
| 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 the Company’s operations for the three months ended March 31, 2024 and 2023:
| Three Months ended March 31, 2024 | ||||||||||||||||
| SaaS | TaaS | Unicorn Hunters |
Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit (loss) | $ | $ | $ | ( |
) | $ | ||||||||||
| Three Months ended March 31, 2023 | ||||||||||||||||
| SaaS | TaaS | Unicorn Hunters |
Consolidated | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit (loss) | $ | $ | $ | ( |
) | $ | ||||||||||
There were no material transactions between reportable segments during the three months ended March 31, 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.
27
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 other than those described below.
Unicoin Rights Issued and Purchased
For the period from April 1, 2024 through the
date of this Quarterly Report on Form 10-Q, we have received cash and non-cash funding of $
During the same period, investors signed
agreements to purchase
Asset Swap Agreements
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 title to this asset was transferred to the Company in January 2024. The Company released the consideration to the seller in April 2024.
On February 9, 2024, the Company entered into an Asset Swap Agreement with Vessa Jenine Rinehart-Phillips, a U.S. Citizen, wherein the Company agreed to provide a total of 747,600 Unicoin Rights in exchange for real estate assets consisting of vacant land described as Parcel 48 of Tract 2147, in the City of California City, County of Kern, State of California, USA, as recorded in Book 7, Page 91 of records of survey in the Office of the County Recorder of said County. The title to this asset was transferred to the Company on March 22, 2024. The Company released the consideration to Seller on April 30, 2024.
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. Based on a price of $0.50 each, the Company delivered 1,108,862,283 Unicoin Rights to New World on April 2, 2024.
On April 3, 2024, the Company closed in escrow several real estate acquisitions in the Philippines. Title to such properties has not yet been transferred to the Company, as the escrow provisions require tokenization and delivery of the Unicoins payable as consideration for these transactions to be completed prior to title transfer. The escrowed transactions are as follows:
| Name of Recipient | Country | Property/Asset Description |
Contract Value | Price/ Value Per UniCoin | Number of UniCoins | ||||||||||||||
| Gold Barrel Social Club Resort, Inc. | Philippines | Bellaroca Marinduque Philippines | $ | $ | |||||||||||||||
| Ferdinand Laceste Laranang | Philippines | Rock Rose Hotel | $ | $ | |||||||||||||||
| Hausler & Oida, Inc. | Philippines | Kapuluan Vista Resort | $ | $ | |||||||||||||||
| Joseph Go Rubio | Philippines | Joe 10 Building | $ | $ | |||||||||||||||
| Diana Imelda Teodora T. Castillejos and Paul P. Castillejos | Philippines | Caba La Union Lot Beach Front | $ | $ | |||||||||||||||
| Johannes C. Tira and Remedios T. Tira | Philippines | Kubo Lites Bar And Restaurant | $ | $ | |||||||||||||||
| Andres and Aida Franco | Philippines | Brookside Bed And Breakfast | $ | $ | |||||||||||||||
| El-Al Enterprises Corporation | Philippines | El-Al | $ | $ | |||||||||||||||
| Benito Techico | Philippines | Pearl Boracay- Sun & Sands Properties Inc | $ | $ | |||||||||||||||
| Prime 8 Horizons Development Corporation | Philippines | Lime El Nido | $ | $ | |||||||||||||||
| Emil Anthony Lio Po | Philippines | VHUB Barangay Philippines | $ | $ | |||||||||||||||
| Harry S. Dominguez | Philippines | Manor Southdrive Baguio | $ | $ | |||||||||||||||
| Alex Velez Pamatong and Winelita Pamatong | Philippines | Winrich Hotel | $ | $ | |||||||||||||||
| MEV8 Inc. | Philippines | Lime Hotel Boracay | $ | $ | |||||||||||||||
| Rene Andaya Torredes | Philippines | Palawan Lot | $ | $ | |||||||||||||||
| Peter M. Murphy | Philippines | Maira Ira Resort & Residences | $ | $ | |||||||||||||||
Shareholder Dividend
The Company declared and issued a non-cash dividend to shareholders of the right to purchase additional equity shares for $ per share, to all shareholders of record as of the dividend declaration date of April 25, 2024. This non-cash dividend entitles each shareholder to purchase up to the number of shares of common stock already owned by such shareholders as of April 25, 2024, or to transfer such right to another qualified investor. The limitation regarding the maximum number of shares each shareholder may purchase pursuant to this right is waivable in the Company’s discretion.
