UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended DECEMBER 31, 2022

or

For the transition period from _______________ to _______________

Commission file number: 001-37916

SRAX, INC.

(Exact name of registrant as specified in its charter)

2629 Townsgate Road #215,

Westlake Village, CA 91361

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (323) 694-9800

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

Securities registered under Section 12(g) of the Act:

Class A Common Stock, $0.001 par value

(Title of class)

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

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

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 ☒ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☐ Yes ☒ No

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

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

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2022 was $78,884,807 based on the closing price of $3.32.

There were 29,150,262 shares of Class A common stock outstanding as of August 29, 2024.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

PART I

We urge you to read this entire Annual Report on Form 10-K, including the “Risk Factors” section, the financial statements and the related notes included therein. As used in this Annual Report, unless context otherwise requires, the words “we,” “us,” “our,” “the Company,” “SRAX,” “Registrant” refer to SRAX, Inc. and its subsidiaries. Additionally, and reference to “LD Micro” refers to the Company’s previously wholly owned subsidiary, LD Micro, Inc. and the assets used in its operations. LD Micro was divested pursuant to an Agreement and Plan of Merger that closed on March 3, 2023. Any reference to “BIGToken” and “BIGToken, Inc.”, or the “BIGToken Project” refer to the Company’s previously wholly owned subsidiary, BIGToken, Inc. and the assets used in its operations. BIGToken was divested pursuant to a share exchange agreement that closed on February 4, 2021.

Any reference to “common share” or “common stock,” refers to our $0.001 par value Class A common stock. Any reference to our Series A Preferred Stock refers to our $0.001 par value Series A Non-Voting Preferred Stock. Any reference to our Series B Preferred Stock refers to our $0.001 par value Series B Non-Voting Preferred Stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Annual Report on Form 10-K that are not purely historical are considered to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include, but are not limited to: any projections of revenues, earnings, or other financial items; any statements of the strategies, plans and objectives of management for future operations; any statements concerning proposed new products or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” and any other similar words. These statements represent our expectations, beliefs, anticipations, commitments, intentions, and strategies regarding the future and include, but are not limited to, the risks and uncertainties outlined in Item 1.A Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and those discussed in other documents we file with the Securities and Exchange Commission (SEC). Readers are cautioned that actual results could differ materially from the anticipated results or other expectations that are expressed in forward-looking statements within this report. The forward-looking statements included in this report speak only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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 that are part of the Sequire platform:

We derive our revenues from the:

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 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 advertising, and hyperlocal targeting.

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:

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.

Investor Conferences

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.

We have also launched the Sequire Investor Conference in Puerto Rico, which brings together public companies with investors from the island and from around the world. The conference has been held for two years and is about to be launched for the third year in January of 2025. We collect fees from the public companies that participate at the event as well as sponsors that are looking to market to both the investors and the companies at the event.

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.

Government regulation

We are subject to a variety of laws and regulations in the United States that involve matters central to our business. Many of these laws and regulations are still evolving and being tested in courts and could be interpreted in ways that could harm our business. We are also subject to many of the laws that cover the securities industry and are regulated by the Securities and Exchange Commission.

These laws may involve privacy, data protection and personal information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, electronic contracts and other communications, competition, protection of minors, consumer protection, product liability, taxation, economic or other trade prohibitions or sanctions, anti-corruption law compliance, securities law compliance, and online payment services. In particular, we are subject to federal, state, and foreign laws regarding privacy and protection of people’s data. Foreign data protection, privacy, content, competition, and other laws and regulations can impose different obligations or be more restrictive than those in the United States. U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices.

Proposed or new legislation and regulations could also significantly affect our business. For example, the European General Data Protection Regulation (GDPR) took effect in May 2018 and applies to all of our products and services used by people in Europe. The GDPR includes operational requirements for companies that receive or process personal data of residents of the European Union that are different from those previously in place in the European Union and includes significant penalties for non-compliance. The California Consumer Privacy Act, which took effect in January 2020, also establishes certain transparency rules and creates new data privacy rights for users. Similarly, there are a number of legislative proposals in the European Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting our business, such as liability for copyright infringement. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services. We may become the subject of investigations, inquiries, data requests, requests for information, actions, and audits by government authorities and regulators in the United States, Europe, and around the world, particularly in the areas of privacy, data protection, law enforcement, consumer protection, and competition, as we continue to grow and expand our operations. We are currently, and may in the future be, subject to regulatory orders or consent decrees, including the modified consent order we entered into in July 2019 with the U.S. Federal Trade Commission (FTC) which is pending federal court approval and which, among other matters, will require us to implement a comprehensive expansion of our privacy program. Orders issued by, or inquiries or enforcement actions initiated by, government or regulatory authorities could cause us to incur substantial costs, expose us to unanticipated civil and criminal liability or penalties (including substantial monetary remedies), interrupt or require us to change our business practices in a manner materially adverse to our business, divert resources and the attention of management from our business, or subject us to other remedies that adversely affect our business.

Employees and Human Capital Resources

As of December 31, 2022, we had 122 full-time employees. Of these employees, six are engaged in executive management, 65 in information technology including those participating in our research and development efforts, 13 in sales and marketing, 29 in integration and customer support and 9 in administration. All employees are employed “at will.” We believe our relations with our employees are generally positive and we have no collective bargaining agreements with any labor unions. As of August 15, 2024, the Company currently has 7 full time employees and 13 contractors.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel, whether existing employees or new hires, through the granting of stock-based and cash-based compensation awards. We believe that this increases value to our stockholders and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

We provide our employees and their families with access to health and wellness programs, including benefits that provide protection and security concerning events that may require time away from work or that impact their financial well-being; and that offer choices where possible so employees can customize their benefits to meet their needs. In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the community in which we operate, and which comply with government regulations, including working in a remote environment where appropriate or required. As of the date of this Annual Report, all of our employees are currently working remotely.

Our history

We were originally organized in August 2009 as a California limited liability company under the name Social Reality, LLC, and we converted to a Delaware corporation effective January 1, 2012. Social Reality, LLC began business in May 2010. Upon the conversion, we changed our name to Social Reality, Inc. On August 15, 2019, we formally changed our name to SRAX, Inc. In September 2020, we acquired LD Micro as a wholly owned subsidiary. In February of 2021 we completed the divestiture of our BIGToken subsidiary and the related platform. In March 2023, we completed the sale of the LD Micro business and in May 2024 we signed an agreement to acquire DNA Holdings Venture Inc. (“DNA”). Mr. Miglino, Chief Executive Officer and sole director of the Company, serves as the Chief Executive Officer of DNA.

Recent Developments

Putative Issuance – Series A

On September 27, 2021, the Company issued 36,412,417 shares of Series A Non-voting Preferred Stock (“Series A Stock”) as a dividend to holders of its (i) Class A common stock (“Common Stock”), (ii) certain warrants to purchase Common Stock, and (iii) the Company’s original issue discount senior convertible debentures. The Company’s certificate of designation of preferences, rights and limitations of Series A Non-Voting Preferred Stock (the “COD”) authorized the issuance of up to 36,412,417 shares of Series A Stock. As a result of an oversight, the Company determined that a holder of a warrant to purchase 50,000 shares of Common Stock (the “Warrant Holder”) that had a contractual right to receive the Series A Stock dividend was not included in such dividend. As a result, on December 23, 2021, the Company issued an additional 50,000 shares of Series A Stock to such Warrant Holder (the “Putative Issuance”). As a result of the Putative Issuance, the Company exceeded its authorized shares of Series A Stock by 50,000 shares in excess of what was authorized under the COD.

Pursuant to Section 204 of the Delaware General Corporation Law (“DGCL”), the Company’s Board of Directors adopted a resolution ratifying the Putative Issuance on January 24, 2022. On January 31, 2022, the Company filed a Certificate of Validation (the “Validation Certificate”) and a Certificate of Increase of the COD (“Certificate of Increase”) with the Secretary of State of the State of Delaware (“Delaware SOS”) approving the Putative Issuance and authorizing an increase of 50,000 shares of Series A Stock, or an aggregate of 36,462,417 shares of Series A Stock effective as of December 23, 2021, the date such Putative Issuance occurred.

Extension of Outstanding Original Issue Discount Senior Secured Convertible Debentures

On July 1, 2022, the holders (“2020 Holders”) of $1,102,682 in principal of the Company’s Original Issue Discount Senior Secured Convertible Debentures (“2020 Debentures”), representing all of the outstanding 2020 Debentures that were originally issued on June 30, 2020, entered into an agreement with the Company to (i) extend the maturity date of the 2020 Debentures until December 31, 2023 and (ii) extend the first date that monthly redemptions are required to be made by the Company to begin on January 1, 2023 (the “Debenture Extension”). As consideration for the Debenture Extension, the Company increased the principal amount outstanding on the 2020 Debentures by five percent (5%). Additionally, the holders of the 2020 Debentures have the unilateral right to extend the maturity date and monthly redemption period by an additional six (6) month period at any time prior to January 1, 2023 for an additional five percent (5%) to be added to the outstanding principal of such 2020 Debentures. The 2020 Debentures, including the additional principal added to the 2020 Debentures are secured by substantially all of the assets of the Company pursuant to a security agreement entered into between the Company and 2020 Holders contemporaneous with the original issuance of the Debentures.

Bridge Note

On June 28, 2022, we entered into a nonbinding term sheet regarding a $10 million revolving credit facility with ATW Opportunities Master Fund II, LP (“ATW”). As part of the transaction, on July 1, 2022, the Company issued an original issue discount bridge note in principal amount of $650,000 (“Bridge Note”) to ATW in exchange for $500,000 in cash. The Bridge Note is non-interest bearing and has a maturity date of August 15, 2022. The Company’s obligations pursuant to the Bridge Note are secured by substantially all of the assets of the Company pursuant to the terms of the Security Agreement.

