SRAX, Inc. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-37916

SRAX, INC.

(Exact name of registrant as specified in its charter)

Delaware		45-2925231
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2629 Townsgate Road #215, Westlake Village, CA		91361
(Address of principal executive offices)		(Zip Code)

(323) 694-9800

(Registrant’s telephone number, including area code)

(Former Name)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A common stock		SRAX		Nasdaq Capital Market

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 [X] 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 and post such files). YES [X] NO [ ]

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

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [X]		Smaller reporting company [X]
		Emerging growth company [ ]

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The issuer had 16,026,690 shares of Class A common stock issued and outstanding as of November 8, 2020.

TABLE OF CONTENTS

		Page No

	PART I - FINANCIAL INFORMATION

ITEM 1.	Financial Statements.	F-1

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	4

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	11

ITEM 4.	Controls and Procedures.	11

	PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings.	12

ITEM 1A.	Risk Factors.	12

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25

ITEM 3.	Defaults Upon Senior Securities.	26

ITEM 4.	Mine Safety Disclosures.	26

ITEM 5.	Other Information.	26

ITEM 6.	Exhibits.	26

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:

	●	our history of losses;

	●	our ability to continue as a going concern;

	●	our obligation under original issue discount senior secured convertible debentures (“Debentures”) of which $9,243,552.19 in principal is outstanding as of November 13, 2020, all of which are secured by substantially all of our assets and intellectual property;

	●	our reliance on third party vendors;

	●	our potentially required cash payments to redeem the points of certain users of our BIGToken platform;

	●	our dependence on our executive officers;

	●	our ability to integrate our recently acquired wholly owned subsidiary, LD Micro, Inc.;

	●	the possible price adjustments of Series A warrants in our January 2017 financing and the Debenture Warrants issued in the April 2017 and October 2017 financing transactions as well as the Series B Warrants issued on redemption of the Debentures in November 2018;

	●	the limited market for our Class A common stock;

	●	risks associated with securities litigation;

	●	our failure to meet financial performance guidance; and

	●	risks associated with material weaknesses in our internal control over financial reporting.

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety. Readers should also review the risks described in Part I, Item 1A. - Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission (“SEC”) on May 1, 2020 as well as other filings with the SEC. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

OTHER PERTINENT INFORMATION

We urge you to read this entire Quarterly Report on Form 10-Q, including the “Risk Factors” section, the financial statements and the related notes included therein. As used in this Quarterly Report, unless context otherwise requires, the words “we,” “us,” “our,” “the Company,” “SRAX,” “Registrant” refer to SRAX, Inc. and its subsidiaries. Additionally, any reference to (i) “BIGToken” and “BIGToken, Inc.”, or the “BIGToken Project” refer to the Company’s wholly owned subsidiary, BIGToken, Inc. and the assets used in its operations and (ii) “LD Micro” and “LD Micro, Inc.” refer to the Company’s wholly owned subsidiary, “LD Micro, Inc. and the assets used in its operation. Also, any reference to “common share” or “common stock,” refers to our $.001 par value Class A common stock.

Unless otherwise stated, the information which appears on our web sites www.srax.com, and www.bigtoken.com are not part of this report and are specifically not incorporated by reference.

PART 1 - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

SRAX, Inc. and Subsidiaries

Three and Nine Months Ended September 30, 2020

Index to the Financial Statements

Contents		Page (s)

Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019		F-2

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019		F-3

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ equity for the nine months ended September 30, 2020 and 2019		F-4

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019		F-6

Unaudited Condensed Notes to the Consolidated Financial Statements		F-7

F-1

SRAX, Inc.

Condensed Consolidated Balance Sheets

	As of			As of
	September 30,2020			December 31, 2019
		(Unaudited)
Assets
Cash and cash equivalents	$	2,446,000		$	32,000
Accounts receivable		1,260,000			805,000
Prepaid expenses		270,000			715,000
Marketable securities		4,800,000			83,000
Other current assets		63,000			306,000
Current assets		8,839,000			1,941,000

Property and equipment		134,000			191,000
Goodwill		23,351,000			15,645,000
Intangible assets		2,399,000			1,966,000
Right of use assets		390,000			456,000
Other assets		22,000			35,000
Total Assets	$	35,135,000		$	20,234,000

Liabilities and stockholders’ equity
Accounts payable and accrued liabilities	$	2,415,000		$	2,442,000
Derivative liabilities		-			4,397,000
Other current liabilities		6,850,000			537,000
Payroll protection loan - short-term		548,000			-
OID convertible debentures – short term		3,683,000			-
Current liabilities		13,496,000			7,376,000

Right to use liability - long term		282,000			352,000
Payroll protection loan, less current portion		578,000			-
OID convertible debentures, less current portion		2,748,000			-
Deferred tax liability		131,000			-
Total liabilities		17,235,000			7,728,000

Preferred stock		-			-
Class A common		16,000			14,000
Class B common		-			-
Additional paid-in capital		68,416,000			48,129,000
Accumulated deficit		(50,532,000	)		(35,637,000	)
Total stockholders’ equity		17,900,000			12,506,000
Total liabilities and stockholders’ equity	$	35,135,000		$	20,234,000

See accompanying notes to these interim condensed consolidated financial statements

F-2

SRAX, Inc.

Unaudited Condensed Consolidated Statements of Operations

	Three Months ended						Nine Months ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenues	$	2,609,000		$	1,001,000		$	4,125,000		$	2,497,000
Cost of revenues		880,000			322,000			1,388,000			1,075,000
Gross profit		1,729,000			679,000			2,737,000			1,422,000

Operating expenses
Employee related costs		1,689,000			2,162,000			5,406,000			6,730,000
Marketing and selling expenses		809,000			1,115,000			1,631,000			2,202,000
Platform costs		391,000			453,000			1,181,000			1,159,000
Depreciation and amortization		333,000			304,000			962,000			834,000
General and administrative expenses		984,000			1,355,000			3,157,000			4,069,000
Total operating expenses		4,206,000			5,389,000			12,337,000			14,994,000

Loss from operations		(2,477,000	)		(4,710,000	)		(9,600,000	)		(13,572,000	)

Other income (expense):
Financing costs		(3,302,000	)		(108,000	)		(5,340,000	)		(359,000	)
Gain (loss) on sale of assets		-			-			-			395,000
Other income (expense)		8,000			-			8,000			14,000
Loss on repricing of equity warrants		-			-			-			(342,000	)
Gain (loss) from marketable securities		(800,000	)		-			(284,000	)		-
Change in fair value of derivative liabilities		-			6,227,000			321,000			1,390,000
Total other income (expense)		(4,094,000	)		6,119,000			(5,295,000	)		1,098,000

Income (loss) before provision for income taxes		(6,571,000	)		1,409,000			(14,895,000	)		(12,474,000	)

Provision for income taxes		-			-			-			-
Net income (loss)	$	(6,571,000	)	$	1,409,000		$	(14,895,000	)	$	(12,474,000	)

Net income (loss) per share, basic and diluted	$	(0.45	)	$	0.11		$	(1.05	)	$	(0.96	)

Weighted average shares outstanding – basic and diluted		14,479,519			12,933,585			14,186,721			12,965,773

See accompanying notes to these interim condensed consolidated financial statements

F-3

SRAX, Inc.

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended September 30, 2020 and 2019

	Common Stock				Additional paid-in		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Equity

Balance, December 31, 2019		13,997,452	$	14,000	$	48,129,000	$	(35,637,000	)	$	12,506,000
Share based compensation		-		-		260,000		-			260,000
Relative fair value of warrants issued with notes payable		-		-		83,000		-			83,000
Shares issued for extension agreement		36,700		-		71,000		-			71,000
Net loss		-		-		-		(3,003,000	)		(3,003,000	)
Balance, March 31, 2020		14,034,152		14,000		48,543,000		(38,640,000	)		9,917,000
Share based compensation		-		-		246,000		-			246,000
Reclassification of warrants from liability to equity		-		-		4,076,000		-			4,076,000
Shares issued for debt extinguishment		100,000		-		181,000		-			181,000
Premium on debt extinguishment		-		-		46,000		-			46,000
Beneficial conversion feature		-		-		3,913,000		-			3,913,000
Relative fair value of warrants issued with notes		-		-		2,889,000		-			2,889,000
Net loss		-		-		-		(5,321,000	)		(5,321,000	)
Balance, June 30, 2020		14,134,152	$	14,000	$	59,894,000	$	(43,961,000	)	$	15,947,000
Share based compensation		-		-		269,000		-			269,000
Conversion of convertible debt to equity		293,038		-		234,000		-			234,000
Shares issued for the acquisition of LD Micro		1,600,000		2,000		4,262,000		-			4,264,000
Beneficial conversion feature		-		-		2,398,000		-			2,398,000
Relative fair value of warrants issued with notes		-		-		1,359,000		-			1,359,000
Net loss		-		-		-		(6,571,000	)		(6,571,000	)
Balance, September 30, 2020		16,027,190	$	16,000	$	68,416,000	$	(50,532,000	)	$	17,900,000

See accompanying notes to these interim condensed consolidated financial statements

F-4

SRAX, Inc.

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended September 30, 2020 and 2019

	Common Stock					Additional paid-in		Accumulated			Stockholders’
	Shares			Amount		Capital		Deficit			Equity

Balance, December 31, 2018		10,109,530		$	10,000	$	32,870,000	$	(18,778,000	)	$	14,102,000
Share based compensation		-			-		121,000		-			121,000
Net loss		-			-		-		(5,784,000	)		(5,784,000	)
Balance, March 31, 2019		10,109,530			10,000		32,991,000		(24,562,000	)		8,439,000
Share based compensation, related employees		-			-		325,000		-			325,000
Sale of common stock and warrants for cash		1,687,825			2,000		6,227,000		-			6,229,000
Exercise of warrants		328,667			1,000		1,145,000		-			1,146,000
Shares issued as collateral		220,000			-		-		-			-
Loss on repricing of equity warrants		-			-		342,000		-			342,000
Share of common stock in private placement		200,000-			-		1,000,000		-			1,000,000
Net loss		-			-		-		(8,099,000	)		(8,099,000	)
Balance, June 30, 2019		12,546,022			13,000		42,030,000		(32,661,000	)		9,382,000
Share based compensation		-			-		329,000		-			329,000
Common stock and warrants issued for cash		1,524,996			1,000		4,967,000		-			4,968,000
Common stock issued for exercise of warrants		13,333			-		50,000		-			50,000
Common stock issued for services		75,000			-		330,000		-			330,000
Shares retired – issued as collateral		(220,000	)		-		-		-			-
Shares issued for settlement of original issue discount		58,101			-		219,000		-			219,000
Net income		-			-		-		1,409,000			1,409,000
Balance, September 30, 2019		13,997,452		$	14,000	$	47,925,000	$	(31,252,000	)	$	16,687,000

See accompanying notes to these interim condensed consolidated financial statements