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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. (hereinafter the “Company”, “Unicoin Inc.”, “we”, “us”, or “our”) was incorporated in the state of Delaware on June 22, 2015. In 2008, our SaaS platform was developed by KMGi, the precursor to Unicoin Inc., as an internal tool for monitoring and managing computer-based work for the purpose of improving efficiency of both remote and on-site employees and eliminating overbilling by contractors. The SaaS platform has been in use since 2009, initially under the name TransparentBilling, serving KMGi’s internal operations. With clients of all sizes in multiple countries around the world, and over 30,000 individual users of our platforms, Unicoin Inc. brings together an end-to-end solution to manage distributed teams in a transparent and efficient way.
Unicoin Inc. is an operating and holding company. As an operating company, Unicoin Inc. manages its SaaS (Software-as-a-Service) software business which provides for simple and seamless monitoring and management of remote or work-from-home employees. Unicoin Inc. has also launched a security token project in early 2022, as a complement to its Unicorns, Inc. (hereinafter “Unicorns” or “Unicorn Hunters”) subsidiary. As a holding company, Unicoin Inc. wholly owns one Talent-as-a-Service (“TaaS”) operating company and platform: SheWorks! In June 2023, Unicoin Inc. merged Yandiki, previously the Company’s second TaaS operating company, into the SheWorks! Operating company. As a holding company, Unicoin Inc. is also the majority owner of a traditional staffing agency, ITSQuest, with a regional presence in the U.S. Southwest. Finally, as a holding company, Unicoin Inc. also became the majority owner in 2021 of Unicorns Inc., a media production company producing Unicorn Hunters, a business and investing reality show.
Unicoin Inc. is developing a security token called Unicoin (“Unicoins” or “Tokens”), whose value is intended to be supported by the equity positions purchased from Unicorn Hunters show participants, as well as equity positions acquired from non-show participants for other services, and by other assets, such as real estate. Such equity positions may be held in a to-be-created investment fund (the “Fund”), to facilitate proper management of the asset portfolio. As of April 23, 2024, the Company has issued 4,706,422,455 Unicoin Rights in one or more private placements (collectively, the “Original Unicoin Issuance”) and of these, has committed to issue up to 3,864,534,946 rights to receive Unicoins (“Unicoin Rights”) to directors, executive officers, employees, lenders, service providers and investors, and 730,522,705 Unicoin Rights as dividends to Unicoin Inc. shareholders (including officers, directors and employees). The Company repurchased 50,969,000 Unicoins from investors using collateral as the first payment for the deferred payment plan.
The organization chart below shows the operating subsidiaries and the interests held in them by the Company:
29
The Company has accepted digital assets including Bitcoin (BTC), Ether (ETH), Litecoin (LTC), Dai (DAI), USD Coin (USDC), Bitcoin Cash (BCH) and Tether (USDT) as consideration from certain investors in exchange for equity or debt issued by the Company. The Company does not retain custody over its investor’s Unicoins, and it intends to use the self-custodial services of MetaMask wallets to trade on INX Limited’s platform (“INX”), which is a publicly-traded company whose wholly-owned subsidiary, INX Services, Inc., operates a cryptocurrency exchange platform, an alternative trading system (“ATS”) for security tokens and provides custodial wallets through MetaMask to hold the digital assets. INX requires all investors to use either the Republic wallet or MetaMask wallet, each an Ethereum wallet that can be used to hold security tokens, which are currently the only wallets that are supported for trading security tokens on the INX platform. Access to trade security tokens is controlled by separate authentication from our account access, so that two authorized individuals are required to approve moving tokens in and out of their wallets to facilitate access. When a buyer creates an order on INX, the individual must have enough US Dollars in their trading account to fund the order, as no other fiat is currency supported. When a seller creates an order, the individual must have enough of the security token in their linked wallet to list their order for sale. When the order is matched between the buyer and the seller, the security tokens are settled automatically through the blockchain and sent to the buyer’s wallet, and simultaneously the US dollar equivalent for the trade is also sent from the buyer’s account to the seller’s account. This approval requires each individual to have enough US dollars in their wallet to be able to pay the transaction fee to the network. Management monitors transaction and account balances of its account on INX using a MetaMask wallet. We intend to use the self-custodial services of MetaMask wallets to facilitate the holding and exchange of Unicoins, with Unicoins held in a MetaMask wallet attached to our INX account, upon development and launch.
