ONEI 10-Q
OneMeta Inc. (ONEI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________to ________.
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered | ||
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 filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
Smaller
Reporting Company |
Emerging
Growth Company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
| Title or class | Shares outstanding as of September 30, 2024 | |
| Common Stock, $par value | ||
| Series A Preferred, $0.001 par value | 2,068 | |
| Series B-1 Convertible Preferred, $0.001 par value | 8,619,420 |
TABLE OF CONTENTS
| PART I. | FINANCIAL INFORMATION | 3 |
| Item 1. | Financial Statements (Unaudited) | 3 |
| Balance Sheets | 3 | |
| Statements of Operations | 4 | |
| Statements of Changes in Stockholders’ Equity (Deficit) | 5 | |
| Statements of Cash Flows | 6 | |
| Notes to Financial Statements (Unaudited) | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 4. | Controls and Procedures | 22 |
| PART II. | OTHER INFORMATION | 23 |
| Item 1. | Legal Proceedings | 23 |
| Item 1A. | Risk Factors | 23 |
| Item 6. | Exhibits | 24 |
| SIGNATURES | 25 | |
| 2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ONEMETA INC.
BALANCE SHEETS
(Unaudited)
| September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued expenses, related party | ||||||||
| Deferred revenue | ||||||||
| Note payable, related party | ||||||||
| Senior secured notes payable, related party | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Preferred stock, $ par value, shares authorized, | ||||||||
| Series A preferred stock, $ par value, shares authorized, issued and outstanding | ||||||||
| Series B-1 convertible preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See accompanying notes to the unaudited financial statements.
| 3 |
ONEMETA INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Total revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Advertising and marketing | ||||||||||||||||
| Legal and professional | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to the unaudited financial statements.
| 4 |
ONEMETA INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the nine months ended September 30, 2024 and 2023
(Unaudited)
| Series B-1 Convertible Preferred Stock | Series A Preferred Stock | Series B-1 Convertible Preferred Stock | Common Stock | Additional paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | Deficit | Total | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||
| Common shares issued for cash | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Contributed capital | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Imputed interest | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued for cash | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Imputed interest | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued for cash | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Imputed interest | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common shares issued for cash | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Imputed interest | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued for cash | |||||||||||||||||||||||||||||||||||||||||||||
| Additional shares issued for prior year software acquisition | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Imputed interest | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued for cash | |||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Reclassification of mezzanine equity | ( | ) | ( | ) | - | - | |||||||||||||||||||||||||||||||||||||||
| Imputed interest | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited financial statements.
| 5 |
ONEMETA INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2024 and 2023
(Unaudited)
| September 30, 2024 | September 30, 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to cash used in operating activities: | ||||||||
| Imputed interest | ||||||||
| Additional shares issued for prior year software acquisition | ||||||||
| Stock based compensation | ||||||||
| Amortization | ||||||||
| Net change in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued expenses, related party | ( | ) | ( | ) | ||||
| Deferred revenue | ||||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from senior secured notes payable, related party | ||||||||
| Proceeds from issuance of common shares | ||||||||
| Proceeds from advances, related party | ||||||||
| Repayment of advances, related party | ( | ) | ||||||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET CHANGE IN CASH | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid on interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH TRANSACTIONS | ||||||||
| Expenses paid on the Company’s behalf | $ | $ | ||||||
| Contributed capital | $ | $ | ||||||
| Reclassification of mezzanine equity | $ | $ | ||||||
See accompanying notes to the unaudited financial statements.
| 6 |
OneMeta Inc.
(Formerly OneMeta AI)
Notes to the Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited interim financial statements of OneMeta Inc. (“we”, “our”, “OneMeta” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the financial statements and notes thereto contained in the Company’s fiscal 2023 financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for our interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the financial statements for fiscal 2023, have been omitted.