F-5

SRAX, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

	2020			2019

Cash Flows from Operating Activities
Net loss	$	(14,895,000	)	$	(12,474,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on marketable securities		284,000			-
Loss on extinguishment of debt		1,103,000			-
Stock based compensation		917,000			775,000
Service rendered for stock option exercise price		-			50,000
Amortization of debt issue costs		3,746,000			-
Amortization of intangibles		905,000			781,000
Depreciation expense		57,000			53,000
Change in fair value of derivative liabilities		(321,000	)		(1,390,000	)
Loss on repricing of equity warrants		-			342,000
Gain on sale of SRAXmd		-			(395,000	)
Loss on common stock issued to settle original issue discount		-			69,000
Provision for bad debts		69,000			271,000
Changes in operating assets and liabilities
Accounts receivable		(494,000	)		1,463,000
Prepaid expenses		372,000			(69,000	)
Other current assets		243,000			86,000
Change in right of use asset		66,000			-
Accounts payable and accrued expenses		23,000			(2,889,000	)
Other current liabilities		(1,893,000	)		772,000
Change in right of use liability		(70,000	)		-
Net Cash Used in Operating Activities		(9,888,000	)		(12,555,000	)

Cash Flows from Investing Activities
Proceeds from sale of SRAXmd		-			307,000
Purchase of property and equipment		-			(66,000	)
Proceeds from the sale of marketable securities		397,000			-
Acquisition of LD Micro, net of cash acquired		(697,000	)		-
Development of software		(870,000	)		(892,000	)
Other assets		13,000			(79,000	)
Net Cash Used in Investing Activities		(1,157,000	)		(730,000	)

Cash Flows from Financing Activities
Proceeds from issuance of OID convertible debentures, less issuance cost		11,885,000			-
Proceeds from the issuance of short-term notes payable, less issuance cost		960,000			-
Repayment of short-term notes payable		(100,000	)		-
Proceeds from payroll protection program loan		1,084,000			-
Proceeds from the issuance of notes payable		2,130,000			-
Repayment of notes payable		(2,500,000	)		-
Proceeds from the issuance of common stock units		-			12,197,000
Proceeds from issuance of common stock for warrants exercised		-			1,146,000
Net Cash Provided by Financing Activities	$	13,459,000		$	13,343,000

Net increase in Cash		2,414,000			58,000
Cash, Beginning of Period		32,000			2,785,000
Cash, End of Period	$	2,446,000		$	2,843,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	176,000		$	140,000
Cash paid for income taxes	$	-		$	-

Noncash investing and financing activities:
Record right-of-use asset	$	-		$	(532,000	)
Record lease obligation	$	-		$	532,000
Vesting of prepaid common stock award	$	94,000		$	-
Shares issued to settle liability	$	181,000		$	219,000
Relative fair value of warrants issued with term loan	$	83,000		$	-
Derivative liabilities transferred to equity	$	4,076,000		$	-
Shares of common stock issued for extension agreement	$	71,000		$	-
Fair value of BCF for debt financings	$	6,311,000		$	-
Fair value of warrants issued for debt financings	$	4,248,000		$	-
Premium on debt financings	$	46,000		$	-
Original issue discount recorded on OID convertible debentures	$	1,931,000		$	-
Fair value of marketable securities received for revenue contracts	$	5,398,000		$	-
Notes payables converted into convertible notes payable	$	234,000		$	-
Shares of common stock issued for the acquisition of LD Micro	$	4,264,000		$	-

See accompanying notes to these interim condensed consolidated financial statements

F-6

SRAX, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2020

NOTE 1 – Organization and Basis Of Presentation

Organization

SRAX, Inc. (“SRAX”, “we”, “us”, “our” or the “Company”) is a Delaware corporation formed on August 2, 2011. Effective January 1, 2012 we acquired 100% of the member interests and operations of Social Reality, LLC, a California limited liability company formed on August 14, 2009 which began business in May of 2010, in exchange for 2,465,753 shares of our Class A common stock. The former members of Social Reality, LLC owned 100% of our Class A common stock after the acquisition.

We are a data technology company offering services to issuers of publicly traded securities through our SaaS platform Sequire, Our Bigtoken brand, which is anticipated to be moved into its own public company, we market to consumers.

Sequire, is centered around our proprietary SaaS platform from which our customers are provided with data and insights into their publicly traded securities and marketing solutions to act on the insights obtained through our technologies. Our consumer marketing focused brand, BIGToken is based on a consumer facing platform that provides consumers a platform to monetize and control their data in the digital landscape. Through this platform we’re able to provide marketers access to data and insights identifying their core consumers and such consumers’ characteristics across various channels in order to discover new and measurable opportunities, maximize profits associated with advertising campaigns and (ii) gaining insight into the activities of their customers.

We derive our revenues from the:

	●	Sale and licensing of our proprietary SaaS platform;
	●	Data analysis, insights and marketing solutions for SaaS platform subscribers
	●	Organize and host investor conferences and events
	●	Sales of proprietary consumer data; and
	●	Sales of digital advertising campaigns.

We are headquartered in Westlake, California but work as a distributed virtual Company.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The December 31, 2019 condensed balance sheet data was derived from financial statements but does not include all disclosures required by GAAP. These interim unaudited condensed financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim three and nine -month periods ended September 30, 2020 and 2019. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 or for any future period.

These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2019, included in the Company’s annual report on Form 10-K filed with the SEC on May 1, 2020.

F-7

Liquidity and Going Concern

The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its goods and services to achieve profitable operations. In addition, the Company’s operations and specifically, the continued operation of BIGToken will require significant additional financing. As of September 30, 2020 the Company had cash and cash equivalents of $2,446,000 which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements are issued, and accordingly, these factors create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated 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 consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flow and cash usage forecasts, and obligations and debts. Although management has a long history of successful capital raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources outside the Company’s direct control that management expects to be available within the next 12 months.

We expect that our existing cash and cash equivalents as of September 30, 2020, will not be sufficient to enable us to fund our anticipated level of operations through 2021. We anticipate raising additional capital through the private and public sales of our equity or debt securities and selling our marketable securities or a combination thereof. Although management believes that such capital sources will be available, there can be no assurance that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient capital in a timely manner, among other things, we may be forced to scale back our operations or cease operations altogether.

During the nine months ended September 30, 2020, the Company was able to raise net cash proceeds (net of debt repayments, commissions, and fees) of approximately $13,000,000. The Company’s capital-raising efforts are ongoing and the Company has undertaken the following to raise capital and reduce its cash burn rate: (i) received a PPP Loan from the Small Business Administration for funding under the Payroll Protection Program, in the amount of $1,084,000 (ii) entered into an “At the Market” sales agreement for the sale of up to $3,125,000 of our equity securities, (iii) sold OID convertible debentures for proceeds of $11,885,000. Additionally, the Company sold its remaining position in TI Health (f/k/a SRAXmd) for a total of $8,000,000 of which $7,000,000 was received on October 30, 2020. Substantially, all of these proceeds were used to redeem a portion of our outstanding OID convertible debentures.

The ultimate impact of the COVID-19 pandemic on the Company’s operations continues to be unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations.

The significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact. Management continues to monitor the business environment for any significant changes that could impact the Company’s operations. The Company has taken proactive steps to manage costs and discretionary spending, such as remote working and reducing facility related expenses.

Net Loss per Share

We use ASC 260, “Earnings Per Share” for calculating the basic and diluted earnings (loss) per share. We compute basic earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and warrants and stock awards. For periods with a net loss, basic and diluted loss per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share.

F-8

Recent Accounting Pronouncements

The Company reviewed all recently issued pronouncement in 2020, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on the Company’s financial condition or the results of its operations.

NOTE 2 – ACQUISITIONS

On September 15, 2020 (“Closing Date”), an Agreement and Plan of Merger (the “Agreement”) is entered into by and among SRAX, Inc. a Delaware corporation (“Parent”), Townsgate Merger Sub 1, Inc., a Delaware corporation and a direct wholly-owned subsidiary of Parent (“Merger Sub 1”), LD Micro, Inc., a Delaware corporation and a direct wholly-owned subsidiary of Parent (“Merger Sub 2”), LD Micro, Inc., a California corporation (the “Acquiree”, “LD Micro”), and Christopher Lahiji, the sole stockholder of the Acquiree (the “Stockholder”). Merger Sub 1 and Merger Sub 2 are sometimes collectively referred to as “Merger Sub.”

The parties intend that Merger Sub 1 will be merged with and into the Acquiree (the “First Merger”), with the Acquiree surviving the First Merger, and then the Acquiree will be merged with and into Merger Sub 2 (the “Second Merger,” and together with the First Merger, the “Merger”), with Merger Sub 2 surviving the Second Merger.

As consideration, the Company will pay cash payable as follows: (i) $1,000,000 at the Closing, (ii) $1,000,000 on January 1, 2021, (iii) $1,000,000 on April 1, 2021, and (iv) $1,000,000 on July 1, 2021 and subject to adjustment or off-set. Additionally, the Company issued 1,600,000 shares of its Class A common stock. The total consideration to be paid by the Company is $7,610,000, as adjusted, as follows:

Calculation of the purchase price:
Fair value of stock at closing	$	4,264,000
Cash at closing		1,000,000
Deferred payments		2,771,000
Less cash received		(303,000	)
Transaction expenses		10,000
Working capital adjustment		(132,000	)
Purchase price	$	7,610,000

The transaction was accounted for using the acquisition method. Accordingly, goodwill has been measured as the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed.

The deferred payments of $3,000,000 were discounted using the yield on a CCC rated corporate debt for 3-month, 6-month and 9-month maturities, respectively. The implied discount is approximately $229,000, which will be amortized over the term on the payments.

The purchase price includes working capital adjustments that are based on our preliminary estimates and assumptions that are subject to change.

The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed:

Accounts receivable, net	$	30,000
Intangibles		468,000
Goodwill		7,706,000
Accounts payable and accrued liabilities		(324,000	)
Payroll protection loan		(42,000	)
Other current liabilities		(97,000	)
Deferred tax liability		(131,000	)
Net assets acquired	$	7,610,000

F-9

Intangibles assets consisted of the following:

	Fair Value		Life in Years
Trademark	$	271,000	Indefinite
Domain name		3,000	Indefinite
Noncompete		8,000	5 years
Customer list		186,000	3 years
	$	468,000

The estimated fair values for the trademark and domain name were determined by using the relief-from-royalty method. The estimated fair value for the customer list and noncompete were determined using the excess earnings and differential method of comparing having an asset in-place versus not having the asset in place, respectively.

The Company has estimated the preliminary purchase price allocations based on historical inputs and data as of September 15, 2020. The preliminary allocation of the purchase price is based on the best information available and is pending, amongst other things: (i) the finalization of the valuation of the fair values and useful lives of tangible assets acquired; (ii) the finalization of the valuations and and intangible assets acquired; (iii) finalization of the valuation of accounts payable and accrued expenses; and (iv) finalization of the fair value of non-cash consideration.

During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date.

The amounts of revenue and earnings of the Acquiree since the acquisition date included in the unaudited condensed consolidated statements of operations for the three months ended September 30, 2020 follows:

Revenues		$-
Net income (loss)			(51,000	)

The following unaudited pro forma information presents the combined results of operations as if the acquisitions had been completed on January 1, 2019. The unaudited pro forma results include the amortization associated with the preliminary estimates for the acquired intangible assets.

