SRAX, INC. The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements regarding our business
development plans, timing, strategies, expectations, anticipated expenses
levels, business prospects and positioning with respect to market, demographic
and pricing trends, business outlook, technology spending and various other
matters (including contingent liabilities and obligations and changes in
accounting policies, standards and interpretations) and express our current
intentions, beliefs, expectations, strategies or predictions. These
forward-looking statements are based on a number of assumptions and currently
available information and are subject to a number of risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth under "Special Note Regarding Forward-Looking Statements" and under "Risk
Factors" and elsewhere in our annual report for the year ended
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying unaudited Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
Executive Overview Financial results: ? Revenue was$7.5 million , up approximately 53% for three months endedMarch 31, 2022 versus 2021. ? Cash, cash equivalents and marketable securities were$29.2 million as ofMarch 31, 2022 . Reportable Segments
We have a single operating and business segment, Sequire, which is comprised of
two business units; Sequire and LD Micro. Our Sequire segment includes the
licensing of our SaaS based Sequire platform and related services, and our event
and conference operations. The segment amounts included in MD&A are presented on
a basis consistent with our internal management reporting. All differences
between our internal management reporting basis and accounting principles
generally accepted in
Deconsolidation of BIGToken, Inc.
On
The financial results of BIGToken's business are presented as discontinued operations in our unaudited Condensed Consolidated Statement of Operations for all periods presented through the respective transaction close date as the transaction. Please see "Note 3 - Discontinued Operations" in our unaudited Condensed Consolidated Financial Statements included elsewhere in this report for additional information.
Business Focus
During the first quarter of 2022, we have focused on: (i) the continued growth of our Sequire platform's functionality and user base and (ii) the expansion of LD micro events and offerings.
Covid-19
Our business has been impacted by the COVID-19 pandemic, which has resulted in authorities implementing numerous preventative measures to contain or mitigate the outbreak of the virus, such as travel bans and restrictions, limitations on business activity, quarantines, and shelter-in-place orders. These measures have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide, which have significantly impacted our business and results of operations. We are unable to predict the impact of the pandemic on user growth and engagement with any certainty, and we expect these trends to continue to be subject to volatility.
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More recently, we believe the pandemic has contributed to an acceleration in the shift of commerce from offline to online, as well as increasing consumer demand for purchasing products as opposed to services, and we experienced increasing demand for our products as a result of these trends. The impact of the pandemic on our overall results of operations, remains highly uncertain for the foreseeable future.
We intend to continue to invest in our business based on our company priorities, and we anticipate that additional investments in our network infrastructure, as well as scaling our headcount to support our growth, will continue to drive expense growth throughout the remainder of 2022.
Company Overview
We are a technology firm focused on enhancing communications between public companies and their shareholders and investors. We currently have two distinct business units:
? Our unique SaaS platform, Sequire, which allows issuers to track their shareholders' behaviors and trends, then use data-driven insights to engage with shareholders across marketing channels. Through Sequire, we offer tools and related data and insight services to allow issuers of publicly traded securities to better understand their position in the market.
? LD Micro organizes and hosts investor conferences for micro and small-cap companies.
We derive our revenues from the:
? Licensing of our proprietary SaaS platform; ? Sales of proprietary data; ? Attendance and sponsorship fees from investor conferences and events; and ? Sales of insight and consulting services. Sequire
The Sequire platform is a central hub where companies can manage certain administrative functions, reach out and engage with shareholders as well as identify potential new investors. The platform utilizes machine learning and advanced analytics to bring our clients actionable information that we believe can be used to maximize ROI through better investor and stockholder communications. Clients then can engage with targeted shareholder groups across marketing channels including email, social media, programmatic, and hyperlocal.
When interpreting data, clients can see gains and losses over time, buying/selling trends, total outstanding shares, new shareholders, and shareholders broken out by percentage. Based on this data, we can assist our users in developing customized communications campaign utilizing targeted ads and messaging.
Among other features, the Sequire platform provides its users tools to monitor investor sentiment and activities and simplify back office administration such as:
? real-time level-two trading data,
? the ability to monitor the activities of competitive public companies of the
user,
? news alerts,
? custom survey feature to enhance shareholder communications;
? real-time and searchable warrant and option ledgers; and
? integrated communication between investor relations programs and corporate
communication firms.