OneMeta was originally incorporated as Promotions on Wheels Holdings, Inc., a Nevada corporation, on July 3, 2006. On December 26, 2008, the name of the Company was changed to Blindspot Alert, Inc. On September 11, 2009, the Company’s name was changed to WebSafety, Inc. On March 23, 2021, the Company’s name was changed to VeriDetx Corp. On June 8, 2021, the Company’s name was changed to WebSafety, Inc. On July 10, 2022, the Company’s name was changed to OneMeta AI. On June 20, 2023, the Company’s name was changed to OneMeta Inc.
Note 2. Summary of Significant Accounting Policies
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates in the accompanying financial statements involving the valuation of common stock and stock based compensation.
Cash and Cash Equivalents
Cash equivalents include all highly liquid investments with original maturities of three months or less.
Accounts Receivable
Accounts
receivable are comprised of unsecured amounts due from customers. The Company carries its accounts receivable at their face amounts less
an allowance for credit losses. The allowance for credit losses is recognized based on management’s estimate of likely losses per
year, based on past experience and review of customer profiles and the aging of receivable balances. As of September 30, 2024 and December
31, 2023, there was
Property and Equipment
Property and equipment are valued at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows:
| Estimated | ||
| Category | Useful Lives | |
| Building and improvements |
| 7 |
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and accounts payable. The carrying values of these financial instruments approximate their respective fair values as they are short-term in nature or carry interest rates that approximate market rates.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts With Customers, which was adopted on January 1, 2018 using the modified retrospective method, with no impact to the Company’s comparative financial statements. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:
| ● | Identification of the contract with a customer |
| ● | Identification of the performance obligations in the contract |
| ● | Determination of the transaction price |
| ● | Allocation of the transaction price to the performance obligations in the contract |
| ● | Recognition of revenue when, or as, the Company satisfies a performance obligation |
We enter into revenue arrangements in which a customer may purchase a combination of subscriptions, consulting services, training and education. Fully hosted subscription services (“SaaS”) allow customers to access hosted software during the contractual term without taking possession of the software.
We recognize revenue ratably over the contractual service term for hosted services that are priced based on a committed number of transactions where the delivery and consumption of the benefit of the services occur evenly over time, beginning on the date the services associated with the committed transactions are first made available to the customer and continuing through the end of the contractual service term. Over-usage fees and fees based on the actual number of transactions are billed in accordance with contract terms as these fees are incurred and are included in the transaction price of an arrangement as variable consideration. Revenue based on per-minute or per-word basis, where invoicing is aligned to the pattern of performance, customer benefit and consumption, are typically accounted for utilizing the “as-invoiced” practical expedient. Revenue for subscriptions sold as a fee per period is recognized ratably over the contractual term as the customer simultaneously receives and consumes the benefit of the underlying service.
Licenses for software may be purchased as a subscription for a fixed period of time or based on usage. Revenue from licenses is recognized at the point in time the software is available to the customer, provided all other revenue recognition criteria are met, and classified as revenue on our Statements of Operations. Our interpretation or translation services fees are based on a per-minute or per-word basis, are typically accounted for utilizing the “as-invoiced” practical expedient.
Our services are comprised primarily of fees related to training, and education for certain licenses that are recognized at a point in time. Training and education revenues are recognized as the services are performed.
| 8 |
Disaggregation of revenues
The Company disaggregates revenue between subscription and license revenue and training and education revenue.
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |||||||||||||
| Subscription and license revenue | $ | $ | $ | $ | ||||||||||||
| Training and education | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Deferred Revenue
Deferred
revenue includes service and support contracts and represents the undelivered performance obligation of agreements that are typically
for one year or less. As of September 30, 2024 and 2023, deferred revenue was $
Basic loss per common share is computed by dividing the net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. Accordingly, the number of weighted average shares outstanding, as well as the amount of net loss per share are presented for basic and diluted per share calculations for the nine months ended September 30, 2024 and 2023, reflected in the accompanying statement of operations.