The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies, or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

For the Nine Months ended September 30, 2020

	SRAX, Inc.			LD Micro, Inc.			Pro Forma Adjustment			Pro Forma Combined
Revenues	$	4,125,000		$	937,000		$	-		$	5,062,000
Cost of revenues		(1,388,000	)		(98,000	)		-			(1,486,000	)
Operating expenses		(12,337,000	)		(858,000	)		(367,000	)		(13,562,000	)
Other expense		(5,295,000	)		(1,000	)		-			(5,296,000	)
Net loss	$	(14,895,000	)	$	(20,000	)	$	(367,000	)	$	(15,282,000	)

Unaudited Pro Forma Condensed Consolidated Statements of Operations

For the Nine Months ended September 30, 2019

	SRAX, Inc.			LD Micro, Inc.			Pro Forma Adjustment			Pro Forma Combined
Revenues	$	2,497,000		$	1,142,000		$	-		$	3,639,000
Cost of revenues		(1,075,000	)		(188,000	)		-			(1,263,000	)
Operating expenses		(14,994,000	)		(1,037,000	)		(596,000	)		(16,627,000	)
Other income		1,098,000			8,000			-			1,106,000
Net loss	$	(12,474,000	)	$	(75,000	)	$	(596,000	)	$	(13,145,000	)

F-10

The following summarizes the pro forma adjustments made for the nine months ended September 30:

	2020		2019
Amortization of intangibles acquired	$	48,000		48,000
Employee related costs		319,000		319,000
Financing costs		-		229,000
Net income (loss)	$	367,000	$	596,000

Amortization relates to the acquired noncompete and customer list amounting to $1,000 and $47,000 for the nine months ended September 30, 2020 and 2019, respectively.

Employee related cost are contracted cost amounting to $319,000 for the nine months ended September 30, 2020 and 2019, respectively.

Financing cost relates to amortization of the discount related to the $3,000,000 deferred payments.

NOTE 3 – Marketable securities

During the second quarter of 2020, the Company began offering customers of its Sequire segment who purchase services on the Company’s proprietary SaaS platform the option to pay the contract price in securities issued by the Customer. The customers securities must be trading on a United States securities exchange and the Company must be a fully reporting entity pursuant to SEC Regulation S-X. In accordance with ASC 606 - Revenue Recognition, the Company will value the shares received at the fair market value of the date the contract is executed. The shares received will be accounted for in accordance with ASC 320 – Investments – Debt and Equity Securities, as such the shares will be classified as available-for-sale securities and will be measured at each reporting period at fair value with the unrealized gain or (loss) as a component of other income (expense). Upon the sale of the shares, the Company will record the gain or (loss) in the statement of operations as a component of net income (loss).

The movement in this account is as follows:

	September 30, 2020			December 31, 2019
Balances at beginning of year	$	83,000			-
Securities received for revenue contracts		5,398,000			83,000
Sale of marketable securities		(21,000	)		-
Unrealized loss on mark-to-market		(660,000	)		-
Balances as of date	$	4,800,000		$	83,000

The Company’s sales of securities during nine months ended September 30, 2020 were approximately $397,000, with a book basis of approximately $21,000 which represented a gain of $376,000, which we recorded as other income included in the gains from marketable securities.

The Company recorded as a component of other income (expense) the realized and unrealized gain (loss) on marketable securities as follows:

	For the three months ended September 30,					For the nine months ended September 30,
	2020			2019		2020			2019
Unrealized loss		(800,000	)		-		(660,000	)		-
Realized gain		-			-		376,000			-
Loss from marketable securities		(800,000	)		-		(284,000	)		-

The Company accounts for its investments in equity securities in accordance with ASC 321-10 Investments - Equity Securities. The equity securities may be classified into two categories and accounted for as follows:

●

Equity securities with a readily determinable fair value are reported at fair value, with unrealized gains and losses included in earnings. Any dividends received are recorded in interest income, the fair value of equity investments with fair values is primarily obtained from third-party pricing services.

●

Equity securities without a readily determinable fair value are reported at their cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer and their impact on fair value. Any dividends received are recorded in interest income. For equity investments without readily determinable fair values, when an orderly transaction for the identical or similar investment of the same issuer is identified, we use the valuation techniques permitted under ASC 820 Fair Value Measurement to evaluate the observed transaction(s) and adjust the fair value of the equity investment

F-11

NOTE 4 – Sale of Accounts Receivable

On January 22, 2020 and January 30, 2020, the Company entered into financing agreements, with a single unrelated purchaser to sell, with full recourse, certain accounts receivable with a face value of $454,000 and $75,000, respectively, for a purchase price of $454,000 and $56,000, respectively. Transactions under these agreements were accounted for as financing of accounts receivable and the related accounts receivable was not removed from our consolidated balance sheet at the time of the sales transactions, a liability was recorded for the proceeds received. The terms of the agreements are as follows:

Pursuant to the initial purchase agreement, commencing on March 24, 2020, the purchaser may, at its sole discretion, exercise a put option, to cause the Company to purchase from purchaser, any of the outstanding January 22, 2020 receivables which were not collected by the purchaser. Effective April 9, 2020, the put option was extended until June 23, 2020.

The purchase price payable by Company to the Purchaser for the receivables upon exercise of the Put Option shall be equal to one hundred and thirty six percent (136%) of the then remaining outstanding balance of the applicable receivables.

Upon the occurrence of a payment made on the applicable receivables, the Company is required to pay a true up amount as follows:

	a.	ten percent (10%) of the portion of the receivables which are paid on or before the 30th day following the effective date of the agreement;
	b.	twenty percent (20%) of the portion of the receivables which are paid after the 30^th day but on or before the 60^thday following the effective date of the agreement; and
	c.	thirty six percent (36%) of the portion of the receivables which are paid after the 60^th day following the effective date of the agreement.

In order to secure performance by the Company, the purchaser was granted a security interest in: (i) 239,029 shares of the Company’s Class A common stock in connection with the sale of the $454,000 receivable and (ii) 29,519 shares of the Company’s Class A common stock in connection with the sale of the $75,000 receivable. The shares have been issued and are being held by the Company’s transfer agent. Since the shares are not outstanding, the Company has treated them as shares reserved for collateral.

Since the purchaser of the receivables has recourse, the Company accounted for the purchase price as a liability. Upon the purchaser’s election of the put option or the true up, as applicable the Company will treat the put option price or the true up amounts as interest.

On April 9, 2020 the Company entered into an agreement to amend the January 22 and 30 accounts receivable agreements. The purchaser agreed to amend the put option date as described above to June 23, 2020 and June 30, 2020 for the sale of receivables originating on January 22, 2020 and January 30, 2020, respectively. As consideration for the extension the Company agreed to issue the purchaser 32,668 and 4,032 shares of Class A common stock for the receivable sale originating on January 22^,2020 and January 30, 2020, respectively.

On June 30, 2020, the Purchaser converted the payable of $510,000 and accrued interest of $184,000 (“Old Debt”) into approximately $788,000 of the OID Convertible Notes payable (“Debentures”) (See Note 7 - OID Convertible Debentures). The conversion was treated as an extinguishment of debt as prescribed by ASC 470-50 – Debt Modification and Extinguishment. At the date of issuance, the Debenture had a fair market value of approximately $815,000. The transaction created a loss on extinguishment of approximately $546,000, which consisted of (i) the difference of value between the Old Debt and the fair value of the new debt of approximately $95,000, (ii) the difference between the face value of the debenture and the fair value of the Debenture of approximately $27,000 and (iii) $424,000 for fair value of warrants issued with the Debenture. Also, since the Debenture was convertible into the Company’s common stock, a $27,000 premium associated with the conversion feature was recorded as additional paid in capital.

F-12

NOTE 5 – Short Term Promissory Notes

In February 2020, the Company entered into three separate short-term promissory notes with an aggregate principal value of $450,000 (the “Notes”), of which $100,000 was borrowed from the Company’s Chief Financial Officer.

The notes are due and payable on May 12, 2020 (“Maturity Date”). The notes will accrue interest as follows: (i) on the origination date, ten percent (10%) of the principal amount was added to each note, (ii) on March 12, 2020, an additional ten percent (10%) of the principal amount was added to each note, and (iii) on April 12, 2020, an additional sixteen percent (16%) of the principal amount was added to each notes.

The note holders were granted security interests (in amounts equal to the face value of their investments on a dollar for share basis) in an aggregate of 450,000 shares of the Company’s Class A common stock (“Security Shares”). The shares have been issued and are being held by the Company’s transfer agent. Since the shares are not outstanding, the Company has treated them as shares reserved for collateral.

The interest imputed on the origination date was treated as an original issue discount with the $45,000 amortized over the term of the Notes. On each of the interest date, the Company accrued and expensed the related interest.

On the Maturity Date, one of the Note’s was amended to (i) extend the maturity date to December 31, 2020 and (ii) to release 100,000 shares of the Security Shares. The modification was treated as an extinguishment of debt as prescribed by ASC 470-50 – Debt Modification and Extinguishment. Based on the amended terms the fair value of the amended note approximated the book value of the old Note. The fair value of the Security Shares was approximately $181,000, which was expensed as a loss on the extinguishment.

On June 30, 2020, the short-term note payable to the Company’s Chief Financial Officer in the amount of approximately $136,000 was repaid from the proceeds of the OID Convertible Notes Payable.

On June 30, 2020, the two remaining Note Holders converted the Notes of approximately $350,000 and accrued interest of approximately $126,000 (“Old Debt”) into approximately $541,000 of the OID Convertible Debentures (See Note 7 - OID Convertible Debentures). The conversion was treated as an extinguishment of debt as prescribed by ASC 470-50 – Debt Modification and Extinguishment. At the date of issuance, the Debentures had a fair market value of approximately $560,000. The transaction created a loss on extinguishment of approximately $375,000, which consisted of (i) the difference of value between the Old Debt and the fair value of the Debentures of approximately $65,000, (ii) the difference between the face value of the debenture and the fair value of the Debenture of approximately $19,000 and (iii) $291,000 for fair value of warrants issued with the Debenture. Also, since the Debenture was convertible into the Company’s common stock, a $18,000 premium associated with the conversion feature was recorded as additional paid in capital.

NOTE 6 – Term Loan Note

On February 28, 2020, the Company entered into a term loan and security agreement with a BRF Finance Co. LLC as lender. Pursuant to the loan agreement, the Company can borrow up to $5,000,000, subject to the conditions described below.

Under the loan: (i) the Company received an initial draw of $2,500,000 on February 28, 2020 and (ii) the Company is eligible to receive an additional $2,500,000 loan within (30) days of the Company entering into an at the market sales agreement with the lender and the filing of an at the market offering on Form S-3 with the SEC registering the shares to be sold pursuant to the at the market sales agreement. The Company agreed to file the ATM by May 1, 2020. Additionally, the Company will be required to increase the dollar amount authorized under the at the market sales agreement each time additional capacity of at least $1,000,000 is available under our shelf registration statement.

F-13

The loan is secured by substantially all of the assets of the Company pursuant to the loan agreement and the intellectual property security agreement entered into in connection with the transaction.

The loan bears interest at ten percent (10%) per annum and has a maturity date of March 1, 2022. Beginning on August 1, 2020, and continuing on the first day of each month thereafter until the maturity date, the Company will make monthly payments of principal and interest on an eighteen (18) month straight line amortization schedule, based on the principal outstanding on July 31, 2020. Additionally, the Company will have the option of a one (1) time payment-in-kind payment for a monthly required payment of principal and interest, which will defer such payments and result in a recalculation of the amortization schedule. In the event that the Company is late on any payments under the Loan, a late charge of three percent (3%) of the amount of the payment due will be assessed.