Unicoin Inc. is developing a security token called Unicoin (“Unicoins” or “Tokens”), whose value is intended to be supported by the equity positions purchased from Unicorn Hunters show participants, as well as equity positions acquired from non-show participants for other services. Such equity positions may be held in a to-be-created investment fund (the “Fund”), to facilitate proper management of the asset portfolio.
The Unicoins will have a utility function in what is referred to as the “Unicorn Hunters Ecosystem,” in that holders may use Unicoins to purchase media inventory at our discounted rate. The Company plans to purchase media inventory and resell it to Unicoin holders in exchange for Unicoins and/or cash, thereby giving such holders preferred access and pricing for media inventory and allowing to retain a portion of the “spread” in pricing for its effort. Exact pricing and spreads will be determined on a case-by-case basis and have not been predetermined.
We may accept certain cryptocurrencies, such as Bitcoin (BTC), Ether (ETH), Litecoin (LTC), Dai (DAI), USD Coin (USDC), Bitcoin Cash (BCH) and Tether (USDT) among others, as payment for the purchase of Unicoins. 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 the INX platform, 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.
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 (Software-as-a-Service or “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 (Talent-as-a-Service or “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.
30
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 on the Unicorn Hunters website.
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.
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. 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 Unicoin Inc. 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 as travel restrictions may be slow to be lifted.
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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.
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 have a clearly focused technology roadmap, combined with the forward-looking outlook of the Unicorn Hunters show, that introduces new functionality and features from our audience, thereby ensuring a dynamic and evolving experience. 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 as of March 31, 2024 and December 31, 2023 was 51%. We acquired ITSQuest as an information technology staffing company, providing staffing services and solutions. ITSQuest, has an outstanding tax liability of $4.9 million. As part of the acquisition agreement, the sellers and owners of the noncontrolling interest of 49% agreed to indemnify the Company for such outstanding tax liability. The Company holds in reserve 2,000,000 shares of Unicoin, Inc. common stock owned by the sellers of ITSQuest, until the tax liability has been settled. Our ownership interest In ITSQuest includees a contingent divestiture clause that, in the event that Unicoin Inc. did not conduct a registered public offering of its Common Stock in which the Unicoin Inc. 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, Unicoin Inc. shall transfer to ITSQuest all of Unicoin Inc.’s rights, title and interest in ITSQuest, including ITSQuest equity as well as any Unicoin Inc. 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 Unicoin Inc.’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.
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 March 31, 2024 and December 31, 2023 was 71.88% and 66.67%, respectively.
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 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 securities as payment for Unicorns services from all but one show participant who has been charged a fee. The total receivable from this participant whose episode was released on December 4, 2023 amounted to $1,510 thousand.
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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 three months ended March 31, 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.
| Three months ended March 31, | ||||||||||||||||
| 2024 | % of Total Revenues | 2023 | % of Total Revenues | |||||||||||||
| REVENUES: | ||||||||||||||||
| Staffing revenues | $ | 4,974,852 | 100 | % | $ | 4,270,533 | 100 | % | ||||||||
| Subscription revenues | 3,617 | - | 3,690 | - | ||||||||||||
| Unicorns revenues | 77 | - | 1,859 | - | ||||||||||||
| Total Revenues | 4,978,546 | 100 | % | 4,276,082 | 100 | % | ||||||||||
| COST OF REVENUES: | ||||||||||||||||
| Staffing cost of revenues | 3,949,255 | 79 | % | 3,410,470 | 80 | % | ||||||||||
| Unicorns cost of revenues | 105,625 | 2 | % | 24,009 | 1 | % | ||||||||||
| Total Cost of Revenues | 4,054,880 | 81 | % | 3,434,479 | 80 | % | ||||||||||
| GROSS PROFIT | 923,666 | 19 | % | 841,603 | 20 | % | ||||||||||
| OPERATING COSTS AND EXPENSES | ||||||||||||||||
| General and administrative | 3,658,039 | 73 | % | 2,918,016 | 68 | % | ||||||||||
| Sales and marketing | 935,785 | 19 | % | 243,472 | 6 | % | ||||||||||
| Research and development | 7,113 | - | 58,365 | 1 | % | |||||||||||
| TOTAL OPERATING COSTS AND EXPENSES | 4,600,937 | 92 | % | 3,219,853 | 75 | % | ||||||||||
| LOSS FROM OPERATIONS | (3,677,271 | ) | (74 | )% | (2,378,250 | ) | (56 | )% | ||||||||
| Interest income (expense), net | (46,862 | ) | (1 | )% | (73,220 | ) | (2 | )% | ||||||||
| Other income (expense), net | (5,752 | ) | - | (391 | ) | - | ||||||||||
| LOSS BEFORE INCOME TAXES | (3,729,885 | ) | (75 | )% | (2,451,861 | ) | (57 | )% | ||||||||
| Income tax expense | (88,585 | ) | (2 | )% | (70,016 | ) | (2 | )% | ||||||||
| NET LOSS AND COMPREHENSIVE LOSS | (3,818,470 | ) | (77 | )% | (2,521,877 | ) | (59 | )% | ||||||||
| Less: net loss attributable to the noncontrolling interest | 35,903 | 1 | % | 62,012 | 1 | % | ||||||||||
| NET LOSS ATTRIBUTABLE TO THE COMPANY | $ | (3,854,373 | ) | (77 | )% | $ | (2,583,889 | ) | (60 | )% | ||||||
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Revenues
The following table presents our revenue for the periods indicated.