Recent Accounting Pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
Note 3. Going Concern
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. As of September 30, 2024, the Company had not yet achieved profitable operations and expects to incur further losses in the development of its business, all of which raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however, there is no assurance of additional funding being available.
Note 4. Related Party Transactions
Advances, related party
During
the nine months ended September 30, 2024, Mr. Day advanced the Company $
| 9 |
Expense paid on the Company’s behalf
During
the nine months ended September 30, 2024 and 2023, Mr. Day paid $
During
the nine months ended September 30, 2024, Mr. Leal paid $
Founder note
Rowland
Day, the Company’s prior CEO agreed to provide the necessary working capital for the Company’s business. At the end of each
calendar quarter the convertible promissory note is adjusted based upon the funds provided. The convertible promissory note bears interest
at
As
of September 30, 2024 and December 31, 2023, the note payable, related party principal balance was $
Senior secured notes payable
On
May 10, 2024, the Company (the “Grantor”) entered into a secured promissory note payable for $
| 10 |
On
June 12, 2024, the Company (the “Grantor”) entered into a secured promissory note payable for $
On
August 12, 2024, the Company (the “Grantor”) entered into a secured promissory note payable for $
On
August 27, 2024, the Company (the “Grantor”) entered into a secured promissory note payable for $
| 11 |
On
September 26, 2024, the Company (the “Grantor”) entered into a secured promissory note payable for $
As
of September 30, 2024 and December 31, 2023, the note payable, related party principal balance was $
Accrued salary and interest
On
October 1, 2023, the Company and Mr. Day entered into a settlement and general release agreement. Per the agreement, Mr. Day agreed to
settle all accrued salary and interest for service provided prior to September 1, 2022. As a result, the Company recorded a settlement
of $
Note 5. Equity
The Company is currently authorized to issue up to shares of common stock with a par value of $. In addition, The Company is authorized to issue shares of preferred stock with a par value of $. The specific rights of the preferred stock, when so designated, shall be determined by the board of directors.
On May 1, 2023, the Articles of Incorporation of the Company were amended to increase the authorized B-1 preferred shares to shares.
Common Stock
On
February 6, 2024, the Company issued shares of common stock at $ per share and collected $
During
the quarter ended June 30, 2024, the Company issued shares of common stock at $ per share and collected $
| 12 |
During
the quarter ended September 30, 2024, the Company issued shares of common stock at $ per share and collected $
Preferred Stock
Series A Convertible Preferred Stock
In
April 2008, our board of directors designated shares of our preferred stock as Series A Convertible Preferred Stock (“Series
A”) with a par value of $. On May 1, 2023, the Articles of Incorporation of the Company were amended to decrease the authorized
Series A shares to shares of Series A. Series A has liquidation and dividend preferences.
Series B-1 Convertible Preferred Stock
In
October 2015, our board of directors designated shares of our preferred stock as Series B-1 Convertible Preferred Stock (“Series
B-1”) with the redemption value of $ per share. Series B-1 has liquidation and dividend preferences.
Series B-2 Convertible Preferred Stock
In
October 2015, our board of directors designated shares of our preferred stock as Series B-2 Convertible Preferred Stock (“Series
B-2”) with a par value of $. On May 1, 2023, the Articles of Incorporation of the Company were amended such that no Series
B-2 shares are authorized. Series B-2 have
Stock Warrants
The following table summarizes the stock warrant activity for the nine months ended September 30, 2024:
| Warrants | Weighted-Average Exercise Price Per Share | |||||||
| Outstanding, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding, September 30, 2024 | $ | |||||||
| 13 |
As
of September 30, 2024 the outstanding and exercisable warrants have a weighted average remaining term of
Stock Options
On January 24, 2024, the board of directors approved the issuance of options to a director. The options have a -year term at an exercise price of $ and vest in 4 equal annual installments beginning one year from the issuance date. The total fair value of these option grants at issuance was $.The Company valued the stock options using the Black-Scholes model with the following key assumptions: Stock price $, Exercise price $, Term years, Volatility % and Discount rate %.