At origination the Company paid lender: (i) an origination fee of $300,000, (ii) $35,000 in attorneys’ fees reimbursement, and (iii) certain other costs and expenses associated with the completion of the loan, including but not limited to escrow fees and recording fees. Accordingly, the Company received net proceeds of approximately $2,164,000 as of May 1, 2020.

The Loan may be prepaid in whole or in part at any time at the discretion of the Company. The loan also provides for mandatory prepayments of all of the net cash received upon (i) a sale of the company’ assets, (ii) raising additional capital through the issuance of equity or debt securities, or (iii) sales under the at the market sales agreement described above.

As part of the loan the Company agreed to issue to Lender: (i) 500,000 Common Stock purchase warrants on the date of the origination date and (ii) 500,000 Common Stock purchase warrants on the date of the second drawdown. The warrants have an exercise price equal to a 25% premium of the closing price of the Common Stock on their respective date of issue (provided that the exercise price of the warrants cannot be less than $2.50 per share, subject to adjustment contained therein). The initial warrant has an exercise price of $3.60. The warrants will expire on October 31, 2022. The warrants allow for cashless exercise in the event that they are not subject to a registration statement on the six (6) month anniversary of their respective issuances. The warrants do not contain any price protection or non-standard anti-dilution provisions.

In accordance with ASC 470 - Debt, the Company has allocated the cash proceeds to the loan and the warrants. The relative fair value of the initial warrant issued was $83,000, which is being amortized and expensed over the term of the Notes.

The Company evaluated the loan and warrant agreements in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting.

On June 30, 2020, the principal and interest of approximately $2,585,000 was paid from the proceeds from the OID Convertible Debentures.

As of September 30, 2020, there is none outstanding loan balance on this account.

NOTE 7 – OID Convertible Debentures

On June 25, 2020, the Company entered into a definitive securities purchase agreement (the “Securities Purchase Agreement or Transaction”) with certain accredited and institutional investors (the “Purchasers”) for the purchase and sale of an aggregate of: (i) $16,101,000 in principal amount of Original Issue Discount Senior Secured Convertible Debenture (the “Debentures”) for $14,169,000 (representing a 12% original issue discount) (“Purchase Price”) and (ii) warrants to purchase up to 6,440,561 shares of the Company’s Class A common stock (the “Warrants”) in a private placement (the “Offering”). The Purchase Price consists of (a) $13,000,000 in cash and (b) the cancellation of $1,169,000 in outstanding debt, consisting of the accounts receivable loans of $510,000 with accrued interest of $184,000, and the short-term promissory notes of $350,000 with accrued interest of $125,000.

F-14

The Debentures, which mature on December 31, 2021, pay interest in cash at the rate of 12.0% per annum commencing on June 30, 2021, with such interest payable quarterly, beginning on October 1, 2021. Commencing after the six month anniversary of the issuance of the Debentures, the Company will be required to make amortization payments (“Amortization Payments”) with each Purchaser having the right to delay such Amortization Payments by a six month period up to three separate times (each, an “Extension”) in exchange for five percent in principal being added to the balance of such applicable Debenture on each such Extension. Accordingly, upon a Purchaser exercising three Extensions, such Purchaser’s Debenture will mature and be due and payable on June 30, 2023. Beginning on the date that the first Amortization Payment is due, and on a monthly basis thereafter, the Company will be required to pay one hundred fifteen percent of the value of one-twelfth of the outstanding principal plus any additional accrued interest due.

In the event a Purchaser converts a portion of its Debenture into shares of the Company’s Common Stock, such amount will be deducted from the next applicable Amortization Payment. In the event such conversion exceeds the next applicable Amortization Payment, such excess amount will be deducted, in reverse order, from future Amortization Payments. The Company’s obligations under the Debentures are secured by substantially all of the assets of the Company pursuant to a security agreement (the “Security Agreement”).

The Debentures are convertible at the option of the holder into shares of the Company’s common stock at an initial conversion price of $2.69 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. The Debentures do not have any price protection or price reset provisions with respect to future issuances of securities.

Subject to the Company’s compliance with certain equity conditions, upon ten trading days’ notice to the Purchasers, the Company has the right to redeem the Debentures in cash at 115% of their outstanding principal, plus accrued interest. Additionally, in the event that (i) the Company sells or reprices any securities (each, a “Redemption Financing”), or (ii) the Company disposes of assets (except those sold or transferred in the ordinary course of business) (each, an “Asset Sale”), then the Purchasers shall have the right to cause the Company (a) in the event of a Redemption Financing at a price per Common Stock equivalent of $2.50 or less per share, the Purchasers may mandate that 100% of the proceeds be used to redeem the Debentures (b) in the event of a Redemption Financing at a price per Common Stock equivalent of greater than $2.50 per share, the Purchasers may mandate that up to 50% of the proceeds be used to redeem the Debentures, and (c) in the event of an Asset Sale, the Purchasers may mandate that up to 100% of the proceeds be used to redeem the Debentures.

The Debentures also contain certain customary events of default provisions, including, but not limited to, default in payment of principal or interest thereunder, breaches of covenants, agreements, representations or warranties thereunder, the occurrence of an event of default under certain material contracts of the Company, failure to register the shares underlying the Debentures in Warrants (as described below), changes in control of the Company, delisting of its securities from its trading market, and the entering or filing of certain monetary judgments against 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 Purchaser’s election, immediately due and payable in cash. The Company is also subject to certain negative covenants (unless waived by 67% of the then outstanding Purchasers, and including the lead Purchaser) under the Debentures, including but not limited to, the creation of certain debt obligations, liens on Company assets, amending its charter documents, repayment or repurchase of securities or certain debt of the Company, or the payment of dividends.

The Warrants are initially exercisable at 2.50 per share and, are subject to cashless exercise after six months if the shares underlying the Warrants are not subject to an effective resale registration statement. The 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. The Warrants do not have any price protection or price reset provisions with respect to future issuances of securities.

Pursuant to the terms of the Debentures and Warrants, a Purchaser will not have the right to convert any portion of the Debentures or exercise any portion of the Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% or 9.99% (at the 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 Debentures and the 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 61st day after such notice is delivered from the holder to the Company.

F-15

The Company also agreed to use proceeds from the Offering to pay (i) $2,500,000 in outstanding principal plus accrued interest pursuant to the Company’s Term Loan and Security Agreement entered into on February 28, 2020 with BRF Finance Co., LLC (the “Term Loan”) and (ii) $136,000 in outstanding short-term promissory notes and accrued interest (collectively, the “Debt Repayments”).

In connection with Securities Purchase Agreement, the Company will issue to the Placement Agent (as defined below), an aggregate of 478,854 Common Stock purchase warrants (“PA Warrants”). The PA Warrants are substantially similar to the Warrants, except that the PA Warrants have an exercise price of $3.3625 per share. The fair value of the PA Warrants at issuance was estimated to be $360,000 based on a risk-free interest rate of .11%, an expected term of 2.417 years, an expected volatility of 96% and a 0% dividend yield.

Pursuant to a registration rights agreement (“Registration Rights Agreement”), the Company has agreed to file a registration statement registering the resale of the shares of the common stock underlying the Debentures and the Warrants within forty-five days from the date of the Registration Rights Agreement. The Company also agrees to have the registration statement declared effective within 90 days from the date of the Registration Rights Agreement and keep the registration statement continuously effective until the earlier of (i) the date after which all of the securities to be registered thereunder have been sold, or (ii) the date on which all the securities to be registered thereunder may be sold without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 under the Securities Act. The Company is also obligated to pay the Investors, as partial liquidated damages, a fee of 2.0% of each Purchaser’s subscription amount per month in cash upon the occurrence of certain events, including our failure to file and(or) have the registration statement declared effective within the time periods provided.

Bradley Woods & Co. Ltd. (“Placement Agent”) acted as the placement agent, in connection with the sale of the securities pursuant to the Securities Purchase Agreement. Pursuant to an engagement agreement entered into by and between the Company and the Placement Agent, the Company agreed to pay the Placement Agent a cash commission of $1,040,000. Pursuant to the discussion above, the Company also issued an aggregate of 478,854 PA Warrants to the Placement Agent. The Company has agreed to include the shares of our common stock underlying the PA Warrants to be included in the registration statement to be filed. Additionally, upon the exercise of Warrants issued in the Offering, the Placement Agent will be entitled to eight percent (8%) of the cash proceeds received from such exercises.

The Transaction closed on June 30, 2020 (the “Closing Date”), with approximately $3,800,000 cash proceeds received prior to Closing date, $4,200,000 received on the closing date and $5,000,000 received after the closing date. The gross proceeds received from the Offering were approximately $13,000,000 and net proceeds of approximately $9,100,000 after deducting the Placement Agent fees, the Debt Repayments and other offering expenses. Also, the Company reimbursed the lead Purchaser $75,000 for legal fees, which was deducted from the required subscription amount to be paid.

The Company evaluated all of the associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting.

F-16

In accordance with ASC 470 - Debt, the Company first allocated the cash proceeds to the loan and the warrants on a relative fair value basis, secondly, the proceeds were allocated to the beneficial conversion feature. The following table presents the balance of the OID Convertible Debentures at the contractual face amount net of discounts:

Principal balance	$	15,313,000
Debt discount - OID		(1,237,000	)
Debt discount - BCF		(4,403,000	)
Debt discount warrants		(2,467,000	)
Debt discount fees		(1,133,000	)
Net book value		6,431,000
Less OID convertible debentures, short term		3,683,000
OID convertible debentures, long term	$	2,748,000

During the three and nine months ended September 30, 2020, the Company recognized amortization expense of $3,302,000.

During the three months ended September 30, 2020, holders of debenture principal converted $788,000 debenture into 293,038 shares of the Company’s class A common stock. As a result of these conversions and issuance of common stock, the Company wrote-off debt discount and increased additional paid in capital by $234,000.

NOTE 8 - PAYCHECK PROTECTION PROGRAM LOAN

On April 17, 2020, we entered into a promissory note evidencing an unsecured approximately $1,084,000 loan under the Paycheck Protection Program (PPP). The loan is being made through Cross River Bank. The term of the loan is two years with an interest rate of 1%, which shall be deferred for the first six months of the term of the loan. The promissory note evidencing the loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining judgment against the Company.

On September 15, 2020, $42,000 of the payroll protection loan of LD Micro was assumed in connection with the acquisition. This amount is expected to be forgiven, otherwise the Company will be reimbursed by Sellers of LD Micro. This is classified under current assets.

As of September 30, 2020, the short-term and long-term balances were $548,000 and $578,000.

NOTE 9 – Right To Use Asset

We adopted ASU No. 2016-02, Leases, on January 1, 2019, the beginning of our fiscal 2019, using the modified retrospective approach. We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and to obtain substantially all of the economic benefit from the use of the underlying asset. Some of our leases include both lease and non-lease components which are accounted for as a single lease component as we have elected the practical expedient. Some of our operating lease agreements include variable lease costs, primarily taxes, insurance, common area maintenance or increases in rental costs related to inflation. Substantially all of our equipment leases and some of our real estate leases have terms of less than one year and, as such, are accounted for as short-term leases as we have elected the practical expedient.

Operating leases are included in the right-of-use lease assets, other current liabilities and long-term lease liabilities on the Consolidated Balance Sheet. Right-of-use assets and lease liabilities are recognized at each lease’s commencement date based on the present values of its lease payments over its respective lease term. When a borrowing rate is not explicitly available for a lease, our incremental borrowing rate is used based on information available at the lease’s commencement date to determine the present value of its lease payments. Operating lease payments are recognized on a straight-line basis over the lease term. We had no financing leases as of September 30, 2020.