| Three months ended March 31, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| TaaS revenues | $ | 4,974,852 | $ | 4,270,533 | $ | 704,319 | 16 | % | ||||||||
| SaaS revenues | 3,617 | 3,690 | (73 | ) | (2 | )% | ||||||||||
| Unicorns revenues | 77 | 1,859 | (1,782 | ) | (96 | )% | ||||||||||
| Total Revenues | $ | 4,978,546 | $ | 4,276,082 | $ | 702,464 | 16 | % | ||||||||
Total revenues increased by $702 thousand, or 16%, to $4,979 thousand for the three months ended March 31, 2024, from $4,276 thousand for the three months ended March 31, 2023.
TaaS. TaaS revenues increased by $704 thousand, or 16%, to $4,975 thousand for the three months ended March 31, 2024, from $4,271 thousand for the three months ended March 31, 2023. The increase was primarily due to an increase in ITSQuest related revenues of $757 thousand, partially offset by a decrease in SheWorks! related revenue of $53 thousand for the three months ended March 31, 2024. The increase in ITSQuest was mainly driven by government customers.
SaaS. Unicoin was originally a SaaS company engaged in providing workforce management software in order to better monitor and manage a remote workforce. However, the legacy operations of our SaaS business are currently being phased out of our operations through customer attrition, and are no longer the focus of our efforts.
Unicorns. The Company did not record revenues during the three months ended March 31, 2024 and 2023, respectively, as there were no episodes distributed during these periods.
Cost of Revenues
The following table presents our cost of revenues for the periods indicated.
| Three months ended March 31, | ||||||||||||||||
| 2024 | 2023 | Change ($) |
Change (%) |
|||||||||||||
| TaaS cost of revenues | $ | 3,949,255 | $ | 3,410,470 | $ | 538,785 | 16 | % | ||||||||
| Unicorns cost of revenues | 105,625 | 24,009 | 81,616 | 340 | % | |||||||||||
| Total Cost of Revenues | $ | 4,054,880 | $ | 3,434,479 | $ | 620,401 | 18 | % | ||||||||
Total cost of revenues increased by $620 thousand, or 18%, to $4,055 thousand for the three months ended March 31, 2024.
TaaS. TaaS cost of revenues increased by $539 thousand, or 16%, to $3,949 thousand. The increase was mainly due to a proportional increase in TaaS revenues.
Unicorns. Unicorns cost of revenues was $106 thousand, for the three months ended March 31, 2024, compared to $24 thousand, for the three months ended March 31, 2023. These immaterial costs were the result of variances between accruals and final costs of the immediately preceding periods as no episodes of Unicorn Hunters were produced during the three months ended March 31, 2024 and 2023.
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General and administrative
General and administrative expenses increased by $740 thousand, or 25%, to $3,658 thousand for the three months ended March 31, 2024. The increase was primarily due to operating expenses paid with Unicoin Rights of $230 thousand, increases in legal expenses $198 thousand, increases in gain of loss of repurchases of Unicoin Rights of $163 thousand and increases in stock-based compensation of $75 thousand.