Senior Secured Revolving Credit Facility

On August 8, 2022, the Company entered into a senior secured revolving credit facility agreement (the “Credit Agreement”) with ATW to initially borrow up to $9,450,000 (“Loan Amount”) in the aggregate from time to time, subject to certain conditions (each a “Revolving Loan”). The Revolving Loan is secured by all the assets of the Company and was guaranteed by the Company’s former wholly owned subsidiary LD Micro, Inc. (collectively, the Company and LD Micro are the “Credit Parties”). In addition to the Credit Agreement, the Company and/or the Credit Parties, as applicable, also entered into a: (i) Revolving Note, (ii) Security Agreements, (iii) Fee Agreement and (iv) Registration Rights Agreement. As part of the transaction, the Company also amended and restated ATW’s outstanding warrants to extend the maturity date until September 30, 2023. In May 2023, in connection with the sale of LD Micro to Freedom (as defined below), ATW released the LD Micro assets from its secured interest. ATW advanced $5,580,000 consisting of $4,930,000 in cash and the exchange of the $650,000 bridge note entered into on June 28, 2022.

The Revolving Note was initially convertible into shares of the Company’s Class A Common Stock at a conversion price of $15.00 per share (“Conversion Price”). The Conversion Price is subject to adjustment in the event of stock splits, dividends and fundamental transactions. Moreover, in the event the Company is deemed to have issued or sold shares of its Common Stock while the Revolving Loan is outstanding at a price equal to or less than $5.00 per share, the conversion price will adjust to such lower applicable price.

The principal balance of each Revolving Loan will reflect an initial original issue discount of ten percent (10%) which will increase to twelve percent (12%) in the event the Prime borrowing rate increases to 6.75%. Additionally, on the 12-month anniversary of the origination date of each Revolving Loan, the principal will increase by the ten percent (10%) or twelve percent (12%) pursuant to the calculation in the foregoing sentence. The annual interest rate on each Revolving Loans is eleven and one half percent (11.5%). The Revolving Loans have a maturity date of the earlier of (i) twenty-four (24) months from the effective date of the Credit Agreement or (ii) the occurrence of an event of default.

Commencing on the first day of each month after the effective date of the Credit Agreement (each a “Payment Date”), the outstanding balance of the Revolving Loan were required to be paid as follows:

Additionally, with respect to any Payment Date where the applicable monthly collection from the sale of securities received by the Company from its customers during the prior month exceeds $2,000,000, the Company will make an additional payment equal to 30% of any amounts in excess of $2,000,000.

In order to perfect ATW’s security interest, the Credit Parties entered into: (i) Security Agreements, (ii) Guaranty Agreements, (iii) Pledge Agreements and (iv) Security Account Control Agreements and Deposit Account Control Agreements (collectively “Security Agreements”). The Security Agreements provide for a general lien on all of the Credit Parties’ assets, including each party’s respective intellectual property. In May 2023, in connection with the sale of LD Micro to Freedom (as defined below), ATW released the LD Micro assets from its secured interest.

As part of the transactions contemplated by the Loan Documents, the Company additionally agreed to extend the expiration dates of the following outstanding Common Stock purchase warrants held by the Lender or its affiliated entities until September 30, 2023:

As consideration for Lender entering into the Loan Documents, Lender will be entitled to receive, in addition to any payment made under the Credit Agreement, 10% of the net proceeds received by SRAX from the sales of securities received during the term of the Revolving Loan.

DNA Holdings, LLC Asset Acquisition

On February 3, 2023 (the “APA Closing Date”), the Company entered into and consummated the transactions contemplated by the Asset Purchase Agreement (the “APA”) and the related Bill of Sale and Assignment and Assumption Agreement (the “Assignment Agreement,” and together with the Assignment Agreement, the “Transaction Documents”) with DNA Holdings, LLC, a limited liability company formed under the laws of the Commonwealth of Puerto Rico (the “Seller”), pursuant to which, subject to the terms and conditions of the APA, the Seller sold certain assets from its advisory company that is engaged in the business of advising entrepreneurs in connection with capital structuring, marketing, developing decentralized ecosystems and providing introductions to strategic investors (the “Business”). Specifically, pursuant to the Transaction Documents, the Company acquired certain assets of the Business (the “Purchased Assets”), including $1,000,000 in cash, crypto assets, equity investments into three private companies and a customer database from the Seller (the “Acquisition”). The Seller is managed by The Roundtable LLC, which is managed by Brock Pierce, who as of the APA Closing Date was a member of the Company’s board of directors (the “Board”). The Acquisition was approved on February 3, 2023, by the Audit Committee of the Board and the Board. Mr. Pierce did not participate in discussions of the Board about whether to approve the Acquisition, and did not vote on the Acquisition at the Board meeting. In each case, it was considered that Mr. Pierce was an interested director of the Company. In each case, it also was determined, among other things, that, notwithstanding that Mr. Pierce was an interested director of the Company, the assets acquired in the Acquisition constitute fair and adequate consideration for the securities to be issued pursuant to the APA.

Pursuant to the terms of the APA, at the closing of the Acquisition (the “APA Closing”), in exchange for the Purchased Assets, which had an aggregate value of approximately $4,000,000 (excluding the value of the customer database, as the Company is finalizing the valuation of such asset), the Company issued and delivered to Seller (i) 1,313,127 shares of the Company’s Class A common stock and (ii) 63,743 shares of the Company’s newly designated class of Series B Non-Voting Convertible Preferred Stock (the “Series B Preferred Stock”) convertible into an aggregate of 3,059,664 shares of Common Stock (collectively, the “Upfront Shares”). In addition to the Upfront Shares, the Company delivered into escrow 54,908 shares of Series B Preferred Stock convertible, subject to receipt of APA Stockholder Approval and the Deferred Payment (as defined below), into 2,635,591 shares of Common Stock (the “Escrow Shares,” together with the Upfront Shares, the “Acquisition Shares”).

Pursuant to the APA, the Upfront Shares were issued and delivered at the APA Closing Date, subject to the terms of the Lock-Up Agreement (as defined below). The Escrow Shares were delivered to the Escrow Agent at the closing of the Acquisition, and the Seller received a book-entry confirmation in its name evidencing the Escrow Shares.

In accordance with applicable Nasdaq listing rules, the Company had intended to obtain stockholder approval to issue the shares of common stock underlying the Series B Preferred Stock so that it may issue shares of common stock to the Seller in excess of 1,313,127 shares of common stock, the amount of shares equal to 4.99% of the issued and outstanding common stock on the APA Closing Date (“APA Stockholder Approval”). Within thirty (30) days, but not earlier than fifteen (15) business days after APA Stockholder Approval is obtained, the Seller was required to prepare and deliver to the Company a written determination, in the Seller’s sole and absolute discretion, of an amount equal to or less than $2,000,000 to be paid to the Company, if any (such amount to be paid to the Company, the “Deferred Payment” and such amount that will not be paid to the Company, the “Uncollected Deferred Payment”). Within five (5) business days of the delivery of such written determination, subject and upon receipt of the Deferred Payment, the Company and the Seller will instruct the Escrow Agent to release to the Company such number of Escrow Shares based upon the shares of common stock underlying the Series B Preferred Stock multiplied by the quotient of (i) the outstanding Uncollected Deferred Payment divided by (ii) $2,000,000. The balance of the Escrow Shares will then be released to the Seller (the “Post-Closing Adjustment”). In the event APA Stockholder Approval is not received on or prior to the eighteen (18) month anniversary of the APA Closing, the Deferred Payment will lapse and the Escrow Shares will all be released to the Company. The Company did not receive the required APA Stockholder Approval and the Escrow Shares were returned to the Company for cancellation.

The powers, designations, preferences and other rights of the shares of Series B Preferred Stock are set forth in the Certificate of Designation establishing the Series B Preferred Stock filed by the Company with the Delaware Secretary of State on February 3, 2023, in connection with the Closing. Each share of Series B Preferred Stock shall had an initial Stated Value of $48.00 per share.

Each share of Series B Preferred Stock is convertible at any time at the option of the holder into shares of common stock. The initial conversion price is $1.00 per share of common stock, subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations and reclassifications, and other similar events affecting the Common Stock. Except as otherwise provided in the Certificate of Designation or as otherwise required by law, the Series B Preferred Stock has no voting rights. In the event we effect certain mergers, consolidations, sales of substantially all of our assets, tender or exchange offers, reclassifications or share exchanges in which our common stock is effectively converted into or exchanged for other securities, cash or property, we consummate a business combination in which another person acquires 50% of the outstanding shares of our common stock, or any person or group becomes the beneficial owner of 50% of the aggregate ordinary voting power represented by our issued and outstanding common stock, then, upon any subsequent conversion of the Series B Preferred Stock, the holders of the Series B Preferred Stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of Common Stock then issuable upon conversion in full of the Series B Preferred Stock. Holders of Series B Preferred Stock shall be entitled to receive dividends (on an as-if-converted-to-Common-Stock basis, without regard to any conversion limitations in the Certificate of Designation) in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of Common Stock.

In connection with the Acquisition, the Seller entered into a lock-up agreement (the “Lock-Up Agreement”), whereby the Seller is restricted for a period of 540 days after the Closing from certain sales or dispositions (including any pledge) of all of the Series B Preferred Stock and Common Stock held by the Seller or any securities convertible into or exercisable or exchangeable for such securities, provided, however, that the Seller may sell, in one or a series of open-market transactions, one-third (1/3) of the shares of Common Stock, including the shares of Common Stock issuable upon conversion of Series B Preferred Stock, received pursuant to the APA as of February 3, 2023: (i) after 180 days, and (ii) after 360 days. The foregoing restrictions will not apply to certain other transfers customarily excepted.