We have operating leases for office space. Our leases have remaining lease terms of 3 years. We consider renewal options in determining the lease term used to establish our right-of-use assets and lease liabilities when it is determined that it is reasonably certain that the renewal option will be exercised.

F-17

As of September 30, 2020, there were no material variable lease costs or sublease income. Cash paid for operating leases are classified in operating expenses and were $45,000 and $154,000 in the three and nine months ended September 30, 2020 and $74,000 and $227,000 in the three and nine months ended September 30, 2019, which is classified in operating activities. The following tables summarize the lease expense for the three and nine months ended September 30:

Three Months Ended September 30,
	2020		2019
Operating lease expense	$	41,000	$	41,000
Short-term lease expense		4,000		33,000
Total lease expense	$	45,000	$	74,000

Nine Months Ended September 30,
	2020		2019
Operating lease expense	$	122,000	$	122,000
Short-term lease expense		32,000		105,000
Total lease expense	$	154,000	$	227,000

The below table summarizes these lease asset and liability accounts presented on our accompanying Condensed Consolidated Balance Sheets:

Operating Leases*	Consolidated Balance Sheet Caption	Balance as of September 30, 2020
Operating lease right-of-use assets - non-current	Right of use asset	$	390,000

Operating lease liabilities - current	Other current liabilities	$	94,000
Operating lease liabilities - non-current	Right to use liability - long term	$	282,000
Total operating lease liabilities		$	376,000

Components of Lease Expense

We recognize lease expense on a straight-line basis over the term of our operating leases, as reported within “selling, general and administrative” expense on the accompanying condensed consolidated statement of operations.

NOTE 10 – Other Current Liabilities

The following table summarizes the composition of other current liabilities presented on our accompanying Condensed Consolidated Balance Sheets:

	September 30, 2020		December 31, 2019
Contract liabilities	$	3,673,000	$	-
Contract liabilities assumed from LD Micro		97,000		-
BIGToken point liability		263,000		446,000
Operating lease liabilities - current		94,000		91,000
Other current liabilities		2,723,000		-
Total lease expense	$	6,850,000	$	537,000

NOTE 11 – Stockholders’ Equity

Authorized Shares

Preferred Stock

We are authorized to issue 50,000,000 of preferred stock, par value $0.001, of which 200,000 shares were designated as Series 1 Preferred Stock. Our board of directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. Our board of directors may authorize the issuance of preferred stock, which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our board of directors can fix limitations and restrictions, if any, upon the payment of dividends on both classes of our common stock to be effective while any shares of preferred stock are outstanding.

F-18

Common Stock

We are authorized to issue an aggregate of 259,000,000 shares of common stock. Our certificate of incorporation provides that we will have two classes of common stock: Class A common stock (authorized 250,000,000 shares, par value $0.001), which has one vote per share, and Class B common stock (authorized 9,000,000 shares, par value $0.001), which has ten votes per share. Any holder of Class B common stock may convert his or her shares at any time into shares of Class A common stock on a share-for-share basis. Otherwise the rights of the two classes of common stock are identical. As of September 30, 2020, the Company had 16,027,190 shares issued and outstanding. As of December 31, 2019, the Company had 13,997,452 shares issued and outstanding.

Common Stock Warrants

In conjunction with a Term Loan Note, the Company granted the borrower warrants to purchase up to 500,000 shares of Common Stock at an exercise price of $3.60 per warrant share. There were no warrants exercised during the three or nine months ended September 30, 2020. During the three and nine months ended September 30, 2020, the Company issued 500,000 and 7,419,415 common stock purchase warrants (see Note 6 – Term Loan Note and Note 7 – OID Convertible Debentures)

Stock Based Compensation

During the nine months ended September 30, 2020, the Company issued 9,043 common stock options to each of our independent directors for their services. The options have a strike price of $1.95 and vest one year from their issue date or April 16, 2021. The options have a term of seven years from their issue date.

During the nine months ended September 30, 2020, 42,675 common stock options were terminated, and a total of 430,000 common stock options were issued to its employees. The options have a strike price of $2.70 and vest five years from their issue date or August 18, 2025. The options have a term of five years from their issue date.

Stock based compensation expense for the three and nine months ended September 30, 2020, for all granted equity instruments, was $268,000 and $917,000, respectively and $329,000 and $775,000 for the three and nine months ended September 30, 2019, respectively.

NOTE 12 – Fair Value of Financial Instruments

The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash and accounts payable and accrued expenses, approximate their respective fair values due to the short-term nature of such instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The Company had the following financial assets of September 30, 2020 and December 31, 2019:

			Quoted Prices in	Significant Other		Significant
	Balance as of		Active Markets for	Observable		Unobservable
	September 30,		Identical Assets	Inputs		Inputs
	2020		(Level 1)	(Level 2)		(Level 3)
Marketable securities		4,800,000	4,800,000		—		—
Total assets	$	4,800,000	$4,800,000	$	—	$	—

			Quoted Prices in	Significant Other		Significant
	Balance as of		Active Markets for	Observable		Unobservable
	December 31,		Identical Assets	Inputs		Inputs
	2019		(Level 1)	(Level 2)		(Level 3)
Marketable securities		22,000	22,000		—		—
Total assets	$	22,000	$22,000	$	—	$	—

F-19

NOTE 13 – Segment Reporting

The Company reorganized its operating units into two reporting segments, Sequire and BIGToken. As part of the reorganization, the Company was required to allocate the goodwill between the two reporting segments. Of the $15,645,000 of aggregate goodwill, $10,200,000 and $5,445,000 was allocated to Sequire and BIGToken, respectively. The goodwill was allocated to the two reporting units based on the relative fair value of each reporting unit.

The relative fair values of Sequire and BIGToken were determined using the discounted cash flow method, which is a form of the income approach. The discounted cash flow method (“DCF”) utilized discrete financial forecasts and other financial assumptions developed by management. The determination of fair value requires significant management judgment including estimating future sales, cost of sales, changes in working capital, investments in property and equipment and the selection of an appropriate discount rate.

Additionally, we corroborate the conclusions of our discounted cash flow analyses by examining the trading multiples of similar publicly traded companies that operate within our industry vertical and compared the implied trading multiples of our DCF analysis with our publicly traded company group as a test for reasonableness.

The Company has three operating units and two reportable segments: (i) Investor data analysis technologies (Sequire) and (ii) Consumer based marketing services and data technologies (BIGToken). The Sequire segment includes the licensing of the Company’s proprietary SaaS platform and associated data analysis technologies. Additionally, the Sequire segment comprises consumer and investor targeted marketing solutions to allow users of our SaaS platform to act on the insights obtained through our technologies. Lastly, reported under Sequire is the newly acquired operating segment, LD Micro. The BIGToken segment includes the sale of advertising campaigns and proprietary consumer data obtained through our BIGToken application. The BIGToken segment includes certain operations from our discontinued sales verticals. Certain amounts for 2019 have been reclassified to conform to the classification for 2020.

Our Chief Operating Decision Maker (CODM) does not evaluate operating segments using asset or liability information. The following table presents revenues and gross profits by reportable segment.

	For the Three Months Ended September 30,
	SEQUIRE				BIGToken				Corporate and Other					Consolidated
	2020		2019		2020		2019		2020		2019			2020		2019

Investor / Shareholder Media Services	$	1,749,000	$	-	$	-	$	-	$	-	$	-		$	1,749,000	$	-
Platform Subscription		207,000		31,000		-		-		-		-			207,000		31,000
Conference revenues		-		-		-		-		-		-			-		-
Consumer Media / Data		-		-		604,000		915,000		-		-			604,000		915,000
Other		-		-		-		-		49,000		55,000			49,000		55,000
Total Revenue		1,956,000		31,000		604,000		915,000		49,000		55,000			2,609,000		1,001,000

Cost of Revenue		650,000		-		230,000		335,000		-		(13,000	)		880,000		322,000
Gross profit	$	1,306,000	$	31,000	$	376,000	$	580,000	$	49,000	$	68,000		$	1,729,000	$	679,000

F-20

	For the Nine Months Ended September 30,
	SEQUIRE				BIGToken				Corporate and Other				Consolidated
	2020		2019		2020		2019		2020		2019		2020		2019

Investor / Shareholder Media Services	$	2,432,000	$	-	$	-	$	-	$	-	$	-	$	2,432,000	$	-
Platform Subscription		376,000		41,000		-		-		-		-		376,000		41,000
Conference revenues		-		-		-		-		-		-		-		-
Consumer Media / Data		-		-		1,174,000		2,291,000		-		-		1,174,000		2,291,000
Other		-		-		-		-		143,000		165,000		143,000		165,000
Total Revenue		2,808,000		41,000		1,174,000		2,291,000		143,000		165,000		4,125,000		2,497,000

Cost of Revenue		896,000		-		491,000		1,013,000		1,000		62,000		1,388,000		1,075,000
Gross profit	$	1,912,000	$	41,000	$	683,000	$	1,278,000	$	142,000	$	103,000	$	2,737,000	$	1,422,000

Revenue Disaggregation

The following table breaks out the revenue types for Sequire and BIGToken

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Investor / Shareholder Media Services	$	1,749,000	$	-	$	2,432,000	$	-
Platform Subscription		207,000		31,000		376,000		41,000
Conference revenues		-		-		-		-
Consumer Media / Data		-		-		-		-
Sequire revenues		1,956,000		31,000		2,808,000		41,000

Investor / Shareholder Media Services		-		-		-		-
Platform Subscription		-		-		-		-
Conference revenues		-		-		-		-
Consumer Media / Data		604,000		915,000		1,174,000		2,291,000
BIGToken & Media vertical revenues		604,000		915,000		1,174,000		2,291,000

Other revenues		49,000		55,000		143,000		165,000

Total revenues	$	2,609,000	$	1,001,000	$	4,125,000	$	2,497,000

As of September 30, 2020 and December 31, 2019, revenue contract liabilities were approximately $3,770,000 and $0, respectively.

F-21

NOTE 14 – Subsequent Events

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined the following reportable events:

On October 30, 2020, a unit redemption agreement was entered into by and between the Company and Haylard MD, LLC (“Haylard”). The Company owns 10,000,000 Class A Units of Haylard. The Company desires to sell and transfer to Haylard, and Haylard desires to redeem and purchase from the Company. The price to be paid for all of the Units shall be $6,718,000 at closing and $960,000 upon the earlier of (a) the third anniversary of the closing and (b) a Sale of Haylard, for a total consideration of $7,678,000, provided that if Haylard consummates a Sale of Haylard within one hundred and eighty (180) calendar days after the closing, and the amount to be paid in respect of a Class A Unit in connection with such transaction after taking into account all fees, costs, expenses, escrows, indemnities, purchase price adjustments, repayments of indebtedness and other holdbacks as reasonably determined and calculated in good faith by Haylard is greater than $0.7677543, then Haylard shall pay to the Company an amount equal to such excess for each Unit redeemed and purchased hereunder by wire transfer of immediately available funds to the account specified by the Company.