Sales and marketing
Sales and marketing expenses increased by $692 thousand, or 284%, to $936 thousand for the three months ended March 31, 2024. The increase was primarily due to a Fintech sponsorship for television broadcast and media for $350 thousand, an increase in advertising expense paid in Unicoin Rights of $193 thousand, and an increase in marketing communication of $101 thousand.
Research and development
Research and development expenses decreased by $51 thousand, or 88%, to $7 thousand for the three months ended March 31, 2024. Research and development mainly consist of personnel related costs such as salaries and benefits and stock-based compensation for research, design and development activities. Internally developed software costs for internal use are not material and are expensed as they are incurred.
Interest income (expense), net
Net interest expense decreased by $(26) thousand to $(47) thousand for the three months ended March 31, 2024. The decrease in net interest expense was primarily due to an increase in interest income of $27 thousand in relation to the Unsecured Notes.
Provision for Income Taxes
| Three months ended March 31, | ||||||||||||||||
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| Income tax expense | $ | 88,585 | $ | 70,016 | $ | 18,569 | 27 | % | ||||||||
| Effective tax rate | 2.4 | % | 2.9 | % | ||||||||||||
The Company recorded income tax expense of $89 thousand and $70 thousand for the three months ended March 31, 2024 and 2022, respectively. The resulting effective tax rate was 2.4% and 2.9% for the three months ended March 31, 2024 and 2022, 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 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 March 31, 2024 and 2023, there were no significant changes to the total amount of unrecognized tax benefits.
Net income (losses) attributable to the noncontrolling interest
Net income attributable to the noncontrolling interest decreased by $26 thousand, or (42)%, to $36 thousand for the three months ended March 31, 2024. Our noncontrolling interest holders in ITSQuest were allocated income of $129 thousand and $103 thousand for the three months ended March 31, 2024 and 2023, respectively. Our noncontrolling interest holders in Unicorns were allocated a loss of $(94) thousand and $(41) thousand for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, noncontrolling interest in ITSQuest and Unicorns represented an ownership interest of 49% and 28.12%, respectively. As of March 31, 2023, noncontrolling interest in ITSQuest and Unicorns represented an ownership interest of 49% and 33.3%, respectively.
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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 $4,345 thousand available as of March 31, 2024. Based on currently available capital resources (cash and cash equivalents on hand as of March 31, 2024), we estimate that we would be able to conduct our planned operations for approximately four additional months without raising additional equity or debt financing, assuming we do not fail to develop and launch the Unicoin during that period. For the company to maintain operations for at least twelve months, we would need to receive further equity or debt financing of approximately $9,107 thousand. For the period from April 1, 2024 through the date of this Quarterly Report on Form 10-Q, we have received cash and non-cash funding of $301 thousand and $109 thousand, respectively, all from issuances of Unicoin Rights. During the same period, investors signed agreements to purchase 161,001,000 Unicoin Rights as part of the Deferred Payment Plan. Additionally, 24,000 Unicoin Rights were purchased for $12,500 under the 10-Year Option. These funds may be used to support our planned operations. 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 developed and 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.
From January 1, 2024 through March 31, 2024, the Company issued 32 million Unicoin Rights to investors and service providers in exchange of consideration consisting of cash ($55,755 thousand) and operating expenses paid with Unicoin Rights ($415 thousand) amounting to approximately $56,170 thousand.
Through March 31, 2024, the Company has recorded a financing obligation of $539.8 million associated with Unicoin Rights issued to date which represents the Company’s estimate of what it would be obligated to pay in the event the Unicoin is never developed and launched. Although it is the Company’s intention to ultimately develop and launch the Unicoin and settle Unicoin Rights obligations by issuing Unicoins to rights holders, there are aspects of the development and launch process, including certain regulatory approvals of the Unicoin, that may be outside of the Company’s control. If the Company fails to develop and launch the Unicoin, its intent would be to pay for the Unicoin Rights financing obligations using cash flows from its existing operations and/or through future debt or equity financing. In order to be able to pay the financing obligation using cash from operations or to achieve financing at terms acceptable to the Company, the Company will have to achieve substantial additional revenue growth and positive cash flows from operations or achieve substantial growth in its existing private company investment values and experience one or more exits or other liquidity transactions associated with its private company investments. There can be no assurance that the Company will achieve these successes prior to events or circumstances that lead to a future conclusion that the Unicoin will not be able to be developed and launched. If one or more of these factors leading to positive growth in the Company’s liquid resources do not occur prior to a conclusion that the Company will fail to develop and launch the Unicoin, the financing obligation to holders of Unicoin Rights may need to be settled for a fraction of the recorded obligation, or in the worst case, there may be no funds available to settle the obligation.