ATW Amendment

Amendment and Waiver Agreements

On February 3, 2023, the Company entered into an amendment and waiver agreement (the “Amendment and Waiver Agreement”) with the ATW and its affiliates, pursuant to which the parties agreed to amend or modify certain outstanding agreements to permit the consummation of the Acquisition and avoid any potential noncompliance or events of default relating to such prior agreements. Unless otherwise noted, all capitalized terms used below but not defined herein shall have the meaning ascribed to such term in the Amendment and Waiver Agreement.

Series A Warrant

Pursuant to the Amendment and Waiver Agreement, the Company and the Holder of Series A Common Stock Purchase Warrants, issued on October 27, 2017, agreed to amend the exercise price of such warrants from $3.00 per share to $1.00 per share.

Series B Warrant

On November 29, 2018, the Company issued that certain Series B Common Stock Purchase Warrant to one of the Holders.

Pursuant to the Amendment and Waiver Agreement, the Company and the Holder of Series B Common Stock Purchase Warrants agreed to amend the exercise price of such warrants from $3.00 per share to $1.00 per share.

Debentures

Pursuant to the Amendment and Waiver Agreement, the Company and the Holder of that certain Original Issue Discount Senior Secured Convertible Debenture, issued on June 30, 2020, (the “Debenture”) agreed to:

Purchase Warrant

Pursuant to the Amendment and Waiver Agreement, the Company and the Holder of that certain Common Stock Purchase Warrant agreed to amend the exercise price of such warrants from $2.50 per share to $1.00 per share.

Revolving Note

Pursuant to the Amendment and Waiver Agreement, the Company and the Holder of that certain Revolving Note, issued on August 8, 2022 (the “Note”) agreed to change the conversion price of such notes from $15.00 to $1.00, subject to adjustments as provided for in the Note.

Credit Agreement

Pursuant to the Amendment and Waiver Agreement, the Company and the Holder of that certain Senior Secured Revolving Credit Facility Agreement, entered into on August 8, 2022 (the “Credit Agreement”) agreed to amend, modify and waive certain terms and conditions of the Credit Agreement. Specifically, the Amendment and Waiver Agreement amends the Credit Agreement to, among other things:

On February 3, 2023, pursuant to the Amendment and Waiver Agreement, the Company and one of the Holders mutually terminated the registration rights agreement entered into on August 8, 2022.

On September 13, 2023, the closing date, the Company and ATW and its affiliates entered into an Omnibus Amendment Agreement (the “Amendment”). The parties have agreed to temporarily amend certain provisions of the Credit Agreement, Revolving Note, and Debenture for a period of up to fourteen (14) months from the effective date of the Amendment. These amendments include, but are not limited to, provisions related to the payment of amounts owing under the Credit Agreement from the proceeds of the sale of third-party securities held by the company. Per the agreement ATW shall receive one hundred percent of the proceeds from sales from third party securities owned by the Company until such time as outstanding amounts due under the respective agreements have been repaid. The Company shall maintain the rights to all proceeds from sales of the marketable securities once the amounts due to ATW have been satisfied. The Amendment includes temporary waivers and amendments that allow for Permitted Subsequent Offerings, subject to specified conditions. The Company has agreed to various covenants and conditions, including providing access to certain accounts and notifying ATW of material changes.

Sale of LD Micro, Inc.

On March 3, 2023 (the “Freedom Closing Date”), the Company entered into and consummated the transactions contemplated by the Agreement and Plan of Merger (the “Freedom Merger Agreement”) with Freedom Holding Corp., a Nevada corporation (the “Parent”), Freedom U.S. Markets, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Parent (the “Buyer”), LDM Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Buyer (“Merger Sub”), LD Micro, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“LD Micro”), to sell LD Micro, a small cap platform and conference provider. Specifically, pursuant to the terms of the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Freedom Closing”), LD Micro merged with and into Merger Sub (the “Freedom Merger”), with Merger Sub surviving the Freedom Merger (the “Surviving Corporation”), in a transaction intended to qualify for tax-free treatment under Section 368(a) of the Internal Revenue Code of 1986, as amended.

At the Freedom Closing, as consideration for the sale of LD Micro by means of the Merger, the Buyer paid the Company $8,300,000 in consideration, consisting of $4,000,000 in cash (the “Cash Payment”), and 59,763 shares of the Parent’s common stock, par value $0.001 per share (the “Payment Shares,” and together with the Cash Payment, the “Merger Consideration”). The Company also entered into a four (4) year Sponsorship Agreement that provides the Company certain exclusive rights as it relates to LD Micro following the Merger, as more fully described below.

LD Micro’s President, Christopher Lahiji, at the time of the transaction, was a member of the Company’s board of directors. The Freedom Merger was approved on March 2, 2023, by the Board. In such case, it was considered that Mr. Lahiji was an interested director of the Company with respect to the Freedom Merger. In such case, it also was determined, among other things, that, notwithstanding that Mr. Lahiji was an interested director of the Company, the Merger Consideration received for the sale of LD Micro, by means of the Freedom Merger, constitute fair and adequate consideration. In connection with the Freedom Merger, Mr. Lahiji stepped down from the board of directors.

Consent, Waiver and Release Agreement

The Company and LD Micro entered into a consent, waiver and release agreement (the “Consent Agreement”) dated as of March 1, 2023, but effective as of the Freedom Closing Date, with ATW, pursuant to which ATW agreed to: (i) fully release LD Micro from its obligations as a credit party in each of the Loan Documents LD Micro is a party of; (ii) release and terminate the Lender’s lien and security interest in and to any assets of LD Micro granted under the respective Loan Document creating such interest; (iii) release and terminate LD Micro’s issued and outstanding shares pledge under the respective Loan Document creating such pledge; (iv) waive any restrictions, covenants and other obligations contained in the Loan Documents, which would otherwise be potentially breached as a result of the Freedom Merger; and (v) waive any Events of Default (as defined in the Credit Agreement) arising under the Loan Documents as a result of or in connection with the Freedom Merger.

The Consent Agreement also provides that, within forty-five (45) days following the Company’s receipt of the Merger Consideration, the Company must use 15% of the gross cash proceeds from the Cash Payment to redeem its common stock at a price per share of less than $5.00, and pay 10% of the gross cash proceeds from the Cash Payment to pay any outstanding amounts under the Revolving Loans. Further, to the extent permitted under applicable law, following the Company’s sale of the Payment Shares, and within forty-five (45) days of the receipt of the proceeds from any sale of the Payment Shares, the Company will use 15% of the gross cash proceeds from the sale of the Payment Shares (less any broker’s fees or commissions) to redeem its common stock at a price per share less than $5.00, and 10% of such proceeds to pay any outstanding amounts under the Revolving Loans (less any broker’s fees or commissions).

On March 3, 2023, in connection with the consummation of the Freedom Merger, Christopher Lahiji, President of LD Micro and member of our board of directors, resigned as a member of the Board pursuant to a resignation letter, effective immediately. Mr. Lahiji did not serve on any committees of the board of directors.

Private Offering – November 2023

On November 2, 2023, the Company entered into definitive securities purchase agreements with certain accredited and institutional investors (the “November 2023 Purchasers”) for the purchase and sale of an aggregate of: (i) $552,000 in principal amount of Original Issue Discount Convertible Debenture (the “November 2023 Debentures”) for $460,000 (representing a 20% original issue discount) and (ii) warrants to purchase up to 3,680,000 shares of the Company’s Class A common stock (the “November 2023 Warrants”) in a private placement.

The Debentures, which mature on November 3, 2024, pay 0%, no interest per annum commencing on November 3, 2023. The November 2023 Debentures are convertible at the option of the holder into shares of our Class A common stock at an initial conversion price of $0.25 per share, subject to adjustment in the event of (i) stock splits and dividends, (ii) subsequent rights offerings, (iii) pro-rata distributions, and (iv) certain fundamental transactions, including but not limited to the sale of the Company, business combinations, and reorganizations (v) subsequent equity sales.

Subject to our compliance with certain equity conditions, (as more fully set forth in the Debentures), upon ten (5) trading days’ notice to the November 2023 Purchasers, the Company has the right to prepay the November 2023 Debentures in cash at 120% of their outstanding principal, plus accrued interest for the first 90 days of the note and 135% thereafter.

The November 2023 Debentures also contain certain customary events of default provisions, including, but not limited to, default in payment of principal, changes in control of the Company. Upon the occurrence of any such event of default, the outstanding principal amount of the Debenture plus liquidated damages, interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the November 2023 Purchaser’s election, immediately due and payable in cash.

The November 2023 Warrants are initially exercisable at $0.25 per share and, are subject to cashless exercise after six months if the shares underlying the November 2023 Warrants are not subject to an effective resale registration statement. The November 2023 Warrants are also subject to adjustment in the event of (i) stock splits and dividends, (ii) subsequent rights offerings, (iii) pro-rata distributions, and (iv) certain fundamental transactions, including but not limited to the sale of the Company, business combinations, and reorganizations. (v) subsequent equity sales.

Pursuant to the terms of the November 2023 Debentures and November 2023 Warrants, a November 2023 Purchaser will not have the right to convert any portion of the November 2023 Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% or 9.99% (at the November 2023 Purchaser’s option) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion or exercise, as such percentage ownership is determined in accordance with the terms of the November 2023 Debentures and the November 2023 Warrants; provided that at the election of a holder and notice to us such percentage ownership limitation may be increased to 9.99%; provided that any increase will not be effective until the 61^st day after such notice is delivered from the holder to the Company.

The Offering closed on November 3, 2023.

Private Offering – March 2024

On March 5, 2024, the Company entered into definitive securities purchase agreements with a certain accredited and institutional investor (the “March 2024 Purchasers”) for the purchase and sale of an aggregate of: (i) $90,000 in principal amount of Original Issue Discount Convertible Debenture (the “March 2024 Debentures”) for $75,000 (representing a 20% original issue discount) and (i) in a private placement.