Data Targeting
We help our clients build an investor base through targeted advertising and marketing campaigns, tailored to their needs. Using data-driven insights, we help clients meet their unique marketing objectives, whether they're messaging existing investors, new investors, or consumers.
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Our team of experts takes a deep dive into each company, building out unique messaging to suit their target investors. Once media campaigns are built, they are run through the Sequire platform across multiple target segments. We then track performance and modify the campaign for the best possible results. Our clients have needs to target particular sectors and exchanges, and the value we deliver lies in the hyper-specific investor insights necessary for that kind of focused outreach.
We are maximizing the efficacy of our media campaigns by providing our clients with custom-built landing pages that are crafted to educate, engage, and convert new investors. When a new investor clicks through an ad, they will land on a story-driven page with data-tracking software embedded to collect analytics for later use.
Virtual Events and LD Micro
LD Micro is the premier event platform for micro-cap and small cap companies. In September of 2020, we acquired LD Micro, and hosted the 2020 Main Event on our Sequire Virtual Events platform. The 2021 Main Event had over 3,000 attendees and hosted webinars with over 500 companies. We are currently planning to expand the number and subject matter of our conferences and events. Through the events platform, we have the ability to host a variety of virtual events and conferences including investor conferences, earnings calls, shareholder meetings, annual, investor/analyst days, corporate town halls, roadshows, and more. We believe that our ability to offer users a seamless, centrally managed virtual events solution that can be customized to any industry will help transform our platform into the premier investor event tool.
Marketing and sales
We market our services through our in-house sales and marketing team. Our team focuses on social media, including Facebook, LinkedIn and Twitter, public relations (PR), industry events and the creation of white papers which assist in our marketing efforts and are used as lead generation tools.
Intellectual property
We currently rely on a combination of patents, trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information. We currently have eight (8) US patent applications filed.
FINANCIAL CONDITION
Going Concern
Cash on hand and marketable securities at
The Company has incurred significant losses since its inception and has not demonstrated an ability to generate operating cash flow. In addition, the Company's operations may require additional financial support or additional financing. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year from the issuance date of the consolidated financial statements. The unaudited Condensed Consolidated Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the unaudited Condensed Consolidated Financial Statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Cash, Cash Equivalents, and Investments
As of
29 Components of Operations Revenues
Sequire Platform. We recognize revenue from the licensing of our Sequire platform, data, marketing and insight services performed in conjunction with the Sequire platform. We recognize revenue using the percentage of completion method based primarily on time.
Conference Revenue. We recognize revenue from hosting conferences and associated sponsorships. We receive payment from presenting companies and sponsors of the conferences.
Operating Expenses
Cost of revenue. Our cost of revenue consists primarily of expenses associated with the cost of media from third parties.
Employee related costs. These are the costs we incur to employ our staff.
Platform costs. Consist of the technology and content hosting of our Sequire.
Marketing and selling expenses. These are the costs we incur to market our products, data service fees and third-party selling costs.
Depreciation and Amortization. Depreciation and Amortization cost represent an allocation of the costs incurred to acquire the long-lived assets used in our business over their estimated useful lives. Our long-lived assets consist of property and equipment and internally developed software.
General and administrative. General and administrative expense consists primarily of human resources, information technology, professional fees, IT and facility overhead, and other general corporate expense. We expect our general and administrative expense to increase in absolute dollars primarily as a result of the increased costs associated with being a stand-alone public company. However, we also expect our general and administrative expense to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of such expense.
