10-Q: SRAX Inc. Reports Net Income of $2.63 Million for Q1 2023 Amid Strategic Shift

SRAX Inc. announces a net income of $2.63 million for the quarter ended March 31, 2023, while navigating a transition to a cash-based revenue model and the divestiture of LD Micro, Inc.

Summary

• SRAX Inc. reported a net income of $2.627 million for the three months ended March 31, 2023, compared to $3.728 million for the same period in 2022.
• Revenues decreased to $4.014 million from $7.499 million year-over-year, primarily due to a shift from accepting marketable securities to cash for its Sequire SaaS platform.
• The company divested its subsidiary, LD Micro, Inc., on March 3, 2023, resulting in a gain on disposal of $594,000.
• Operating expenses decreased significantly, with cost of revenues dropping to $149,000 from $2.798 million and general and administrative expenses decreasing to $2.966 million from $5.842 million.
• The company's cash position at March 31, 2023, was $765,000, and it anticipates needing to raise additional capital to fund operations.
• The company had a working capital deficit of $5.627 million and an accumulated deficit of $59.366 million as of March 31, 2023.
• The company is heavily reliant on its ability to convert its marketable securities into cash.

Sentiment

Score: 4

Explanation: The document presents mixed signals. While the company reports net income, the revenue decline, going concern warning, and need for additional capital raise significant concerns, resulting in a slightly negative sentiment.

Positives

• The company achieved net income of $2.627 million for the quarter.
• The company successfully divested LD Micro, Inc., resulting in a gain of $594,000.
• Operating expenses were significantly reduced, improving profitability.
• The company acquired assets from DNA Holdings, LLC, including $1 million in cash.

Negatives

• Revenue decreased significantly due to the transition to a cash-based revenue model.
• The company has a working capital deficit of $5.627 million and an accumulated deficit of $59.366 million.
• The company's auditors have raised substantial doubt about its ability to continue as a going concern.
• The company is heavily reliant on its ability to convert its marketable securities into cash.

Risks

• The company's ability to continue as a going concern is dependent on raising additional capital.
• The company's reliance on marketable securities for liquidity exposes it to market volatility and restrictions on sales.
• The company's transition to a cash-based revenue model has resulted in slower customer acquisition and reduced revenue.
• The company's delisting from NASDAQ may make it more difficult to raise capital.

Future Outlook

The company anticipates needing to raise additional capital immediately in order to continue to fund its operations and is heavily reliant on its ability to convert its marketable securities into cash.

Industry Context

The company operates in the technology sector, specifically focusing on investor relations and communications. The shift to a cash-based revenue model reflects a broader trend in the industry towards sustainable and predictable revenue streams, although it has presented short-term challenges for SRAX.

Comparison to Industry Standards

• It's difficult to directly compare SRAX's results to industry standards without knowing the specific sub-segment of the technology industry it operates in.
• However, companies like Globant, a digital transformation company, and Intrado, a communication infrastructure company, serve different but somewhat related markets.
• Globant reported revenue growth of 20.3% year-over-year in their most recent quarter, while Intrado's performance is not publicly available due to being a private company.
• SRAX's revenue decline contrasts with the growth seen in some other technology companies, highlighting the challenges it faces in its specific market niche.

Legal Proceedings

• Michael Malone, a former executive officer of the Company, filed a complaint 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.
• Stock Market Manager, Inc., filed a complaint against the Company in the Circuit Court of the Sixth Circuit in and for Pinellas County, Florida claiming Breach of Contract and Breach of Covenant of Good Faith and Fair Dealing seeking damages in the minimum amount of $ 1,246,235.
• Homeland Insurance Company of New York (Homeland) filed a complaint on January 9, 2025 against SRAX seeking repayment of a deductible for the insurance policy that they made a payment for, seeking a repayment of $ 759,598.

Related Party Transactions

• On February 3, 2023, the Company closed an asset purchase agreement and acquired assets from DNA, which is controlled by a former member of the Board of Directors.
• The company has entered into an agreement providing access to a suite at the Sofi Stadium in Los Angeles from an entity wholly owned by Christopher Miglino, our CEO.
• At March 31, 2023 and December 31, 2022, the Company owed $ 155,000 and $ 159,000 , respectively, to its Chief Executive Officer.

Stakeholder Impact

• Shareholders face the risk of dilution if the company raises additional capital through equity offerings.
• Employees face uncertainty due to the company's financial instability and potential need to reduce or cease operations.
• Customers may be concerned about the company's ability to provide ongoing services and support.
• Creditors face the risk of non-payment if the company is unable to generate sufficient cash flow.

Next Steps

• The company needs to secure additional funding to continue operations.
• The company needs to successfully convert its marketable securities into cash.
• The company needs to improve its revenue generation and customer acquisition strategies.

Key Dates