The March 2024 Debentures, which mature on February 28, 2026, pay 0%, no interest per annum commencing on February 29, 2024.

The March 2024 Debentures are convertible at the option of the holder into shares of our Class A common stock at an initial conversion price of $0.25 per share, subject to adjustment in the event of (i) stock splits and dividends, (ii) subsequent rights offerings, (iii) pro-rata distributions, and (iv) certain fundamental transactions, including but not limited to the sale of the Company, business combinations, and reorganizations (v) subsequent equity sales.

Subject to our compliance with certain equity conditions, (as more fully set forth in the March 2024 Debentures), upon five (5) trading days’ notice to the March 2024 Purchasers, the Company has the right to prepay the March 2024 Debentures in cash at 120% of their outstanding principal, plus accrued interest for the first 90 days of the note and 135% thereafter.

The Debentures also contain certain customary events of default provisions, including, but not limited to, default in payment of principal, changes in control of the Company. Upon the occurrence of any such event of default, the outstanding principal amount of the March 2024 Debenture plus liquidated damages, interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the March 2024 Purchaser’s election, immediately due and payable in cash.

The Offering closed on March 5, 2024.

Series B Preferred Stock

On March 27, 2024, the Company filed a Certificate of Amendment to its Certificate of Designation of its Series B of Preferred Stock with the Secretary of State of Delaware, modifying certain provisions of the Certificate of Designation. The modifications include the removal of the need for Shareholder Approval per the NASDAQ rules; the addition of OTCQB, OTCQX and OTC Pink as a trading market; the removal of section 6 (d) removing the need for shareholder approval to issue shares to the holder; and the addition of section 7(c) Subsequent Equity Sales.

Private Offering – April 2024

On March 29, 2024, the Company entered into definitive securities purchase agreements with a certain accredited and institutional investor (the “April 2024 Purchasers”) for the purchase and sale of an aggregate of $90,000 in principal amount of Original Issue Discount Convertible Debenture (the “April 2024 Debentures”) for $75,000 (representing a 20% original issue discount).

The April 2024 Debentures, which mature on March 29, 2026, pay 0%, no interest per annum commencing on March 29, 2024.

The April 2024 Debentures are convertible at the option of the holder into shares of our Class A common stock (“Common Stock”) at an initial conversion price of $0.25 per share, subject to adjustment in the event of (i) stock splits and dividends, (ii) subsequent rights offerings, (iii) pro-rata distributions, and (iv) certain fundamental transactions, including but not limited to the sale of the Company, business combinations, and reorganizations (v) subsequent equity sales.

Subject to our compliance with certain equity conditions, (as more fully set forth in the Debentures), upon five (5) trading days’ notice to the April 2024 Purchasers, the Company has the right to prepay the April 2024 Debentures in cash at 120% of their outstanding principal, plus accrued interest for the first 90 days of the note and 135% thereafter.

The April 2024 Debentures also contain certain customary events of default provisions, including, but not limited to, default in payment of principal, changes in control of the Company. Upon the occurrence of any such event of default, the outstanding principal amount of the April 2024 Debenture plus liquidated damages, interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the Purchaser’s election, immediately due and payable in cash.

The Offering closed on April 2, 2024.

DNA Merger

On May 7, 2024, the Company entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with DNA Holdings Venture, Inc., a Puerto Rico corporation (“DNA”), and DNA Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of SRAX (“Merger Sub”). Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, including approval of the transaction by DNA’s shareholders, Merger Sub will be merged with and into DNA (the “Merger”), with DNA surviving the Merger as a wholly-owned subsidiary of the Company. Subject to the terms and conditions of the Merger Agreement, as consideration for the Merger, SRAX shall issue to the shareholders of DNA 1,000 shares of a newly created Series C Convertible Preferred Stock of the Company (the “Preferred Stock”), which shall be convertible into approximately 75.5% of the outstanding shares of Common Stock of the Company upon closing of the Merger, which includes the approximately 35% of the Company which DNA owned prior to the merger. Upon completion of the Merger, the Company will change its name to DNA Holdings Venture, Inc.

DNA is a Web3 investment company which provides both advisory services and invests in Web3 infrastructure. DNA was founded by Brock Pierce, the Chairman of the Bitcoin Foundation and Scott Walker, a Web3 investor. The DNA team has been co-founders, investors and advisors in some of the most notable Web3 projects in the world; including Tether (USDT), Blockchain Capital (Web3 Venture Fund), Hedera Hashgraph (HBAR) among many others. Mr. Miglino, Chief Executive Officer and sole director of the Company, serves as the Chief Executive Officer of DNA.

The Merger Agreement contains customary representations, warranties and covenants made by SRAX and DNA, including covenants relating to obtaining the requisite approvals of the shareholders of DNA, and the Company’s and DNA’s conduct of their respective businesses between the date of signing of the Merger Agreement and the closing of the transaction.

The closing is subject to satisfaction or waiver of certain conditions including, among other things, (i) the required approvals by the DNA’s shareholders, (ii) the accuracy of the representations and warranties, subject to certain materiality qualifications, (iii) compliance by the parties with their respective covenants, (iv) no law or order preventing the merger and related transactions, (iv) the Company getting current in its reporting obligations with the Securities and Exchange Commission (the “SEC”), (v) the Company obtaining all required third party consents, including the consents of its senior secured creditors and warrantholders, (vi) DNA entering into an exchange agreement agreeing to exchange its existing securities in the Company for the Preferred Stock to be issued upon closing of the Merger and (v) the DNA advancing the Company at least $500,000 on or prior to the closing of the Merger. The Merger Agreement also contains certain termination rights for both the Company and DNA.

Resignations

On March 14, 2023, the board of directors of the Company appointed Alan Urban to replace Michael Malone as the Company’s Chief Financial Officer pursuant to an employment offer letter. On July 5, 2023, Mr. Urban resigned as Chief Financial Officer of the Company. On September 1, 2023, Randy Clark resigned as the Chief Operating Officer of the Company. On July 11 and July 13, 2023, Marc Savas, Robert Jordan, Colleen DiClaudio and Brock Pierce resigned from the board of directors and their respective committee roles of the Company.

Changes to Independent Registered Public Accounting Firm

On June 30, 2022, RBSM LLP, the independent registered public accounting firm to the Company, informed the Company of its decision not to stand for re-appointment as the independent registered public accounting firm of the Company. On October 27, 2022, the Audit Committee of the board of directors of the Company engaged Marcum LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2022. On May 2, 2023, the Audit Committee of the board of directors of the Company approved the dismissal of Marcum LLP (“Marcum”) as independent registered public accounting firm of the Company effective immediately. As previously reported, Marcum was engaged as the Company’s independent registered public accounting firm on October 27, 2022. On May 2, 2023, the audit committee approved the engagement of TAAD as its independent registered public accounting firm for the fiscal year ended December 31, 2022.

Annual Meeting

On December 31, 2022, the Company held its 2022 Annual Meeting. The meeting was held virtually. The director candidates and the 2016 Equity Compensation Plan were approved and the auditors were ratified.

Additional information

We file annual and quarterly reports on Forms 10-K and 10-Q, current reports on Form 8-K and other information with the Securities and Exchange Commission (“SEC” or the “Commission”). The public may read and copy any materials that we file with the Commission at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 a.m. to 3:00 p.m. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission.

Other information about SRAX can be found on our website www.srax.com. Reference in this document to that website address does not constitute incorporation by reference of the information contained on the website.

Please consider the following risk factors carefully. If any one or more of the following risks were to occur, it could have a material adverse effect on our business, prospects, financial condition and results of operations, and the market price of our securities could decrease significantly. Statements below to the effect that an event could or would harm our business (or have an adverse effect on our business or similar statements) mean that the event could or would have a material adverse effect on our business, prospects, financial condition and results of operations, which in turn could or would have a material adverse effect on the market price of our securities. Although we have organized the risk factors below under headings to make them easier to read, many of the risks we face involve more than one type of risk. Consequently, you should read all of the risk factors below carefully before making any decision to acquire or hold our securities.

Risks Related to our Business

We have a history of operating losses and there are no assurances we will report profitable operations in the foreseeable future.

For the years-ended December 31, 2022 and 2021, we reported income/(loss) from operations of $(31,373,000) and ($34,762,000), respectively, and accumulated deficit of ($61,728,000) and ($30,355,000), respectively. Our future success depends on our ability to continue to assimilate the planned DNA acquisition, grow our revenues, contain our operating expenses and generate profits. We do not have any long-term agreements with our customers. There are no assurances that we will be able to assimilate the proposed DNA acquisition, increase our revenues and cash flow to a level which supports profitable operations. We may continue to incur losses in future periods until such time, if ever, as we are successful in significantly increasing our revenues and cash flow beyond what is necessary to fund our ongoing operations and pay our obligations as they become due. If we significantly increase our revenues in future periods, the rapid growth may strain our organization and we may encounter difficulties in maintaining the quality of our operations. If we are not able to successfully increase our revenues, it is unlikely we will be able to generate sufficient cash from operations to pay our operating expenses and service our debt obligations or report profitable operations in future periods.

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

Our auditors’ report on our December 31, 2022 consolidated financial statements expresses an opinion that our capital resources as of the date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Based upon our cash position on December 31, 2022 as well as in August 2024, there is substantial doubt about our ability to continue as a going concern through December 31, 2024. Our ability to continue as a going concern is based on several factors; (i) our ability to sustain our current operating performance, and (ii) our ability to raise additional capital. If we are not successful with either of these, we may no longer be able to continue as a going concern and may cease operation or seek bankruptcy protection.

We may need to raise additional capital to pay our indebtedness as it comes due.