On August 5, 2024, the board of directors approved the issuance of options to an employee. The options have a -year term at an exercise price of $. The options vest as follows: Participant’s sales objectives for the following calendar year will be set by November 15 of the prior year. The total fair value of these option grants at issuance was $.The Company valued the stock options using the Black-Scholes model with the following key assumptions: Stock price $, Exercise price $, Term years, Volatility % and Discount rate %.
On August 19, 2024, the board of directors approved the issuance of options to an employee. The options have a -year term at an exercise price of $. The total fair value of these option grants at issuance was $.The Company valued the stock options using the Black-Scholes model with the following key assumptions: Stock price $, Exercise price $, Term years, Volatility % and Discount rate %.
During the nine months ended September 30, 2024, the Company recognized $ of expense related to outstanding stock options.
The following table summarizes the stock option activity for the nine months ended September 30, 2024:
| Options | Weighted-Average Exercise Price Per Share | |||||||
| Outstanding, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding, September 30, 2024 | $ | |||||||
| Exercisable, September 30, 2024 | $ | |||||||
As of September 30, 2024, the outstanding and exercisable options have a weighted average remaining term of with an intrinsic value of $.
| 14 |
Note 6: Commitments
On July 22, 2024, the Company entered into an Independent Software Vendor Program Agreement (the “Agreement”) with Five9, Inc. (“Five9”), a Delaware corporation. Five9 is a leading provider of intelligent cloud software and applications for contact centers. Pursuant to the Agreement, Five9 granted the Company a non-exclusive, worldwide, royalty-free, non-sublicensable and non-transferable license to access the Five9 developer account with the purpose of integrating the Company’s products and services and becoming an accredited vendor under Five9’s ISV program. The Company has agreed to pay a non-refundable ISV Program participation fee to Five9 for the initial one-year term of the Agreement and for each one-year renewal term thereafter. Further, each party to the Agreement may receive referral fees from the other party for the referral of prospective customers.
One August 22, 2024, the Company entered into a Genesys AppFoundery ISV Partner Agreement with Genesys Cloud Services, Inc. (“Genesys”), a California corporation. Genesys manages the Genesys AppFoundry, a marketplace of solutions that offers Genesys customers a curated selection of integrations and applications. The agreement governs the Company’s non-exclusive participation as an AppFoundry ISV Partner in the Genesys AppFoundry Program. The Company has agreed to pay a non-refundable revenue share to Genesys during the term of the Agreement based on a percentage of the revenue invoiced by the Company or Genesys in connection with the sale of the Company’s software through the AppFoundry marketplace. The agreement may be terminated by either party without cause upon ninety (90) days written notice to the other party.
Note 7: Subsequent Events
On
October 8, 2024, the Company entered into an OEM Agreement (the “Agreement”) with inContact, Inc. (“inContact”),
a Delaware corporation. inContact is an affiliate of NICE Ltd., a company incorporated in Israel, whose shares are traded on the Tel
Aviv Stock Exchange and whose American Depositary Shares are traded on the Nasdaq Global Select Market. NICE is one of the largest customer
service companies in the world. Pursuant to the Agreement, inContact will distribute and sell the Company’s OEM solutions, consisting
of over-the-phone consecutive AI language translation solutions to customers and inContact will pay fees to the Company based on usage
of the Company’s OEM solutions.