On October 30, 2020, a unit redemption agreement was entered into by and between the Company and MD CoInvest, LLC, (“CoInvest”). The Company owns 420,000 Units of CoInvest. The Company desires to sell and transfer to CoInvest, and CoInvest desires to redeem and purchase from the Company. The price to be paid for all of the Units shall be $282,000 at closing and $40,000 upon the earlier of (a) the third anniversary of the closing and (b) a Sale of CoInvest, for a total consideration of $322,000, provided that if CoInvest consummates a Sale of CoInvest within one hundred and eighty (180) calendar days after the closing, and the amount to be paid in respect of a Class A Unit in connection with such transaction after taking into account all fees, costs, expenses, escrows, indemnities, purchase price adjustments, repayments of indebtedness and other holdbacks as reasonably determined and calculated in good faith by CoInvest is greater than $0.7677543, then CoInvest shall pay to the Company an amount equal to such excess for each Unit redeemed and purchased hereunder by wire transfer of immediately available funds to the account specified by the Company.

Substantially all of the proceeds (approximately $7,000,000) received for the sale of the above-mentioned unit redemptions were used to redeem outstanding OID convertible debentures.

On September 30, 2020, the Company entered into a share exchange agreement (“Share Exchange”) with Force Video Protection Equipment Corp. (“FPVD”) and the majority shares holders of FPVD. The Company would receive approximately 88.9% of the issued and outstanding shares of FPVD common stock in exchange for 100% of the issued and outstanding common stock of the Company’s wholly owned subsidiary BIGToken, Inc. The closing of the Share Exchange is contingent on the completion of certain events that have not occurred as of the release of these condensed consolidated financial statements.

F-22

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying unaudited condensed consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

	●	Company Overview – Provides an overview of our business and items that we deemed material in order to provide context for the remainder of MD&A.

	●	Management Opportunities, Challenges and Risks – Discussion and analysis of the Company’s key opportunities, challenges and risks

	●	Results of Operations – Analysis of our financial results comparing the three and nine months ended September 30, 2020 to the same period of 2019.

	●	Liquidity, Capital Resources and Going Concern - Liquidity discussion of our financial condition and potential sources of liquidity.

	●	Critical Accounting Policies - Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

Company Overview

Our mission is to change the way people look at data. The Company operates three operating units: Sequire, LD Micro and BIGToken. In second half of 2020, we have organized the business into two reporting segments: Sequire and BIGToken. The Sequire reporting segment includes both the Sequire and LD Micro operating units.

Through our Sequire business, we offer a proprietary SaaS platform and related data and insight services to allow issuers of publicly traded securities to better understand their securities in the public markets. Through the acquisition of LD Micro we organize and host investor events within the micro cap investment space.

Our BIGToken business seeks to enable a consumer digital data experience that is transparent, presents simple choice, and clear value exchange, which enables high quality digital data products for marketers and advertisers transitioning to the new digital economy.

During the three and nine months ended September 30, 2020, we recognized total revenues of $2,609,000 and $4,125,000, respectively, representing increases of $1,607,000 and $1,628,000, respectively, over the same periods ended September 30, 2019. The three months ended September 30, 2020 increased by $1,442,000 as compared to the three months ended June 30, 2020. We continue to invest in our operations and technology development to continue our revenue growth.

During 2020, the Company has undertaken a series of capital raising transactions to continue the ongoing development of its technologies.

Management Opportunities, Challenges and Risks

Impact and Response to Current Macroeconomic Factors

We achieved another quarter of revenue growth in Q3, 2020 in spite of the continuing widespread worldwide impact from the COVID-19 pandemic. Additionally, we instituted cost reduction measures through the elimination of certain product and sales verticals. During this time the Company reorganized its operations and continued to invest in the Sequire business. Through the third quarter, we continued to grow our operating capacity and expand our Sequire product offering, including the acquisition of a complementary business, LD Micro. Our ability to execute on our operating plan and invest in our future roadmap during difficult external circumstances continues to be tested and thus far we have met the challenge.

On the other hand, certain government regulations and public advisories, as well as shifting social behaviors, that have temporarily or sporadically limited or closed non-essential transportation, government functions, business activities and person-to-person interactions remain in place. In some cases, the relaxation of such trends has been followed by a return to stringent restrictions. We cannot predict the duration or direction of such trends, which have also adversely affected and may in the future affect our operations.

We continue to monitor macroeconomic conditions to remain flexible and optimize and evolve our business as appropriate, and we will continue to do so as we did in the first half of 2020. Because the impact of current conditions on a sustained basis is yet largely unknown, continues to evolve, and has been varied across geographic regions, ongoing assessments will be particularly critical to allow us to accurately project our business.

Sequire

The Company has continued to expand its product offering, which has contributed to the continued growth of our subscriber base. As of September 30, 2020, Sequire had a total of 91 platform subscribers. During the first quarter of 2020, Sequire launched a new sales initiative in which it offers its public company Customers the ability to pay for services with our Customer’s equity or debt security instruments. Currently, the Company is only offering its services to customers with publicly traded securities in the United States.

BIGToken

On September 30, 2020, we entered into a share exchange agreement (“Exchange Agreement”) with Force Video Protection Equipment Corp. (“FPVD”) and Paul Feldman, FPVD’s sole officer and director. Pursuant to the Exchange Agreement, in exchange for the transfer of all of the outstanding equity of BIGToken, FPVD will issue an amount of its common stock equal to 88.9% of FPVD’s issued and outstanding shares post-issuance and Paul Feldman will transfer all of his 5,000,000 shares of FPVD’s Series A Preferred Stock. The closing of the Transactions contemplated by the Exchange Agreement are subject to certain closing conditions as more fully set forth in the Exchange Agreement. A description of the Exchange Agreement is included in our Current Report on Form 8-K filed with the SEC on October 5, 2020. Upon the closing of the transactions contemplated by the Exchange Agreement we will no longer own any of the BIGToken assets.

During the second quarter BIGToken has continued to develop its product offering and launched a sales feature, Lightening Insights, to help marketers understand the changing market landscape in light of the recent Pandemic.

During the third quarter of 2020, we’ve seen further regulatory activity in the area of data privacy. The California Privacy Rights Act (CRPA) has been approved by California voters. The CRPA proposes to significantly expand the rights of consumers and among other things creates new obligations for companies that process personal information and would further consumers’ ability to limit the use and disclosure of sensitive personal information. As a result of these conditions we believe the BIGToken commercial brand is well positioned because our product offering provides marketing solutions compliant with these new and evolving regulations.

As of September 30, 2020, we had approximately 16,560,000 users on the BIGToken platform. Our current planning models indicate that we would need to reach a user base of approximately 26 million, requiring an additional $6,000,000 in capital investment prior to BIGToken generating revenues at a level sufficient to cover operating expenses, excluding the allocation of any corporate overhead. Under this model we estimate we would begin generating operating cash flows in the fourth quarter of 2022. Our previous projections did not include revenue from certain new sales products that we have launched during the first half of the year, as well as our ability to leverage existing operational resources within the Company. Based on the operating results during the nine months ended September 30, 2020 we are experiencing higher than anticipated yield per user, which may provide us with further flexibility in future development plans. If we are able to maintain the yield per user experienced, we will likely be able to achieve profitability with a smaller user base, and consequently require less capital investment.

Although management believes that it will be able to secure such needed capital through the offering of its securities, there can be no assurance that financing will be available to us when needed in order to allow us to continue with the development of BIGToken, or if available, on terms acceptable to us. If we do not raise enough capital in a timely manner, among other things, we may be forced to scale back our operations or cease operations all together.

Results of Operations

Revenues

The following table presents our revenues and gross margins, by segment and source (unaudited). Certain amounts in prior periods have been reclassified to conform with current period presentation:

	For the Nine Months Ended September 30,
	Sequire						BIGToken						Corporate and Other						Consolidated
	2020			2019			2020			2019			2020			2019			2020			2019

Investor /shareholder media services	$	2,432,000		$	-		$	-		$	-		$	-		$	-		$	2,432,000		$	-
Platform subscription		376,000			41,000			-			-			-			-			376,000			41,000
Conference revenue		-			-			-			-			-			-			-			-
Media / Data		-			-			1,174,000			2,291,000			-			-			1,174,000			2,291,000
Other		-			-			-			-			143,000			165,000			143,000			165,000
Total Revenue		2,808,000			41,000			1,174,000			2,291,000			143,000			165,000			4,125,000			2,497,000

Cost of Revenue		896,000			-			491,000			1,013,000			1,000			62,000			1,388,000			1,075,000
Gross profit		1,912,000			41,000			683,000			1,278,000			142,000			103,000			2,737,000			1,422,000
margin %		68.1	%		100.0	%		58.2	%		55.8	%		99.3	%		62.4	%		66.4	%		56.9	%

Operating expenses		1,934,000			288,000			4,490,000			8,281,000			5,913,000			6,425,000			12,337,000			14,994,000

Operating Income	$	(22,000	)	$	(247,000	)	$	(3,807,000	)	$	(7,003,000	)	$	(5,771,000	)	$	(6,322,000	)	$	(9,600,000	)	$	(13,572,000	)

	For the Three Months Ended September 30,
	SEQUIRE						BIGToken						Corporate and Other						Consolidated
	2020			2019			2020			2019			2020			2019			2020			2019

Investor /shareholder media services	$	1,749,000			-		$	-		$	-		$	-		$	-		$	1,749,000		$	-
Platform subscription		207,000			31,000			-			-			-			-			207,000			31,000
Conference revenue		-			-			-			-			-			-			-			-
Media / Data		-			-			604,000			915,000			-			-			604,000			915,000
Other		-			-			-			-			49,000			55,000			49,000			55,000
Total Revenue		1,956,000			31,000			604,000			915,000			49,000			55,000			2,609,000			1,001,000

Cost of Revenue		650,000			-			229,000			335,000			1,000			(13,000	)		880,000			322,000
Gross profit		1,306,000			31,000			375,000			580,000			48,000			68,000			1,729,000			679,000
margin %		66.8	%		100.0	%		62.1	%		63.4	%		98.0	%		123.6	%		66.3	%		67.8	%

Operating expenses		1,128,000			96,000			1,140,000			3,171,000			1,938,000			2,122,000			4,206,000			5,389,000

Operating Income	$	178,000		$	(65,000	)	$	(765,000	)	$	(2,591,000	)	$	(1,890,000	)	$	(2,054,000	)	$	(2,477,000	)	$	(4,710,000	)

Sequire revenues

Sequire revenues for the quarter ended September 30, 2020 increased to $1,956,000 compared to $746,000 and $31,000 during the three months ended June 30, 2020 and the three months ended September 30, 2019. Sequire’s continued growth was primarily driven by the sales program allowing public companies to pay for Sequire’s services with the Customer’s securities instruments. During the quarter ended September 30, 2020 the Company has closed sales totaling $10,000,000 in annual contract value.

Sequire Profit Margin

Sequire’s costs of revenue consist of data and media acquired from third parties to fulfill the data, media and advertising components of our revenues. Sequire’s profit margin for the three months and nine months ended September 30, 2020 was 67% and 68% respectively.

BIGToken revenues

BIGToken revenues for the quarter ended September 30, 2020 decreased to $604,000 compared to $915,000 during the three months ended September 30, 2019. This decrease is primarily driven by the loss of core customers from our legacy sales verticals.