As of December 31, 2022, we presently have the following indebtedness outstanding: $1,216,000 in June 2020 Convertible Debentures and $6,200,000 pursuant to the Senior Secured Revolving Credit Facility, which as of June 30, 2024 remain outstanding. In addition, during year ended December 31, 2023 and during 2024, the Company incurred an additional $1,010,402 in indebtedness. The payment of the debentures and revolving credit facility are secured by substantially all the assets and the intellectual property of the Company. Further, in addition to payments required pursuant the revolving credit facility, the lender is also entitled to ten percent (10%) of the net proceeds of any sales of securities acquired from our customers during the term of the loan. As a result, this will further negatively impact our cash flows from operations and may require us to raise additional capital earlier than previously anticipated. Depending on our level of operations, we may not be able to generate sufficient cash flow to repay the debentures or revolving credit facility as they come due. If we are not able to generate enough cashflow through the operation of our business, we will need to raise additional capital through the sale of debt or equity or the sale of assets, in order to make the required payments. If we are unable to make the required payments, or if we fail to comply with the various requirements and covenants of the debentures and revolving credit facility, we would be in default, which would permit the holders of the debentures and lender in the revolving credit facility to accelerate the maturity and require immediate repayment and lead to potential foreclosure on the assets securing the debt. If we are unable to refinance or repay our indebtedness as it becomes due, including upon an event of default, we may become insolvent and be unable to continue operations.

Our outstanding loan obligations contain substantial covenants that may impact our business, our ability to secure additional debt financing, and our ability to pay our debts as they become due.

As of December 31, 2022, we presently have the following indebtedness outstanding: $1,216,000 in June 2020 Convertible Debentures and $6,200,000 pursuant to the Senior Secured Revolving Credit Facility, which as of June 30, 2024 remain outstanding. In addition, during year ended December 31, 2023 and during 2024, the Company incurred an additional $1,010,402 in indebtedness. Each of the debentures and revolving notes / credit facility contain a number of affirmative and negative covenants, including, but not limited to: reporting requirements, certain financial covenants related to our stock portfolio, collateral limitations, certain limitations on liens and indebtedness, dispositions, mergers and acquisitions, restricted payments and investments, corporate changes and limitations on waivers and amendments to certain agreements, our organizational documents, etc. Our failure to comply with the covenants in the credit agreement governing the credit facility and the debentures and associated transaction documents could result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt and potential foreclosure on the assets pledged to secure the debt.

Further, we agreed to pay the lender in the credit facility, an amount equal to ten percent (10%) of the net proceeds actually received by us from the sale any securities of a customer that we acquired during the term of the revolving note(s). Given that we have not yet achieved profitability, and we will additionally be required to make payments upon the sales of our customer’s securities to the lender, we may be unable to continue to meet our obligations as they become due. If we are unable to refinance or repay our indebtedness as it becomes due or upon an event of default, we may become insolvent and be unable to continue operations.

Additionally, the revolving loan obligations under our secured credit facility provide for variable repayment terms ranging from 10% to 30% of the net proceeds actually received upon the sale of our customer’s securities that we receive pursuant to the provision of services. This will further negatively impact our cash flows and may further accelerate the anticipated timeframe in which we need to raise additional capital.

We are not current in our SEC reporting obligations, which could have material adverse consequences for our company and shareholders.

We are not current in our filing obligations under the Securities Exchange Act of 1934. Specifically, we have not timely filed our Form 10-K for the year ended December 31, 2023 and our Form 10-Qs for the quarters ended March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024 and June 30, 2024. As a result of our failure to remain current in our SEC reporting obligations:

Until we regain compliance with our SEC reporting obligations, we will continue to face these and other risks related to our filing delinquency. Even after becoming current, we may continue to experience negative impacts on investor confidence and our stock price. There can be no assurance as to when we will regain compliance or that we will be able to maintain compliance with SEC reporting requirements in the future.

Our proposed merger with DNA Holdings Venture, Inc. may not be completed, which could negatively impact our business, financial condition, results of operations, and stock price.

On May 7, 2024, the Company entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with DNA Holdings Venture, Inc., a Puerto Rico corporation (“DNA”), and DNA Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of SRAX (“Merger Sub”). Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will be merged with and into DNA (the “Merger”), with DNA surviving the Merger as a wholly-owned subsidiary of the Company. As consideration for the Merger, SRAX shall issue to the shareholders of DNA 1,000 shares of a newly created Series C Convertible Preferred Stock of the Company (the “Preferred Stock”), which shall be convertible into approximately 75.5% of the outstanding shares of Common Stock of the Company upon closing of the Merger, which includes the approximately 35% of the Company which DNA owned prior to the merger. Upon completion of the Merger, the Company will change its name to DNA Holdings Venture, Inc. Mr. Miglino, Chief Executive Officer and sole director of the Company, serves as the Chief Executive Officer of DNA. The closing is subject to satisfaction or waiver of certain conditions including, among other things, (i) the required approvals by the DNA’s shareholders, (ii) the accuracy of the representations and warranties, subject to certain materiality qualifications, (iii) compliance by the parties with their respective covenants, (iv) no law or order preventing the merger and related transactions, (iv) the Company getting current in its reporting obligations with the Securities and Exchange Commission (the “SEC”), (v) the Company obtaining all required third party consents, including the consents of its senior secured creditors and warrantholders, (vi) DNA entering into an exchange agreement agreeing to exchange its existing securities in the Company for the Preferred Stock to be issued upon closing of the Merger and (v) the DNA advancing the Company at least $500,000 on or prior to the closing of the Merger. The Merger Agreement also contains certain termination rights for both the Company and DNA. There is no assurance that these conditions will be met or that the proposed merger will be completed. If the merger is not consummated, we may be subject to several risks, including:

Additionally, the current uncertainty surrounding the completion of the merger may cause or contribute to volatility in our stock price. The failure to complete the merger could materially and adversely affect our business, financial condition, results of operations, and stock price.Even if the merger is completed, we may not realize the anticipated benefits, and the integration process could result in significant costs and difficulties that may disrupt our business operations.

Having only one director, who is also the sole executive officer, limits our ability to establish effective independent corporate governance procedures and increases the control of our president/director.

We have only one director, who is also our sole executive officer. Accordingly, we cannot establish board committees comprised of independent members to oversee functions like compensation, governance or audit issues.

Until we have a larger board of directors that would include some independent members, if ever, there will be limited oversight of our CEO’s decisions and activities and little ability for minority shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority shareholders.

Our failure to maintain an effective system of internal control over financial reporting, has resulted in the need for us to restate previously issued financial statements. As a result, current and potential stockholders may lose confidence in our financial reporting, which could harm our business and value of our stock.

Or management has determined that, as of December 31, 2022, we did not maintain effective internal controls over financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework as a result of identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control 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.

Natural disasters, epidemic or pandemic disease outbreaks, trade wars, political unrest or other events could disrupt our business or operations or those of our development partners, manufacturers, regulators or other third parties with whom we conduct business now or in the future.

A wide variety of events beyond our control, including natural disasters, epidemic or pandemic disease outbreaks (such as the recent novel coronavirus outbreak), trade wars, political unrest or other events could disrupt our business or operations or those of our manufacturers, regulatory authorities, or other third parties with whom we conduct business. These events may cause businesses and government agencies to be shut down, supply chains to be interrupted, slowed, or rendered inoperable, and individuals to become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. These limitations could negatively affect our business operations and continuity, and could negatively impact ability to timely perform basic business functions, including making SEC filings and preparing financial reports. If our operations or those of third parties with whom we have business are impaired or curtailed as a result of these events, the development and commercialization of our products and product candidates could be impaired or halted, which could have a material adverse impact on our business.

A pandemic, epidemic or outbreak of an infectious disease in the markets in which we operate or that otherwise impacts our facilities or advisors could adversely impact our business.

If a pandemic, epidemic, or outbreak of an infectious disease including the recent outbreak of respiratory illness caused by a novel coronavirus (COVID-19) or other public health crisis were to affect our operations, facilities or those of our customers or suppliers, our business could be adversely affected. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only materially impact our operations, financial condition and demand for our services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Commission

Regulatory, legislative or self-regulatory developments regarding internet privacy matters could adversely affect our ability to conduct our business.

The United States and foreign governments have enacted, considered or are considering legislation or regulations that could significantly restrict our ability to collect, process, use, transfer and pool data collected from and about consumers and devices. Trade associations and industry self-regulatory groups have also promulgated best practices and other industry standards relating to targeted advertising. Various U.S. and foreign governments, self-regulatory bodies and public advocacy groups have called for new regulations specifically directed at the digital advertising industry, and we expect to see an increase in legislation, regulation and self-regulation in this area. The legal, regulatory and judicial environment we face around privacy and other matters is constantly evolving and can be subject to significant change. Additionally, the interpretation and application of data protection laws in the U.S., Europe and elsewhere are often uncertain and in flux. Legislative and regulatory authorities around the world may decide to enact additional legislation or regulations, which could reduce the amount of data we can collect or process and, as a result, significantly impact our business. Similarly, clarifications of and changes to these existing and proposed laws, regulations, judicial interpretations and industry standards can be costly to comply with, and we may be unable to pass along those costs to our clients in the form of increased fees, which may negatively affect our operating results. Such changes can also delay or impede the development of new solutions, result in negative publicity and reputational harm, require significant incremental management time and attention, increase our risk of non-compliance and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices, including our ability to charge per click or the scope of clicks for which we charge. Additionally, any perception of our practices or solutions as an invasion of privacy, whether or not such practices or solutions are consistent with current or future regulations and industry practices, may subject us to public criticism, private class actions, reputational harm or claims by regulators, which could disrupt our business and expose us to increased liability. Finally, our legal and financial exposure often depends in part on our clients’ or other third parties’ adherence to privacy laws and regulations and their use of our services in ways consistent with visitors’ expectations. We rely on representations made to us by clients that they will comply with all applicable laws, including all relevant privacy and data protection regulations. We make reasonable efforts to enforce such representations and contractual requirements, but we do not fully audit our clients’ compliance with our recommended disclosures or their adherence to privacy laws and regulations. If our clients fail to adhere to our contracts in this regard, or a court or governmental agency determines that we have not adequately, accurately or completely described our own solutions, services and data collection, use and sharing practices in our own disclosures to consumers, then we and our clients may be subject to potentially adverse publicity, damages and related possible investigation or other regulatory activity in connection with our privacy practices or those of our clients.