On
October 14, 2024, the Company (the “Grantor”) entered into a secured promissory note payable for $
On October 29, 2024, the Company agreed to issue options to an employee. The options have a -year term at an exercise price of $ and vest in 4 equal annual installments beginning one year from the issuance date. The options vest as follows: Vesting for each 12-month term is contingent upon Participant exceeding a minimum amount of total new bookings as determined by the Company’s board of directors or their designee. For the 2 first term ending on March 31, 2025. Participant must exceed $ million of total new bookings for the first vesting of options.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). In addition to historical condensed financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Overview
The Company operates to develop artificial intelligence products that enable companies and individuals to reach their highest potential by eliminating language barriers in daily communications by providing high-quality, accurate, and efficient interpretation and translation services using natural language processing (NLP) technology. The Company’s focus is on developing a proprietary architecture that is faster and more accurate than any other company, with a commitment to providing superior quality services to its customers. The Company intends to serve a wide variety of markets and customers and will be focused on becoming a leader in the creation of pragmatic products for the interpretation and translation industry.
Business Summary
At the time of its initial formation in 2006, the Company was a development stage company that offered live promotions and marketing events using custom-built mobile displays.
Today, the Company is developing a stack of cutting-edge artificial intelligence technologies that solve everyday problems with an innovative and pragmatic approach. Using natural language processing sentiment analytics and behavioral prediction to metaverse enhancement, the Company is attempting to solve problems that will elevate our human condition.
The Company has recently launched two products: Verbum, which is a platform that enables fluent and effective communication among individuals that do not speak the same language; and Verbum SDK. Verbum SDK is a software development kit that allows developers to create multi-language translation tools for their own use.
Our Products
The Company’s current products described in detail below have proprietary technology and associated patents. The Company is currently working on patents for future product offerings.
| ● | Verbum. Verbum supports real time web-based conversations, discussions, meetings, and online chats in 150 languages, enabling fluent and effective communication among individuals that do not speak the same language. This product is distributed through our online platform, direct sales to businesses and organizations, and we are attempting to develop partnerships with existing video conferencing providers. The competitive position is against other video conferencing providers that also offer live interpretation services, such as Microsoft Teams, Zoom and Google Meet. We believe our main competitors are organizations that supply human interpreters which can be ten times more expensive than our Verbum product. The primary market for our Verbum product is for organizations or individuals that require real-time interpretation services. | |
| ● | Verbum SDK. Verbum Software Developer Kit allows software programmers, potential channel partners, and corporate development teams to integrate our powerful multilingual communications platform Verbum™ — into new or existing Software-as-a-Service applications and/or client/server programs, helping them remove communications barriers for multinational organizations and/or those serving customers who speak/read different languages. This product may be distributed through partnerships with software developers or through direct sales to businesses and organizations that require interpretation services for their software. The competitive position would be against other software development kit providers that also offer interpretation services, such as Microsoft Azure or Amazon Translate. The expected market for this product is software developers and businesses that require interpretation services for their software applications. |
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Components of Our Results of Operations
Net Revenue
We currently derive our revenue primarily from the sale of our products. We expect our net revenue to increase in the foreseeable future as we add new customers and offer additional products, though net revenue may fluctuate from quarter to quarter due to a variety of factors, including the pace of research and development and completion of additional products.
Operating Expenses
Operating expenses consist primarily of research and development, salaries and benefits, infrastructure and equipment, professional services and distribution and delivery.
| ● | Research and Development: Developing and maintaining the proprietary NLP technology and architecture will be a significant future expense for the Company. This will include expenses related to hiring and retaining top talent, conducting research and development, and investing in technology infrastructure and equipment. |
| ● | Salaries and Benefits: The Company plans to invest in hiring and retaining additional employees to perform various functions, such as software development, customer support, sales, and administration. This will include salaries, benefits, and other employee-related expenses. |
| ● | Infrastructure and Equipment: The Company will invest in technology infrastructure and equipment to support its software development and distribution operations. This will include expenses related to servers, software licenses, hardware, and office equipment. |
| ● | Professional Services: Depending on the Company’s needs, it may need to engage professional services such as legal, accounting, or consulting services, which would be an expense for the Company. |
| ● | Distribution and Delivery: The Company will need to invest in distribution and delivery methods for its products, such as software updates, shipping, or online delivery. This will include expenses related to logistics, software licensing, or server maintenance. |
Total Other Expense
Other expenses consist primarily of interest expense. It also includes any gains and loss attributable to the changes in fair market value from the derivative liabilities associated with the issuance of convertible notes.