BIGToken Profit Margin

BIGToken’s costs of revenue consist of media acquired from third parties to fulfill the media and advertising components of our revenues. BIGToken’s profit margin for the nine months ended September 30, 2020 increased to 58% as compared to 56% for the nine months ended September 30, 2019, and for the three months ended September 30, 2020 decreased to 62% from 63% for the three months ended September 30, 2019.

Operating Expenses

Our operating costs for three months ended September 30, 2020 declined to $4,206,000 as compared to $5,389,000 in for the three months-ended September 30, 2019 representing a decrease of $1,183,000. The decrease was primarily attributable to (i) a decrease in staffing related expenses of approximately $680,000, a decrease in data costs of $463,000. Operating cost for the nine months ended September 30, 2020 declined to $12,337,000 from $14,994,000, representing a decrease of $2,657,000. The decrease was primarily attributable to (i) staffing related expenses of approximately $1,860,000 and (ii) a reduction in data costs of $564,000.

Financing Costs

Our financing cost for the three months ended September 30, 2020 increased to $3,302,000 compared to $108,000 for 2019 for an increase of $3,194,000. The increase is attributable to the accretion of the debt discounts associated with our OID convertible debentures issued on June 30, 2020 and July 1, 2020.

Our financing cost for the nine months ended September 30, 2020 increased to $5,340,000 compared to $359,000 for 2019 for an increase of $4,981,000. The increase is attributable: (i) to losses incurred to extinguish and convert our short-term indebtedness into the OID convertible debentures the Company issued on June 30, 2020, which totaled approximately $1,100,000. The value of the consideration the short-term holders received was in excess of the value owed as of June 30, 2020, which created the loss, (ii) the accretion of the OID convertible debentures of $3,295,000, and (iii) $436,000 of due to the write-off of deferent financing costs associated with our Term-Loan Note, which was paid off on June 30, 2020.

Securities Held for Sale

Our marketable equity securities are publicly traded stocks. We consider our equity securities to be available for sale, and therefore we mark them to market at each reporting period with the change recorded in statements of operations as a component of other income (expense). The Company acquired these securities as consideration for Sequire’s revenue transactions. These securities are subject to a wide variety of market-related risks, due to the public markets, that could substantially reduce or increase the fair value of our holdings.

Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act Loan (PPP Loan)

Due to economic uncertainty as a result of the ongoing Pandemic (COVID-19), on April 17, 2020, we entered into a promissory note evidencing an unsecured loan in the amount of $1,084,000 under the Paycheck Protection Program (the “Loan”).

As we previously noted, the in the second half of March and continued through April, our operations were negatively affected, while certain of these effects continue to persist to date.

The PPP loan allowed the Company to minimize workforce related reductions amidst a significant decline in revenues.

The Company has spent these funds in accordance with guidelines of the PPP Act, and anticipates forgiveness of substantially the entire balance. As of September 30, 2020, the bank institution has not yet begun the formal process of accepting forgiveness applications.

Change in fair value of derivative liabilities

During the quarter ended June 30, 2020 and in conjunction with the Convertible debenture financing on June 30, 2020, the Company entered into amendment and modification agreements with holders of the warrants underlying those derivative warrant liabilities the Company had recorded on its balance sheet as of March 31, 2020 and December 31, 2019. These modification agreements eliminated the ability for the warrant holders to force cash redemptions under fundamental transactions. Due to these modifications, the warrants are no longer considered to be derivative liabilities, in accordance with ASC 815 – Derivatives and Hedging. The Company has reclassified these warrants from the liability section of the Company’s balance sheet into the equity section of the balance sheet.

Liquidity and Capital Resources

Going Concern

The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its goods and services to achieved profitable operations. In addition, the Company’s operations and specifically, the continued operation of BIGToken will require significant additional financing. As of September 30, 2020 the Company had cash and cash equivalents of $2,446,000 which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements are issued, and accordingly, these factors create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated 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 consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Liquidity

We expect that our existing cash and cash equivalents as of September 30, 2020, along with the proceeds we receive from the sale of our marketable securities will be sufficient to enable us to fund our anticipated level of operations based on our current operating plans. We anticipate raising additional capital through the private and public sales of our equity or debt securities, or a combination thereof. Although management believes that such capital sources will be available, there can be no assurance that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient capital in a timely manner, among other things, we may be forced to scale back our operations or cease operations altogether.

During the nine months ended September 30, 2020, the Company was able to raise net cash proceeds (net of debt repayments, commissions, and fees) of approximately $13,499,000. The Company’s capital-raising efforts are ongoing and the Company has undertaken the following to raise capital and reduce its cash burn rate: (i) received a PPP Loan from the Small Business Administration for funding under the Payroll Protection Program, in the amount of $1,084,000 (ii) entered into an “At the Market” sales agreement for the sale of up to $3,125,000 of our equity securities, (iii) sold OID convertible debentures for proceeds of $11,885,000. Additionally, subsequently to September 30, 2020, the Company sold its remaining position in TI Health (f/k/a SRAXmd) for a total of $8,000,000 of which $7,000,000 was received on October 30, 2020. Substantially, all of these proceeds were used to redeem a portion of our outstanding OID convertible debentures.

Summary of Cash Flows

	Nine Months Ended September 30,
	2020			2019

Net cash used in operating activities	$	(9,888,000	)		(12,555,000	)
Net cash used in investing activities		(1,157,000	)		(730,000	)
Net cash provided by financing activities		13,459,000			13,343,000

Cash flows from operating activities

Net cash used in operating activities was $9,888,000 during the nine months ended September 30, 2020 compared to $12,555,000 for the comparable period in 2019. The decrease of $2,667,000 is driven by; (i) a decrease in our cash operating expenses of $2,819,000. This partially offset by a net increase in our operating assets and liabilities.

Cash flows from investing activities

During the nine months ended September 30, 2020 net cash used in investing activities was $1,157,000 compared to $730,000 used during the comparable period in 2019. The increase of $427,000 was driven by the net cash paid to acquire LD Micro, $697,000, partially offset by the proceeds received from the sales of securities held for sale of approximately $397,000.

Cash flows from financing activities

During the nine months ended September 30, 2020, net cash provided from financing activities was $13,459,000 consisting of proceeds from the sale of (i) $11,885,000 of OID convertible debentures, (ii) $1,084,000 in proceeds from a payroll protection loan, and (iii) $960,000 in net proceeds from the sale of short-term notes of which $100,000 was paid. During the nine months ended September 30, 2019 net cash provided by financing activities consisted of proceeds from the sales of common stock in the amount totaling $12,197,000 and the proceeds from the exercise of warrants in the amount of $1,146,000.

Critical Accounting Policies and Estimates

See Part II, Item 7, “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2019, certain of which are further described below.

As of September 30, 2020 the impact of COVID-19 continues to unfold and as a result, certain of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility that could result in material changes to our estimates in future periods.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable, as we are a smaller reporting company.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our Company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of continuing material weaknesses in our internal control over financial reporting identified in our Annual Report on Form 10-K for the year ended December 31, 2019.

We continue to work toward full remediation of these material weaknesses. We expect that the remediation of these material weaknesses in our internal control over financial reporting will remediate the weakness in our disclosure controls and procedures.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

None.

ITEM 1A.

RISK FACTORS.

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.

Any investment in our securities involves a high degree of risk. Investors should consider carefully the risks and uncertainties described in our Annual Report on Form 10-K that we filed with the SEC on May 1, 2020, as well as the risk factors described below, and all other information in this Form 10-Q and in any reports we file with the SEC before deciding whether to purchase or hold our securities. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also become important factors that may harm our business. The occurrence of any of the risks described in this Form 10-Q could harm our business. The trading price of our securities could decline due to any of these risks and uncertainties, and investors may lose part or all of their investment.

Risks Related to receipt of Securities for Services

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 U.S. Investment Company Act of 1940 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 its activities so it will not be deemed to be an investment company under the U.S. Investment Company Act of 1940 (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, we will be limited 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 U.S. Investment Company Act of 1940, 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 stock of its customers, which are often smaller publicly traded companies with volatile stock prices, limited liquidity, and risker operations.

The Sequire platform provides SaaS, and payment is often made through equity securities of customers instead of cash. The securities issued are often those of smaller size public companies that often have limited operating cash and negative cash flows. Additionally, these securities are primarily restricted, and are subject to legal holding periods pursuant to Rule 144. 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, and the stock price of such issuers is often volatile, unpredictable and has limited liquidity. 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 we receive securities from pursuant to our Sequire services will remain solvent during the legally required holding period under Rule 144, which would result in the loss of some or all of our anticipated revenue. As we are not experienced stock 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 revenue.

Sequire’s receipt of securities in lieu of cash may be affected negatively 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 policy, economic recession, governmental shutdown, trade tensions and disputes, global economic slowdown, widespread health epidemics or pandemics, natural disasters, terrorist attacks, war, changes in local and national economic and political conditions, regulatory changes or changes in the law, or interest rate or currency rate fluctuations could create a downturn in the U.S. and/or global securities markets. As we receive restricted securities of companies, a downturn in the U.S. or global markets may impact such companies and the value of our securities.

Recently, the spread of COVID-19 has adversely affected global business activities and has resulted in significant uncertainty in the global economy and volatility in financial markets. The impact of the coronavirus continues to evolve and has been marked by rapid changes and developments. Accordingly, we cannot reliably predict the ultimate impact on financial markets and value of our securities held.

Risks Related to our Business, BIGToken, and LD Micro

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

For the year-ended December 31, 2019 we reported losses from operations and an accumulated deficit of $17,858,000 and $35,637,000, respectively. For the nine months ended September 30, 2020 we reported losses from operations and an accumulated deficit of $14,895,000 and $50,532,000, respectively. Our future success depends upon our ability to continue to 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 increase our revenues and cash flow to a level which supports profitable operations. In addition, for the nine months ended September 30, 2020 our operating expenses decreased by 17.8% from the nine months ended September 30, 2019. 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 are able to significantly increase our revenues in future periods, the rapid growth which we are pursuing will strain our organization and we may encounter difficulties in maintaining the quality of our operations. If we are not able to grow successfully, 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.

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 the 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 Securities and Exchange Commission.

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

Our auditors’ report on our December 31, 2019 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 September 30, 2020¹, there is substantial doubt about our ability to continue as a going concern past the second quarter of 2021. Our ability to continue as a going concern is based on several factors; (i) our ability to sustain our current operating performance, (ii) the completion of our pending share exchange transaction with BIGtoken (iii) 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.

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, 2019 and September 30, 2020, 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.

We believe our failure to maintain effective systems of internal controls over financial reporting resulted in our need to restate the following previously issued quarterly and year-to-date unaudited consolidated financial statements for March 31, 2017, June 30, 2017, September 30, 2017, December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018 and our audited consolidated financial statements for the year ending December 31, 2017.

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

In June 2020, we entered into a securities purchase agreement with institutional investors for the issuance of approximately $16.1 million in principal of Debentures. Pursuant to the terms of the Debentures (subject to three (3) separate deferrals of six (6) months each in exchange for increased principal added to the Debentures), we will be required to begin making amortization payments on the Debentures beginning on December 31, 2020. Payment of the Debentures is secured by substantially all the assets and the intellectual property of the Company. On November 6, 2020, pursuant to our sale of membership interests received pursuant to the sale of SRAX md in the third quarter of 2018, we redeemed approximately $7 million in outstanding Debentures. Notwithstanding such redemption, based upon our current financial results, 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 amortization 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, we would be in default, which would permit the holders of the Debentures 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.