Unfavorable media coverage could negatively affect our business.

Unfavorable publicity regarding, for example, our privacy practices, terms of service, regulatory activity, the actions of third parties, the use of our products or services for illicit, objectionable, or illegal ends or the actions of other companies that provide similar services to us, could adversely affect our reputation. Such negative publicity also could have an adverse effect on the size, engagement, and loyalty of our customer base which could adversely affect our business and financial results.

Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, content, competition, consumer protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, such as privacy, data protection and personal information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation and securities law compliance. Expansion of our activities in certain jurisdictions, or other actions that we may take, may subject us to additional laws, regulations, or other government scrutiny. In addition, foreign data protection, privacy, content, competition, and other laws and regulations can impose different obligations or be more restrictive than those in the United States.

Additionally, as we expand our product offerings, we may become subject to the European General Data Protection Regulation (GDPR), effective as of May 2018. The GDPR increases privacy rights for individuals in Europe, extends the scope of responsibilities for data controllers and data processors and imposes increased requirements and potential penalties on companies offering goods or services to individuals who are located in Europe or monitoring the behavior of such individuals (including by companies based outside of Europe). Noncompliance can result in penalties of up to the greater of €20 million, or 4% of global company revenues.

These U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government authorities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the newer industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices.

These laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with and may delay or impede our international growth, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business.

Security breaches and improper access to or disclosure of our data or user data, or other hacking and phishing attacks on our systems, could harm our reputation and adversely affect our business.

Our industry is prone to cyber-attacks by third parties seeking unauthorized access to our data or users’ data or to disrupt our ability to provide service. Any failure to prevent or mitigate security breaches and improper access to or disclosure of our data or user data, including personal information, content, or payment information from or to users, or information from marketers, could result in the loss or misuse of such data, which could harm our business and reputation and diminish our competitive position. In addition, computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent in our industry. As a result of recent attention and growth of, the size of our user base, and the types and volume of personal data on our systems, we believe that we are a particularly attractive target for such breaches and attacks. Our efforts to address undesirable activity may also increase the risk of retaliatory attacks. Such attacks may cause interruptions to the services we provide, degrade the user experience, cause users or marketers to lose confidence and trust in our products, impair our internal systems, or result in financial harm to us. Our efforts to protect our company data or the information we receive may also be unsuccessful due to software bugs or other technical malfunctions; employee, contractor, or vendor error or malfeasance; government surveillance; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data. Cyber-attacks continue to evolve in sophistication and volume, and inherently may be difficult to detect for long periods of time. Although we are currently in the process of developing systems and processes that are designed to protect our data and user data, to prevent data loss and to prevent or detect security breaches, we cannot assure you that such measures will ultimately become operational or provide absolute security, and we may incur significant costs in protecting against or remediating cyber-attacks.

Affected parties or government authorities could initiate legal or regulatory actions against us in connection with any actual or perceived security breaches or improper disclosure of data, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices. Such incidents or our efforts to remediate such incidents may also result in a decline in our active user base or engagement levels. Any of these events could have a material and adverse effect on our business, reputation, or financial results.

If we were to lose or have limited access to certain platforms or data sources, we will lose our existing revenue from these platform and sources.

The loss of access to any platforms or data sources could limit our ability to effectively grow a portion of our operations. Our business would be harmed if these platforms:

We depend on the services of our executive officers and the loss of any of their services could harm our ability to operate our business in future periods.

Our success largely depends on the efforts and abilities of our sole executive officer, Christopher Miglino. We are a party to an employment agreement with Mr. Miglino. Although we do not expect to lose his services in the foreseeable future, the loss of any of them could materially harm our business and operations in future periods until such time as we were able to engage a suitable replacement.

Weak economic conditions may reduce consumer demand for products and services.

A weak economy in the United States could adversely affect demand for advertising products, and services. A substantial portion of our revenue is derived from businesses that are highly dependent on discretionary spending by individuals, which typically falls during times of economic instability. Accordingly, the ability of our advertisers to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline further. We currently are unable to predict the extent of any of these potential adverse effects.

Certain of our business affiliates have operations outside of the United States that are subject to numerous operational risks.

Certain of our affiliates have operations in countries other than the United States. In many foreign countries, it is not uncommon to encounter business practices that are prohibited by certain regulations, such as the Foreign Corrupt Practices Act and similar laws. Although certain of our business affiliates have undertaken compliance efforts with respect to these laws, their respective employees, contractors and agents, as well as those companies to which they outsource certain of their business operations, may take actions in violation of their policies and procedures. Any such violation, even if prohibited by the policies and procedures of these business affiliates or the law, could have certain adverse effects on the financial condition of these business affiliates. Any failure by these affiliates to effectively manage the challenges associated with the international operation of their businesses could materially adversely affect their, and hence our, financial condition.

In the event that we are unable to conduct business with certain third-party providers of data and information integral to our operations, our revenue and business prospects may suffer.

We rely on access to certain third-party providers of data in the investment sector in order for the Sequire platform to function and provide meaningful data and insights for our customers. We have benefited from the data that these third-parties have provided to us on behalf of their customers. In the event that we lose access to these third-party providers, it would limit our ability to effectively market the Sequire platform and sell our services to our customers. In the event that these third-party providers change their terms or our ability to access their data on a cost-effective basis to us, our business may be materially harmed.

Competitors may create products that compete with the Sequire platform and there can be no assurances that we will be able to protect our intellectual property related to Sequire.

The Sequire platform’s success depends heavily on our intellectual property and the continued development and innovation of the platform. Notwithstanding, there may be competitors seeking to compete by creating similar platforms with more aggressive pricing or lower cost structures, greater functionality, and by emulating the services provided by the Sequire platform. Furthermore, certain of the information that we implement in our Sequire platform is either publicly available or ascertained through third-party service providers for which no barrier to entry exists. Companies with significantly more resources than us may attempt to create competing products at lower prices. Furthermore, there can be no assurances that we are able to adequately defend our trade secrets or intellectual property rights with respect to competitors.

Our insurance coverage strategy may not be adequate to protect us from all business risks.

We may be subject, in the ordinary course of business, to losses resulting from accidents, acts of God and other claims against us, for which we may have no insurance coverage. As a general matter, we do not maintain as much insurance coverage as many other companies do, and in some cases, we do not maintain any at all. Additionally, the policies that we do have may include significant deductibles or self-insured retentions, policy limitations and exclusions, and we cannot be certain that our insurance coverage will be sufficient to cover all future losses or claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which may harm our financial condition and operating results.

Risks Related to receipt of Securities for Services

Many of the securities we receive for services do not have an active trading market, and we value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of these securities.

The majority of securities comprising our stock portfolio are, and are expected to continue to be, in securities that have a limited market, limited liquidity, high volatility, and accordingly, their market price may not accurately reflect the true value in the event that they were traded on an active market. As of December 31, 2022, we had unrealized losses from our stock portfolio of approximately $3.8 million. The fair value of assets whose true values are not readily ascertainable are determined in good faith under procedures adopted by our Board of Directors. Our Board of Directors utilizes the services of independent third-party valuation firms in determining the fair value of a portion of the securities we hold. Investment professionals from our investment adviser also prepare valuations using sources and/or proprietary models depending on the availability of information on our assets and the type of asset being valued, all in accordance with our valuation policy. Accordingly, the actual value of the securities we received could be substantially less than we previously estimated.

Because fair valuations, and particularly fair valuations of securities without efficient markets are inherently uncertain, may fluctuate over short periods of time, and are often based to a large extent on estimates, comparisons and qualitative evaluations of information, it may be more difficult for investors to value accurately our securities and could lead to undervaluation or overvaluation of our Common Stock. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility.

The value ascribed to our assets in our financial statements as of a particular date may be materially greater than or less than the value that would be realized if our assets were to be liquidated as of such date. For example, if we were required to sell a certain asset or all or a substantial portion of our assets on a particular date, the actual price that we would realize upon the disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in our financial statements. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in our financial statements.

We run the risk of inadvertently being deemed to be an investment company that is required to register under the Investment Company Act of 1940.

We run the risk of inadvertently being deemed to be an investment company that is required to register under the Investment Company Act of 1940 (the “Investment Company Act”) because a significant portion of our assets consists of securities in companies in which we own less than a majority interest. The risk varies depending on events beyond our control, such as significant appreciation or depreciation in the market value of certain of our publicly traded holdings, adverse developments with respect to our ownership of certain of our subsidiaries, and transactions involving the sale of certain assets. If we are deemed to be an inadvertent investment company, we may seek to rely on a safe-harbor under the Investment Company Act that would provide us a one-year grace period to take steps to avoid being deemed to be an investment company. In order to ensure we avoid being deemed an investment company, we have taken, and may need to continue to take, steps to reduce the percentage of our assets that constitute investment assets under the Investment Company Act. These steps have included, among others, selling marketable securities that we might otherwise hold for the long-term and deploying our cash in non-investment assets. We have recently sold marketable securities, including at times at a loss, and we may be forced to sell our investment assets at unattractive prices or to sell assets that we otherwise believe benefit our business in the future to remain below the requisite threshold. We may also seek to acquire additional non-investment assets to maintain compliance with the Investment Company Act, and we may need to incur debt, issue additional equity or enter into other financing arrangements that are not otherwise attractive to our business. Any of these actions could have a material adverse effect on our results of operations and financial condition. Moreover, we can make no assurance that we would successfully be able to take the necessary steps to avoid being deemed to be an investment company in accordance with the safe harbor. If we were unsuccessful, then we would have to register as an investment company, and we would be unable to operate our business in its current form. We would be subject to extensive, restrictive, and potentially adverse statutory provisions and regulations relating to, among other things, operating methods, management, capital structure, indebtedness, dividends, and transactions with affiliates. If we were deemed to be an investment company and did not register as an investment company when required to do so, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, that we would be unable to enforce contracts with third parties, and/or that third parties could seek to obtain rescission of transactions with us undertaken during the period in which we were an unregistered investment company.