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Results of Operations for the Three Months Ended September 30, 2024 and 2023
The following table summarizes selected items from the statement of operations for the three months ended September 30, 2024 and 2023, respectively.
| Three months ended | Three months ended | |||||||||||
September 30, 2024 | September 30, 2023 | Increase/ (Decrease) | ||||||||||
| Revenue | $ | 3,478 | $ | 9,162 | $ | (5,684 | ) | |||||
| Total revenue | 3,478 | 9,162 | (5,684 | ) | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 202,168 | 203,588 | (1,420 | ) | ||||||||
| General and administrative | 537,164 | 515,146 | 22,018 | |||||||||
| Advertising and marketing | 25,336 | 71,253 | (45,917 | ) | ||||||||
| Legal and professional | 139,600 | 265,893 | (126,293 | ) | ||||||||
| Total operating expenses | 904,268 | 1,055,880 | (151,612 | ) | ||||||||
| Loss from operations | (900,790 | ) | (1,046,718 | ) | (145,928 | ) | ||||||
| Other expense: | ||||||||||||
| Interest expense | (34,563 | ) | (10,990 | ) | 23,573 | |||||||
| Total other expense | (34,563 | ) | (10,990 | ) | 23,573 | |||||||
| Net loss | $ | (935,353 | ) | $ | (1,057,708 | ) | $ | (122,355 | ) | |||
Net Revenue
Our net revenue for the three months ended September 30, 2024 was $3,478, compared to $9,162 for the three months ended September 30, 2023, a decrease of $5,684. We had little revenue for both periods as our products have been in the development stage and we have not secured any large-scale customer contracts.
Operating Expenses
Our total operating expenses for the three months ended September 30, 2024, were $904,268, compared to $1,055,880 for the three months ended September 30, 2023, a decrease of $151,612. The decrease in our operating expenses was primarily a result of: (i) a decrease in advertising and marketing expenses, from $71,253 for the three months ended September 30, 2023 to $25,336 for the three months ended September 30, 2024; and (ii) a decrease in legal and professional expenses, from $265,893 for the three months ended September 30, 2023 to $139,600 for the three months ended September 30, 2024.
Other Expense
For the three months ended September 30, 2024, other expense was $34,563. For the three months ended September 30, 2023, other expense was $10,990. Other expense increased by $23,573 primarily due to an increase in interest expense for senior secured notes in 2024.
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Net Loss
Net loss for the three months ended September 30, 2024, was $935,353, compared to $1,057,708 for the three months ended September 30, 2023, a decreased net loss of $122,355. The decreased net loss was primarily due to a $145,928 decrease in operating expenses.
Results of Operations for the Nine Months Ended September 30, 2024 and 2023
The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2024 and September 30, 2023, respectively.
| Nine months ended | Nine months ended | |||||||||||
September 30, 2024 | September 30, 2023 | Increase/ (Decrease) | ||||||||||
| Revenue | $ | 14,354 | $ | 57,124 | $ | (42,770 | ) | |||||
| Total revenue | 14,354 | 57,124 | (42,770 | ) | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 653,732 | 540,092 | 113,640 | |||||||||
| General and administrative | 1,672,388 | 4,031,452 | (2,359,064 | ) | ||||||||
| Advertising and marketing | 78,809 | 161,038 | (82,229 | ) | ||||||||
| Legal and professional | 491,733 | 387,809 | 103,924 | |||||||||
| Total operating expenses | 2,896,662 | 5,120,391 | (2,223,729 | ) | ||||||||
| Loss from operations | (2,882,308 | ) | (5,063,267 | ) | (2,180,959 | ) | ||||||
| Other expense: | ||||||||||||
| Interest expense | (60,655 | ) | (31,462 | ) | 29,193 | |||||||
| Total other expense | (60,655 | ) | (31,462 | ) | 29,193 | |||||||
| Net loss | $ | (2,942,963 | ) | $ | (5,094,729 | ) | $ | (2,151,766 | ) | |||
Net Revenue
Our net revenue for the nine months ended September 30, 2024 was $14,354, compared to $57,124 for the nine months ended September 30, 2023, a decrease of $42,770. We had little revenue for both periods as our products have been in the development stage and we have not secured any large-scale customer contracts.