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 March 31, 2024, the Company recorded a liability of $272 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.
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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 Unicoin Inc. 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 $26,574 thousand as of March 31, 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:
| Three months ended March 31, | ||||||||
| (In thousand) | 2024 | 2023 | ||||||
| Cash flows provided by (used in) continuing operations: | ||||||||
| Net cash used in operating activities | $ | (3,070 | ) | $ | (1,687 | ) | ||
| Net cash provided by financing activities | 953 | 2,216 | ||||||
| Net increase in cash and cash equivalents | $ | (2,117 | ) | $ | 529 | |||
Cash Used in Operating Activities
Cash flows used for operating activities increased by $(1,383) thousand to $(3,070) thousand for the three months ended March 31, 2024, compared to $(1,687) thousand for the three months ended March 31, 2023. Net cash used in operating activities for the three months ended March 31, 2024, was due to our net loss of $(3,818) thousand, an increase in operating assets and liabilities of $328 thousand, partially offset by the non-cash items of $(415) thousand. Net cash used in operating activities for the three months ended March 31, 2023, was $(1,687) thousand, due to our net loss of $(2,522) thousand, partially offset by non-cash items of $348 thousand and increases in operating assets and liabilities of $487 thousand.
Cash Provided by Financing Activities
Net cash flows provided by financing activities decreased by $(1,263) thousand to $953 thousand for the three months ended March 31, 2024, compared to $2,216 thousand for the three months ended March 31, 2023. The decrease in net cash provided by financing activities was mainly due to a decrease in proceeds from sales of Unicoin Rights of $1,334 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 March 31, 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.
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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 $4,345 thousand available as of March 31, 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.
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 ending March 31, 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.
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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 U.S. generally accepted accounting principles (“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 U.S. 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.
Management’s Annual Report on Internal Control Over Financial Reporting
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2024, based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management has determined that our internal control over financial reporting as of March 31, 2024, was not effective due to material weaknesses in internal controls over financial reporting.
Material Weaknesses in Internal Control Over Financial Reporting
A material weakness in internal controls over financial reporting is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The review, testing and evaluation of key internal controls over financial reporting completed by the Company resulted in the Company’s principal executive officer and principal financial officer concluding that as of March 31, 2024, material weaknesses existed in the Company’s internal controls over financial reporting. Specifically, in connection with our:
| (i) | entity-level controls - Controls are not in place with respect to the five components of entity-level controls: Control Environment, Risk Assessment, Monitoring, Information and Communication, and Control Activities; |
| (ii) | information technology general controls and segregation of duties - Lack of proper segregation of duties related to journal entries. The accounting software does not require approval before a journal entry is posted to the general ledger. Thus, an unapproved journal entry can be easily input into the system without the knowledge of senior management; and |
| (iii) | equity accounting - There was a large volume of equity transactions, mainly related to the issuance of stock to investors. The Company has a manually intensive set of processes and controls in place to record and review these transactions. We do not believe the controls are properly designed to sufficiently mitigate the risk of material misstatement given the large volume of transactions that are processed. |
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The Company has continued to address the material weaknesses described above 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; | |
| - | Further centralization of key accounting processes to enable greater segregation of duties; | |
| - | 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.