We are not, and do not intend to become, regulated as an investment company under the U.S. Investment Company Act of 1940 (and similar legislation in other jurisdictions) and if we are deemed an “investment company” under the U.S. Investment Company Act of 1940, applicable restrictions would make it impractical for us to operate as contemplated.

The Investment Company Act and the rules thereunder (and similar legislation in other jurisdictions) provide certain protections to investors and impose certain restrictions on companies that are registered as investment companies. Among other things, such rules limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. We have not been and do not intend to become regulated as an investment company and we intend to conduct our activities so that we will not be deemed to be an investment company under the Investment Company Act (and similar legislation in other jurisdictions). In order to ensure that we are not deemed to be an investment company, we may be required to materially restrict or limit the scope of our operations or plans related to Sequire, which may limit us in the types of acquisitions that we may make and we may need to modify our organizational structure or dispose of assets that we would not otherwise dispose of. Moreover, if anything were to happen which would potentially cause us to be deemed an investment company under the Investment Company Act, it would be impractical for us to operate as intended pursuant to the Sequire platform and our business, financial condition and results of operations would be materially adversely affected. Accordingly, we would be required to take extraordinary steps to address the situation, such as the modification and restructuring of our Sequire platform, which would materially adversely affect our ability to derive revenue.

Sequire’s services are primarily paid for in restricted shares of its customers’ stock, which are often smaller publicly traded companies with volatile stock prices, limited liquidity, riskier operations and whose securities are frequently quoted on the OTC Markets, which includes the OTCQX, OTCQB as well as the OTC Pink, which typically quotes securities with increased risk and less liquidity.

Payment related to our Sequire platform and services is often made through the equity securities of our customers instead of cash. Since larger companies typically pay in cash, the securities issued are often those of smaller public companies that often have limited operating histories, limited operating cash, and negative cash flows. Additionally, these securities are primarily restricted, and are subject to legal holding periods pursuant to Rule 144 or other applicable exemptions. As of December 31, 2022 approximately $11.4 million of our holdings are issued by companies whose securities trade on the OTC Markets Inc. with a significant portion of these securities trading on the OTC Pink. While our agreements for OTC issuers may contain certain provisions providing for the issuance of additional securities upon certain events, the value of such securities on the date of receipt compared to the date when we are able to legally sell the securities may decrease significantly, and the stock price of such issuers is often volatile, unpredictable, and with limited liquidity. Additionally, the OTC Pink has less stringent requirements for listing than even other OTC Markets, such as the OTCQB or OTCQX. Often, the OTC Pink lists companies that (i) may not be providing current information, (ii) may not have independent directors, (iii) may have little to no trading, and (iv) may be very volatile. As a result, the value of the equity received on the date of payment may be significantly greater than the actual revenue derived by us upon a sale of the securities. Furthermore, there is no guarantee that the companies that we receive securities from will remain solvent or maintain “current information”, or other required criteria during the legally required holding period under Rule 144, which would result in the loss of some or all of our anticipated revenue. These risks are significantly increased for OTC Pink issuers. As we are not experienced traders, there can be no assurances that our personnel responsible for selling the securities will do so at opportune times or be able to maximize profitability.

Our receipt of securities in lieu of cash may be negatively affected by a downturn in the U.S. and/or global securities markets and could significantly reduce our revenue.

General political and economic conditions and events such as U.S. fiscal and monetary policies, economic recessions, inflationary events, governmental shutdowns, trade tensions and disputes, global economic slowdowns, widespread health epidemics or pandemics, natural disasters, terrorist attacks, wars, changes in local and national economic and political conditions, regulatory changes or changes in the laws, or interest rate or currency rate fluctuations could create a downturn in the U.S. and/or global securities markets. As we often receive restricted securities of companies, a downturn in the U.S. or global markets may impact such companies and the value of the securities we receive for services pursuant to the Sequire platform.

Risks Related to Ownership of our Securities.

Conversions of our convertible debentures, notes issued under our revolving credit facility, and the exercise of our common stock warrants may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.

The conversion of some or all of the outstanding convertible debentures or the revolving note issued in our secured revolving credit facility would dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion or exercise of outstanding warrants could adversely affect their prevailing market prices. In addition, the existence of the convertible debentures, revolving note, and outstanding warrants may encourage short selling by market participants because the conversion of such notes could be used to satisfy short positions, or the anticipated conversion of such debentures into shares of our common stock could depress the price of our common stock.

The market price of our common stock may be volatile.

The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than those of a seasoned issuer. The volatility in our share price is attributable to a number of factors. Mainly however, we are a speculative or “risky” investment due to our limited operating history, lack of significant revenues to date, our continued operating losses and missed guidance. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Additionally, in the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

The trading price of the shares of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this quarterly report, these factors include:

In addition, the stock market in general, and advertising technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of these risks could have a dramatic and material adverse impact on the market price of the shares of our common stock.

The Revolving Note issued under our senior secured revolving credit facility contains an adjustment to the price at which the note can be converted into our common stock, which may result in further dilution to our shareholders.

The revolving note issued in our August 2022 secured revolving credit facility, of which $6,2000,000 in principal is currently outstanding, is convertible into our common stock at a conversion price that is subject to adjustment upon certain enumerated events which includes the sale of our common stock or equivalents at a deemed price equal to or less than $5.00 per share. On August 15, 2024, the closing price of our common stock was $0.25 per share. In the event that we are required to raise additional capital through the sale of our equity or debt securities, given our current market price, it is likely that the Conversion Price would be adjusted, and we may be required to issue a significantly greater number of shares upon conversion, than currently anticipated, resulting in greater dilution to our existing shareholders.

We may be subject to securities litigation, which is expensive and could divert management attention.

The market price of the shares of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. To the extent that any claims or suits are brought against us and successfully concluded, we could be materially adversely affected, jeopardizing our ability to operate successfully. Furthermore, our human and capital resources could be adversely affected by the need to defend any such actions, even if we are ultimately successful in our defense.

Failure to meet the financial performance guidance or other forward-looking statements we have provided to the public could result in a decline in our stock price.

We have previously provided, and may provide in the future, public guidance on our expected financial results for future periods. Although we believe that this guidance provides investors with a better understanding of management’s expectations for the future and is useful to our stockholders and potential stockholders, such guidance is comprised of forward-looking statements subject to the risks and uncertainties. Our actual results may not always be in line with or exceed the guidance we have provided. For example, in the past, we have missed guidance a number of times. If our financial results for a particular period do not meet our guidance or if we reduce our guidance for future periods, the market price of our common stock may decline.

Delaware law contains anti-takeover provisions that could deter takeover attempts that could be beneficial to our stockholders.

Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of our company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring us, without our board of directors’ consent, for at least three years from the date they first hold 15% or more of the voting stock.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the trading price of our common stock and trading volume could decline.

The trading market for our shares of our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. A small number of securities and industry analysts currently publish research regarding our Company on a limited basis. In the event that one or more of the securities or industry analysts who have initiated coverage downgrade our securities or publish inaccurate or unfavorable research about our business, the price of our shares of common stock would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the trading price of our shares of common stock and trading volume to decline.

The elimination of monetary liability against our directors and officers under Delaware law and the existence of indemnification rights held by our directors and officers may result in substantial expenditures by us and may discourage lawsuits against our directors and officers.

Our certificate of incorporation eliminates the personal liability of our directors and officers to our company and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible under Delaware law. Further, our bylaws provide that we are obligated to indemnify any of our directors or officers to the fullest extent authorized by Delaware law. We are also parties to separate indemnification agreements with certain of our directors and our officers which, subject to certain conditions, require us to advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even if such actions, if successful, might otherwise benefit us or our stockholders.

Not applicable to a smaller reporting company.

The Securities and Exchange Commission’s new cybersecurity disclosure requirements under Regulation S-K Item 106 are not applicable to this Annual Report on Form 10-K for the fiscal year ended December 31, 2022. These new disclosure requirements become effective for annual reports filed for fiscal years ending on or after December 15, 2023. As such, we are not required to provide the cybersecurity risk management, strategy, and governance disclosures mandated by Item 106 in this report. We will include the required cybersecurity disclosures in our Annual Report on Form 10-K for the fiscal year ending December 31, 2023, which we intend to file in 2024. At that time, we will provide information on our processes for assessing, identifying, and managing material risks from cybersecurity threats, as well as details on our board’s oversight and management’s role in cybersecurity risk management.

We our currently operating as a virtually distributed operation. We lease our principal executive offices, located in Westlake Village, California and consisting of approximately 500 square feet on a month-to-month basis at a rate of $1,000 per month. We believe our current locations is suitable and adequate for our current levels of operations and anticipated growth.

From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to, and our property is not subject to, any material legal proceedings, except as set forth below.