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Operating Expenses
Our total operating expenses for the nine months ended September 30, 2024, was $2,896,662, compared to $5,120,391 for nine months ended September 30, 2023, a decrease of $2,223,729. The decrease in our operating expenses was primarily a result of a decrease in (i) general and administrative expenses, from $4,031,452 for nine months ended September 30, 2023 to $1,672,388 for nine months ended September 30, 2024, and (ii) advertising and marketing expenses, from $161,038 for nine months ended September 30, 2023 to $78,809 for nine months ended September 30, 2024.
Other Expense
In the nine months ended September 30, 2024, other expense was $60,655. For the nine months ended September 30, 2023, other expense was $31,462. Other expense increased by $29,193 primarily due to an increase in interest expense for senior secured notes in 2024.
Net loss
Net loss for the nine months ended September 30, 2024 was $2,942,963, compared to $5,094,729 for the nine months ended September 30, 2023, a decrease of $2,151,766. The decrease in net loss was primarily due to a $2,223,729 decrease in operating expenses.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital as of September 30, 2024 and December 31, 2023.
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Current Assets | $ | 46,606 | $ | 1,143,690 | ||||
| Current Liabilities | $ | 1,864,831 | $ | 1,025,919 | ||||
| Working Capital (Deficit) | $ | (1,818,225 | ) | $ | 117,771 | |||
As of September 30, 2024, we had a working capital deficit of $1,818,225. We have incurred net losses since our inception and we anticipate net losses and negative operating cash flows for the near future and we may not be profitable or realize growth in the value of our assets. To date, our primary sources of capital have been cash generated from common stock sales and debt financing. As of September 30, 2024, we had cash of $24,254, total liabilities of $1,864,831, and an accumulated deficit of $36,851,759. As of December 31, 2023, we had cash of $1,129,935, total liabilities of $1,025,919, and an accumulated deficit of $33,908,796.
Cash Flow
Comparison of the Nine Months Ended September 30, 2024 and the Nine Months Ended September 30, 2023
The following table sets forth the primary sources and uses of cash for the periods presented below:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (2,380,281 | ) | $ | (1,545,458 | ) | ||
| Net cash provided by financing activities | 1,274,660 | 1,358,000 | ||||||
| Net change in cash | $ | (1,105,681 | ) | $ | (187,458 | ) | ||
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Net Cash Used in Operating Activities
Net cash used in operating activities was $2,380,281 for the nine months ended September 30, 2024, compared to $1,545,458 for the nine months ended September 30, 2023, an increase of $834,823. The change was primarily attributable to increases in non-cash expenses related to stock-based compensation , accrued expenses and deferred revenue.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $1,274,660 for the nine months ended September 30, 2024, compared to $1,358,000 for the nine months ended September 30, 2023, a decrease of $83,340. The decrease in cash provided by financing activities was primarily attributable to our decrease in sales of our common stock which were offset by increases in proceeds from senior secured notes payable, related party.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial results are affected by the selection and application of accounting policies and methods. In the nine-month period ended September 30, 2024, there were no changes to the application of critical accounting policies previously disclosed in the 2023 Form 10-K.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of our management for future operations, any statements concerning proposed new products or services, any statements regarding the integration, development or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results will likely differ, and could differ materially, from those projected or assumed in the forward-looking statements. Investors are cautioned not to unduly rely on any such forward-looking statements.