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 March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 cause 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 other 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 (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 | ||||||||||
| Various | 82,913,692 | * | 5/1/18 to 5/31/20 | Section 4(a)(2) | |||||||||
| $ | 0.10 | 44,150,000 | 1/8/19 to 2/3/20 | Rule 506(c); Reg. S | |||||||||
| $ | 0.20 | 22,306,525 | 5/1/20 to 8/2/20 | Rule 506(c); Reg. S | |||||||||
| $ | 0.30 | 7,398,278 | 8/3/20 to 8/23/20 | Rule 506(c); Reg. S | |||||||||
| $ | 0.40 | 293,660 | 4/26/24 to 5/3/21 | Rule 506(c); Reg. S | |||||||||
| $ | 0.60 | 7,598,831 | 8/24/20 to 10/5/20 | Rule 506(c); Reg. S | |||||||||
| $ | 1.00 | 7,485,660 | 10/6/20 to 11/30/20 | Rule 506(c); Reg. S | |||||||||
| $ | 2.00 | 9,158,529 | 12/1/20 to 7/31/21 | Rule 506(c); Reg. S | |||||||||
| $ | 3.00 | 1,877,856 | 7/31/21 to 11/30/21 | Rule 506(c); Reg. S | |||||||||
| $ | 4.00 | 1,114,607 | 12/1/20 to 12/31/22 | Rule 506(c); Reg. S | |||||||||
| * | Convertible Notes. All notes have converted. Original total face amount of $2,097,000 and accrued interest of $307,682 into 82,913,691 shares, for an average conversion price of $0.13 |
Common Stock Shares Issued in Exchange for Other Securities – ITSQuest, Inc. Acquisition
| Fair Value on Date of Issuance or Release from Escrow | Common Stock Shares Issued | Dates | Exemption | ||||||||||
| $ | 0.19 | 6,500,000 | 11/25/20 | Section 4(a)(2) | |||||||||
| $ | 0.39 | 1,500,000 | 12/28/22 | * | Section 4(a)(2) | ||||||||
| * | Out of the initial 3,500,000 shares subject to the holdback provision, the Company released 1,500,000 shares on December 28, 2022, pursuant to the amended Share Exchange Agreement, as discussed in the Business Acquisition section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q. As of the day of this Quarterly Report on Form 10-Q, 2,000,000 shares remain subject to the holdback provision, pending resolution of the ITSQuest tax liability that existed at the time of the acquisition. |
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Capital Raising Transaction – Debt
On May 24, 2021, we commenced a private placement of debt securities, in the form of short-term unsecured promissory notes. Amounts sold through March 31, 2024 are as follows:
| Total Amount Sold | Interest Rate | Dates | Exemption | ||||||||||
| $ | 1,229,000 | * | 20.0 | % | 6/3/21 to 12/31/21 | Rule 506(c); Reg. S | |||||||
| $ | 80,100 | 20.0 | % | 1/26/22 to 12/31/22 | Rule 506(c); Reg. S | ||||||||
| $ | 136,000 | 20.0 | % | 4/17/23 to 7/31/23 | Rule 506(c); Reg. S | ||||||||
| * | Through the day of this Quarterly Report on Form 10-Q, the Company’s outstanding Unsecured Notes amount to $265 thousand. |
Capital Raising 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 accredited 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** | Dates*** | Exemption | ||||||||||
| $ | 0.01 | 1,369,921,280 | 2/24/22 to 4/24/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.017 | 77,690,886 | 4/1/22 to 3/31/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.05 | 54,866,000 | 3/12/22 to 4/24/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.05 | 238,484,626 | 5/1/23 to 4/24/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.055 | 29,892,260 | 9/1/22 to 3/31/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.07 | 13,280,000 | 4/1/23 to 10/31/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.08 | 325,000 | 4/1/23 to 5/31/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.089 | 30,594,947 | 12/1/22 to 3/31/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.10 | 125,402,501 | 3/18/22 to 4/24/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.101 | 7,192,706 | 3/1/23 to 10/31/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.11 | 320,000 | 4/1/23 to 6/30/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.12 | 104,000 | 5/1/23 to 5/31/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.122 | 6,628,606 | 6/1/23 to 10/31/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.14 | 1,200,000 | 4/1/23 to 5/31/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.15 | 1,667 | 3/1/24 to 3/31/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.20 | 10,080,395 | 9/8/22 to 3/31/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.35 | 285,714 | 6/1/23 to 4/24/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.36 | 1,111,357,380 | 3/1/24 to 3/31/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.373 | 3,804,607 | 9/1/23 to 10/31/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.40 | 4,584,417 | 11/2/22 to 5/31/23 | Rule 506(c); Reg. S | |||||||||
| $ | 0.493 | 113,393,080 | 4/1/23 to 4/24/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.459 | 1,028,203 | 10/31/23 to 3/31/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.50 | 7,232,629 | 3/1/23 to 4/24/24 | Rule 506(c); Reg. S | |||||||||
| $ | 0.75 | 2,933 | 4/1/24 to 5/3/24 | 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. |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit Index
| * | Previously filed |
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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: May 15, 2024 | By: | /s/ Alex Konanykhin |
| Alex Konanykhin | ||
| Chief Executive Officer | ||
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