Michael Malone, a former executive officer of the Company, filed a complaint in the Superior Court of the State of California for the County of Los Angeles Northwest District (Case No. 23VECVO3433) against the Company on August 7, 2023 claiming Breach of Contract, Violations of the Labor Code and Violation of the California Business and Professions Code. Mr. Malone, among other items, is seeking amounts due under an Employment Agreement entered between the parties as well as unpaid wages, and general and special damages. The Company filed an Answer on October 9, 2023 denying all claims. In addition, on October 9, 2023, the Company filed a Cross Complaint against Mr. Malone for Breach of Contract, Breach of Fiduciary Duty and Misappropriation of Trade Secrets seeking, among other items, general, special, statutory and punitive damages. The Company intends to vigorously pursue its rights in this matter.

Stock Market Manger, Inc., a company believed to be owned by Carl Dilley, filed a complaint against the Company in the Circuit Court of the Sixth Circuit in and for Pinellas County, Florida (Case No. 24-002894) claiming Breach of Contract and Breach of Covenant of Good Fauth and Fair Dealing seeking damages in the minimum amount of $1,246,235. The Company had the matter removed to the U.S. District Court for the Middle District of Florida. The Company intends to vigorously pursue its rights in this matter.

Not applicable.

PART II

Market for Our Common Equity

On March 7, 2023, the Company received written notice (the “Delisting Notice”) from the staff of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, as a result of non-compliance with Nasdaq Listing Rule 5250(c)(1) (the “Filing Requirement”), the staff of Nasdaq had determined that the Company’s Class A common stock (the “Securities”) will be delisted from Nasdaq. Trading of the Securities was suspended at the opening of business on May 9, 2023 and a Form 25-NSE was filed with the Securities and Exchange Commission, which removed the Securities from listing and registration on Nasdaq. Our common stock is currently traded on OTC Markets Expert Market under the symbol “SRAX”. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Holders

On August 29, 2024, there were 59 holders of record of our common stock. We believe a substantially greater number of beneficial owners hold shares of common stock through brokers, banks or other nominees.

Dividend policy

Common Stock

We have never paid cash dividends on either our Class A common stock or our Class B common stock. Under Delaware law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Delaware statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, the capital of our company, computed in accordance with the relevant Delaware statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits and dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.

Series A Preferred Stock

We issued a one-time return of capital consisting of a total of 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 September 20, 2021 (the “Record Date”). The Series A Preferred Stock entitles the Qualified Recipients with the right to receive the net proceeds from sales of certain securities received by SRAX as payment from its customers for access to the Sequire Platform services (the “Designated Assets”).

The securities and cash that underly the Designated Assets had a market value of $3,925,000 as of December 31, 2021.

During the fourth quarter and portion of the third quarter of 2021, we sold an aggregate of approximately $680,000 of the Designated Assets. On January 30, 2022, we distributed the net proceeds from those shares to holders of our Series A Preferred Shares. Pursuant to the distribution, each holder of Series A Preferred Stock received approximately $0.01 per share. During the first quarter of 2022, we sold an aggregate of $268,000 of the Designated Assets. The sale of Designated Assets did not result in sufficient proceeds to declare a distribution pursuant to the terms of the Series A Preferred Stock. During the second quarter of 2022, we sold an aggregate of $127,000 of the Designated Assets. The sale of Designated Assets did not result in sufficient proceeds to declare a distribution pursuant to the terms of the Series A Preferred Stock.

As of December 31, 2022, after taking into account the sale of the Designated Assets, the remaining Designated Assets have an aggregate value of approximately $170,000 (pursuant to the same valuation methods that our other securities are valued in this Annual Report, with such quoted market price potentially being greater or lesser than such value).

Securities Authorized for Issuance under Equity Compensation Plans

See information contained in Part III Item 12 of Annual Report entitled “Equity Compensation Plan Information.”

Recent sales of unregistered securities

The following information is given with regard to unregistered securities sold since January 1, 2022. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act of 1933, as amended (the “Securities Act”) and the rules promulgated thereunder in reliance on Section 4(a)(2) thereof, relating to offers of securities by an issuer not involving any public offering:

Purchases of equity securities by the issuer and affiliated purchasers.

None.

Not applicable to a smaller reporting company.

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 this annual report. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this annual report.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying 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

For the years ended December 31, 2022 and 2021, total revenue was $27,859,000 and $26,707,000, respectively. Revenues increased from the prior year by $1,152,000 or 4.31%.

Cash, cash equivalents, and marketable securities at December 31, 2022 and 2021, were $9,193,000 and $16,965,000, respectively. Cash, cash equivalents and marketable securities decreased from the prior year by $7,772,000 or 45.81%. The Company continues to sell its marketable securities to meet working capital requirements.

Reportable Segments

We have a single operating and business segment, Sequire, which is comprised of two reporting units; Sequire and LD Micro.

Our Sequire segment includes the licensing of our SaaS based Sequire platform and related services, and our LD Micro, Inc. 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 the United States of America (“GAAP”), along with certain corporate-level and other activity, are included in Corporate and Other. Our management, along with our Chief Executive Officer, who acts as our Chief Operating Decision Maker (as such term is defined accounting segment reporting guidance), review financial information presented on a consolidated basis for purposes of allocating resources and evaluating performance and do not evaluate using asset information.

Deconsolidation of BIGToken, Inc.

On December 29, 2021, we deconsolidated our majority owned subsidiary BIG Token, Inc. (“BIGToken”) (formerly known as Force Protection Video Equipment Corporation). After the deconsolidation, we did not beneficially own a controlling interest in BIGToken, and no longer consolidated BIGToken into our financial results for periods ending after December 31, 2021.

The financial results of BIGToken for the year ended December 31, 2021 are presented as income (loss) from discontinued operations, net of taxes on the consolidated statements of operations and its assets and liabilities as of December 31, 2021 are presented as assets and liabilities of discontinued operations on the consolidated balance sheets. The historical consolidated statement of cash flows reflects the effect of the deconsolidation.

Unless noted otherwise, discussion in the notes to the consolidated financial statements pertain to continuing operations.

See Note 4 – Discontinued Operations.

Business Focus

During 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. Subsequent to year end, we disposed of LD Micro.

Business

We are a technology firm focused on enhancing communications between public companies and their shareholders and investors. We currently have two distinct business units; however we operate in one business segment:

We derive our revenues from the following sources:

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:

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 when messaging existing investors, new investors, or consumers.

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. 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. LD Micro, Inc. was disposed of on March 3, 2023. See the accompanying financial consolidated financial statements for additional information.

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

Liquidity and Going Concern

As reflected in the accompanying consolidated financial statements, for the year ended December 31, 2022, the Company had:

Additionally, at December 31, 2022, the Company had:

The Company anticipates that it will need to raise additional capital immediately in order to continue to fund its operations. The Company has relied on third parties for debt based funding of its operations. There is no assurance that the Company will be able to obtain additional funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its initiatives or attain profitable operations.

The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s ability to successfully expand to new markets, competition, and the need to enter into collaborations with other companies or acquire other companies to enhance or complement its product and service offerings.

There can be no assurances that financing will be available on terms which are favorable, or at all. If the Company is unable to raise additional funding to meet its working capital needs in the future, it will be forced to delay, reduce, or cease its operations.

The Company is heavily reliant on its ability to convert its marketable securities into cash. The ability to sell these investments have inherent limitations such as legal restrictions/holding periods and illiquid markets.

In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended December 31, 2023, and our current capital structure including equity-based instruments, obligations and debts. Additionally, this assessment was made as of the date of these consolidated financial statements.

We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company had cash on hand of $7,000 at December 31, 2022.

The Company has historically incurred significant losses since inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations.

These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these financial statements are issued.

The 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 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 marketable securities

Cash consist primarily of highly liquid investments such as money market funds and deposits held at major banks. Certain of such unused amounts are subject to satisfying specified conditions prior to draw-down (such as pledging to our lenders sufficient subscriptions and customer contracts).

Our cash, cash equivalents and marketable securities were as follows for the years ended December 31, 2022 and 2021 as follows:

Results 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.

The following table presents revenues by type for the years ended December 31, 2022 and 2021 as follows:

Sequire SaaS platform revenues remained consistent year over year as operations for this portion of the business were relatively unchanged. Sequire’s customer base did not grow further in 2022, this primarily has to do with the Company switching to cash as compensation for services rendered as compared to accepting marketable securities, which was the more common form of payment earlier in 2022 and 2021.

LD Micro conference revenues increased primarily due to additional events in 2022.

Operating Costs and Expenses

Cost of revenue. Our cost of revenue consists primarily of expenses associated with the cost of media from third parties, such as costs we incur to market our products, data service fees and third-party selling costs as well as certain employee related and platform costs (salaries, technology and content hosting for Sequire). If the estimated consideration expected to be received under a revenue contract less than the estimated cost to fulfill our obligations under the contract, the Company will record a liability for the estimated cost in excess of estimated consideration in the period this is known.

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 computers, office equipment, and furniture.

General and administrative. General and administrative expense consists primarily of human resources, information technology, professional fees, IT and facility overhead, and other general corporate expenses. We expect our general and administrative expense to increase primarily as a result of the increased costs associated with being a stand-alone public company, specifically, our professional fees. 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 related expenses.

The following table represents our operating expenses for the years ended December 31, 2022 and 2021, respectively.

Cost of revenues increased in 2022 from 2021 primarily due to an increase in data and media costs required to support the Company’s growth and expected expansion.

Depreciation and amortization decreased in 2022 from 2021 primarily due to property and equipment having a lower net book value as well as an impairment loss of $41,000 sustained in 2022.

General and administrative expenses decreased due to employee benefits, officer compensation, professional fees and advertising as well as other general corporate overhead expenses.

Other Income (Expense)

During the years ended December 31, 2022 and 2021, the Company incurred various one-time charges related to impairments, as well as changes to the Company’s marketable securities related to realized losses and changes in fair value (unrealized gains/losses).

The following table represents our operating expenses for the years ended December 31, 2022 and 2021, respectively.