Results of Operations Revenues The following table presents net revenues by type for the three months endedMarch 31 : Increase (Decrease) 2022 2021 $ % Sequire platform revenue$ 7,499,000 $ 4,508,000 $ 2,991,000 66 % Conference revenue - 45,000 (45,000 ) (100 )% Other revenue - 364,000 (364,000 ) (100 )% Total revenue$ 7,499,000 $ 4,917,000 $ 2,582,000 53 %
Revenues for the three months ended
30 Operating Expenses The following table presents operating expenses by type for the three months endedMarch 31, 2022 : Increase (Decrease) 2022 2021 $ % Cost of revenues$ 2,798,000 $ 1,377,000 $ 1,421,000 103 % % of net revenues 37 % 28 % Employee related costs 2,497,000 1,550,000 947,000 61 % % of net revenues 33 % 32 % Platform costs 76,000 20,000 56,000 280 % % of net revenues 1 % 0 % Marketing and selling 1,413,000 994,000 419,000 42 % % of net revenues 19 % 20 % Depreciation and amortization 187,000 256,000 (69,000 ) (27 )% % of net revenues 2 % 5 % General and administrative 1,856,000 295,000 1,561,000 529 % % of net revenues 25 % 6 % Total expense$ 8,827,000 $ 4,492,000 $ 4,335,000 97 %
Cost of revenue. Cost of revenue for the three months ended
Employee Related Costs. Employee related costs increased to
Platform costs. Platform costs for the three months ended
Marketing, data services and sales. Marketing, data services and sales for the
three months ended
Depreciation and Amortization. Our long-lived assets primarily consist of
internally developed software. For the three months ended
General and administrative. General and administrative expenses were
approximately
Other income / (loss). Other income / (loss) for the three months ended
31 Cash Flows The following table presents our cash flows for the three months endedMarch 31, 2022 : 2022 2021 Net cash (used in) provided by: Continuing operating activities$ (5,328,000 ) $ (4,651,000 ) Continuing investing activities 1,279,000 1,074,000 Continuing financing activities 3,052,000 12,968,000
Net cash (used in) provided by continuing operations (997,000 ) 9,391,000 Net cash provided by discontinued operations
- 3,667,000
Net cash (decrease) increase $ (997,000 ) $ 13,058,000 Cash flows from continuing operating activities
The primary use of operating cash is to pay our media, data and platform
vendors, employees and others for a wide range of services. Cash flows used in
continuing operating activities increased by approximately
The Company expects to continue to use cash in excess of receipts generated from operations for the foreseeable future due to the substantial portion of the Company's sales paid for in marketable securities of our customers. The Company classifies proceeds from the sales of marketable securities received from our customers for the payment of our services as investing activities.
Cash flows from continuing investing activities
Our principal recurring investing activities are the funding of our internal
software development and the sale of marketable securities. During the three
months ended
Cash flows from continuing financing activities
During the three months ended
Liquidity
We believe that our current sources of funds will not provide us with adequate
liquidity during the 12-month period following
The Company projects the sale of its marketable security holding will represent a substantial portion of the cash required for operations for the foreseeable future, and as a consequence, creates substantial doubt about the Company's ability to continue as a going concern.
We expect to generate net positive operating income and cash flows from our Sequire business in the future, however, due to uncertainty around the timing and realization of cash flow creates substantial doubt about the Company's ability to continue as a going concern.
During the three months ended
We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies. Finally, we continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing debt facilities. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early or repurchase our common stock through our Stock buy-back program.
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On
On
On
As of
We have historically financed our operations primarily from the sale of debt and
equity securities. Recently, our operations from Sequire and LD Micro have
resulted in increased revenue, but we are still not cash flow positive, and
accordingly cannot fund our operations solely from our revenue. Notwithstanding
our recent revolving credit facility financing (including the bridge note), for
which we have received approximately
Series A Preferred Stock
During 2021 we issued 36,462,417 shares of our Series A Preferred Stock to
Qualified Recipients (as defined below) on a 1-for-1 as converted to common
stock basis (the "Dividend"). The record date for the Dividend was
As of the Record Date, the following holders of securities were entitled to receive the Dividend (collectively, the "Qualified Recipients"):
(i) each outstanding share of common stock, of which 25,160,504 shares were
issued and outstanding,
(ii) each share of common stock underlying outstanding common stock purchase
warrants containing a contractual right to receive the Dividend of which,
10,377,645 were outstanding, and
(iii) each original issue discount senior convertible debenture issued on June
30, 2020 , containing a contractual right to receive the Dividend on an as
converted to common stock basis, of which $2,486,275 of Debentures were
outstanding in principal and interest, convertible into 924,268 shares of
common stock.
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As of the Record Date, the Designated Assets had an aggregate value of
approximately
During the fourth quarter and portion of the third quarter of 2021, we sold an
aggregate of approximately
As of
During the first quarter of 2022, we sold an aggregate of Designated Assets with
a cost basis of
As of
The Designated Assets consist of securities (i) from twenty three (23) companies
that trade or are quoted on the OTC Markets, (ii) having quoted stock prices
ranging from
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies during the three
months ended
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