All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Our actual results will likely differ, and may differ materially, from anticipated results. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections.
NOTICE REGARDING TRADEMARKS
This report includes trademarks, tradenames and service marks that are our property or the property of others. Solely for convenience, such trademarks and tradenames sometimes appear without any “™” or “®” symbol. However, failure to include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate disclosure controls and procedures for our company. Consequently, our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of September 30, 2024. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the nine-month period ended September 30, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently party to any pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, cash flows or results of operations.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide information typically disclosed under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common Stock
On February 6, 2024, the Company issued 87,500 shares of common stock at $0.40 per share and collected $35,000.
During the three months ended June 30, 2024, the Company issued 582,000 shares of common stock at $0.80 per share and collected $465,600.
During the three months ended September 30, 2024, the Company issued 300,000 shares of common stock at $0.75 per share and collected $225,000.
Stock Warrants
As of September 30, 2024 the outstanding and exercisable warrants have a weighted average remaining term of 3.56 with no intrinsic value, respectively.
Stock Options
On January 24, 2024, the board of directors approved the issuance of 750,000 options to a director. The options have a ten-year term at an exercise price of $0.51 and vest in 4 equal annual installments beginning one year from the issuance date. The total fair value of these option grants at issuance was $368,386.The Company valued the stock options using the Black-Scholes model with the following key assumptions: Stock price $0.51, Exercise price $0.51, Term 6.25 years, Volatility 162.68% and Discount rate 4.14%.
On August 5, 2024, the board of directors approved the issuance of 100,000 options to an employee. The options have a five-year term at an exercise price of $0.51. The options vest as follows: (i )50,000 options will become vested and exercisable with respect to 3,125 shares on December 31, 2024, and 3,125 shares at the end of each calendar quarter for years 2025, 2026, 2027, and ending on September 30, 2028, until the 50,000 Options are 100% vested (ii) 12,500 Options will vest over four years on an annual basis when the Participant exceeds annual sales objectives established by the Company for years 2025, 2026, 2027, and 2028, for a total of 50,000 Options. Participant’s sales objectives for the following calendar year will be set by November 15 of the prior year. The total fair value of these option grants at issuance was $39,546.The Company valued the stock options using the Black-Scholes model with the following key assumptions: Stock price $0.51, Exercise price $0.51, Term 3.75 years, Volatility 120.76% and Discount rate 3.62%.
On August 19, 2024, the board of directors approved the issuance of 100,000 options to an employee. The options have a five-year term at an exercise price of $0.51. The Option will become vested and exercisable with respect to 7,500 shares on December 31, 2024, and 7,500 shares at the end of each calendar quarter for years 2025, 2026, 2027 and ending on September 30, 2028 until the Option is 100% vested. The total fair value of these option grants at issuance was $52,021.The Company valued the stock options using the Black-Scholes model with the following key assumptions: Stock price $0.57, Exercise price $0.57, Term 3.75 years, Volatility 117.27% and Discount rate 3.75%.
During the nine months ended September 30, 2024, the Company recognized $271,924 of expense related to outstanding stock options.
As of September 30, 2024, the outstanding and exercisable options have a weighted average remaining term of 4.96 with an intrinsic value of $47,450.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
The disclosure required by this item is not applicable.
ITEM 5. OTHER INFORMATION
During
the nine months ended September 30, 2024, no director or officer
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ITEM 6. EXHIBITS.
| * | Filed herewith |
| ** | Previously filed |
| † | Indicates management contract or compensatory plan or arrangement |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registration has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Signature | Title | Date | ||
| /s/ Saul Leal | Chief Executive Officer | November 12, 2024 | ||
| Saul Leal | (Principal Executive Officer) | |||
| /s/ Rowland Day | President, Chief Financial Officer | November 12, 2024 | ||
| Rowland Day | (Principal Accounting and Financial Officer) |
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