We may be required to spend significant capital to redeem BIGToken Points which will negatively impact our ability to fund our core operations.

Users of BIGToken receive points for undertaking certain actions on the platform that may be redeemed directly for cash from us, with such value as determined by management. Accordingly, we are currently obligated to redeem users’ points which are earned on BIGToken. We are currently redeeming each point for $0.01, subject to the user meeting certain conditions. As of September 30, 2020, we recorded a contingent liability for future point redemptions equal to $263,000 and we have redeemed an aggregate amount of approximately $186,000 during the nine months ended September 30, 2020. As of September 30, 2020, we had approximately 16,560,000 users. Notwithstanding the foregoing, if our users continue to increase, we will be required to have enough cash reserves to redeem points held by our qualified users for cash. There can be no assurance that we will have enough cash reserves, or if we do have sufficient cash, if we will be able to continue to fund our other business obligations and operational expenses.

We entered into a share exchange agreement to sell substantially all of the shares if BIGToken, which will close subject to certain closing conditions, which may or may not be satisfied, the failure of which may material impact or busines operations.

On September 30, 2020, we entered into a share exchange agreement (“Share Exchange Agreement”) with Force Protection Video Equipment Corporation (“FPVD”) whereby, subject to certain closing conditions, we will exchange 100% of the outstanding equity shares of BIGToken in exchange for receipt of 88.9% of the issued and outstanding common stock of FPVD and 100% of the outstanding preferred stock of FPVD. Notwithstanding the Share Exchange Agreement, there can be no assurances that the transaction will close and in the event that the transaction does not close, we would continue to incur all costs and liabilities associated with BIGToken.

If our efforts to attract and retain BIGToken users are not successful, our number of users and the amount of data collected could fail to reach critical mass, grow or decline and our potential for BIGToken to earn revenues may be materially affected.

Notwithstanding the closing of the Share Exchange Agreement, we will be dependent on advertisers to pay us for access to user data. We must attract users to grow the amount of accessible data and make it attractive to these third parties. If the public does not perceive our mission or our services to be reliable, valuable or of high quality, we may not be able to attract or retain users and create a critical mass of data which will impact our ability to earn revenues which could have a materially adversely affected on SRAX.

In the event that we are unable to integrate LD Micro, our newly acquired wholly owned subsidiary with our current assets or continue to develop LD Micro, it could materially affect our business, financial condition and results of operations.

In September 2020, we acquired LD Micro as a wholly owned subsidiary. Management is currently integrating operational aspects of LD Micro into SRAX. There can be no assurances that LD Micro is profitable, that we successfully integrate LD Micro’s business with that of SRAX, or that we are able to successfully operate LD Micro’s operations profitably. The failure to do any of the foregoing could materially affect our business, financial condition, and results of operations.

LD Micro, our newly acquired subsidiary operates in a business segment that may be negatively affected by the COVID-19 pandemic.

Our recently acquired subsidiary, LD Micro, hosts online and in-person investor conferences for publicly traded companies. While we believe we will be able to transition a majority of the events and conferences into an online format during the COVID-19 pandemic, there can be no assurances that we will be able to do so successfully, or that investors and other attendees will find such virtual conferences as compelling.

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. For example, California recently ordered most businesses closed, mandating work-from-home arrangements, where feasible, in response to the coronavirus pandemic. 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.

Challenges in acquiring user data could materially adversely affect our ability to retain and expand BIGToken, and therefore could materially affect our business, financial condition and results of operations.

In order to expand BIGToken, we must continue to expend resources to make the submission of user data as user-friendly as possible. We, and our users, may face legal, logistical, cultural and commercial challenges in procuring user data. Additionally, once such data is obtained, if the process for validation and collection of Rewards may be perceived as too cumbersome and discourage potential users from submission. We may need to expend significant resources on user interfaces for evolving platforms, such as mobile devices. Inconveniences to our users or potential users at any stage of the process may materially challenge our growth.

If we fail to ensure that the user data derived from BIGToken is of high quality, our ability to attract customers or monetize the data may be materially impaired.

The reliability of our user data depends upon the integrity and the quality of the process of accepting user data into BIGToken. We will take certain measures to validate user data submitted by our users and potential users to assure a high quality of data in BIGToken and generally confirming that data is submitted in accordance with our terms for such data. We must continue to invest in our quality control measures relating to BIGToken in order to provide a high-quality product to potential customers.

If BIGToken experiences an excessive rate of user attrition, our ability to attract customers could fail.

Users may elect to have their data deleted from BIGToken at any time. We must continually add new users both to replace users who choose to delete their data and to increase our user base. Users may choose to delete their data for many reasons. If users are concerned about privacy and security and do not perceive BIGToken to be reliable, if we fail to keep users engaged and interested in our application, or if we simply lose our users’ attention, we could fail to gather sufficient user data and our ability to earn revenues may be materially affected.

If we are unable to manage our marketing and advertising expenses, it could materially harm our results of operations and growth.

We plan to rely in part on our marketing and advertising efforts to attract new members. Our future growth and profitability, as well as the maintenance and enhancement of our brand, will depend in large part on the effectiveness and efficiency of our marketing and advertising strategies and expenditures. If we are unable to maintain our marketing and advertising channels on cost-effective terms, our marketing and advertising expenses could increase substantially, and our business, financial condition and results of operations may suffer. In addition, we may be required to incur significantly higher marketing and advertising expenses than we currently anticipate if excessive numbers of members withdraw their member data from our Database.

Failure to comply with federal, state and local laws and regulations or our contractual obligations relating to data privacy, protection and security of BIGToken user data, and civil liabilities relating to breaches of privacy and security of user data, could damage our reputation and harm our business.

A variety of federal, state and local laws and regulations govern the collection, use, retention, sharing and security of user data. We will collect BIGToken user data from and about our members when they redeem Rewards and maintain that date in our BIGToken Application. Claims or allegations that we have violated applicable laws or regulations related to privacy, data protection or data security could in the future result in negative publicity and a loss of confidence in us by our users and potential new users, and may subject us to fines and penalties by regulatory authorities. In addition, we have privacy policies and practices concerning the collection, use and disclosure of user data as part of our agreements with our members, including ones posted on our website. Several Internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices. In addition, our use and retention of user data could lead to civil liability exposure in the event of any disclosure of such information due to hacking, malware, phishing, inadvertent action or other unauthorized use or disclosure. Several companies have been subject to civil actions, including class actions, relating to this exposure.

We have incurred, and will continue to incur, expenses to comply with data privacy, protection and security standards and protocols for BIGToken user data imposed by law, regulation, self-regulatory bodies, industry standards and contractual obligations. Such laws, standards and regulations, however, are evolving and subject to potentially differing interpretations, and federal, state and provincial legislative and regulatory bodies may expand current or enact new laws or regulations regarding privacy matters. Additionally, we accept user from foreign countries which subjects us to the personal and other data privacy, protection and security laws of those countries, We are unable to predict what additional legislation, standards or regulation in the area of privacy and security of personal information could be enacted or its effect on our operations and business.

If we are unable to satisfy data privacy, protection, security, and other government- and industry-specific requirements, our growth could be harmed.

We need or may in the future need to comply with a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data. Security compromises could harm our reputation, erode user confidence in the effectiveness of our security measures, negatively impact our ability to attract new members, or cause existing users to withdraw their data from BIGToken.

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. For example, the General Data Protection Regulation, or GDPR, which was agreed by E.U. institutions in 2016 and came into effect after a two year transition period on May 25, 2018, updated and modernized the principles of the 1995 Data Protection Directive and significantly increases the level of sanctions for non-compliance. Data Protection Authorities will have the power to impose administrative fines of up to a maximum of €20 million or 4% of the data controller’s or data processor’s total worldwide turnover of the preceding financial year. Similarly, the E-Privacy Regulation, which was launched by the European Parliament in October 2016, could result in, once enacted, new rules and mechanisms for “cookie” consent. In addition, 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.

We are remediating certain internal controls and procedures, which, if not successful, could result in additional misstatements in our financial statements negatively affecting our results of operations.

We are in the process of implementing certain remediation actions. See Part I Item 4. “Controls and Procedures” of this Form 10-Q for a description of these remediation measures. To the extent these steps are not successful, not sufficient to correct our material weakness in internal control over financial reporting or are not completed in a timely manner, future financial statements may contain material misstatements and we could be required to restate our financial results. Any of these matters could adversely affect our business, reputation, revenues, results of operations, financial condition and stock price and limit our ability to access the capital markets through equity or debt issuances.

Privacy concerns could damage our reputation and deter current and potential users from contributing additional data through our BIGToken Application. If our security measures are breached resulting in the improper use and disclosure of user data, BIGToken may be perceived as not being secure, users and customers may curtail or stop using BIGToken, and we may incur significant legal and financial exposure.

Concerns about our practices with regard to the collection, use, disclosure, or security of user data or other privacy related matters, even if unfounded, could damage our reputation and adversely affect our operating results. Our services will involve the purchase, storage, transmission and sale of user data, and theft and security breaches expose us to a risk of loss of this information, improper use and disclosure of such information, litigation, and potential liability. Any systems failure or compromise of our security that results in the release of user data, or in our or our users’ ability to access such data, could seriously harm our reputation and brand and, therefore, our business, and impair our ability to attract and retain users. Additionally, if user data is somehow made public or made available through a security breach, it may be used to identify our users and people related thereto. We may experience cyber-attacks of varying degrees. Our security measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities, including vulnerabilities of our vendors, suppliers, their products, or otherwise. Such breach or unauthorized access, increased government surveillance, or attempts by outside parties to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to user data could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of BIGToken that could potentially have an adverse effect on our business. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, become more sophisticated, and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Additionally, cyber-attacks could also compromise trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could negatively affect our business. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose members and customers.

Certain user data must be provided on a recurring basis in order to provide full value.

Certain types of user data will need to be contributed by users recurrently for such data to provide full value to our potential customers. If users fail to provide us with sufficient recurring data, the value of the user data may substantially decrease and our ability to earn revenues may be materially affected.

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 user base and result in user attrition 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 allow European users, we are 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. Our BIGToken platform has experienced an increase in the occurrence of such attempts and we cannot be assured that we will be able to prevent a successful attack on our systems in the future. We also regularly encounter attempts to create false or undesirable user accounts or take other actions on our BIGToken platform for purposes such as spreading misinformation, attempting to have us improperly purchase user data or other objectionable ends. As a result of recent attention and growth of our BIGToken platform, 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, to disable undesirable accounts and activities on our BIGToken platform, 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 users 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, especially with regard to the BIGToken platform. 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.

Our success is dependent upon our ability to effectively expand and manage our relationships with our publishers. We do not have any long-term contracts with our publishing partners.

We do not generate our own media inventory. Accordingly, we are dependent upon our publishing partners to provide the media which we sell. We depend on these publishers to make their respective media inventories available to us to use in connection with our campaigns that we manage, create or market. We are not a party to any long-term agreements with any of our publishing partners and there are no assurances we will have continued access to the media. Our growth depends, in part, on our ability to expand and maintain our publisher relationships within our network and to have access to new sources of media inventory such as new partner websites and Facebook pages that offer attractive demographics, innovative and quality content and growing Web user traffic volume. Our ability to attract new publishers to our networks and to retain Web publishers currently in our networks will depend on various factors, some of which are beyond our control. These factors include, but are not limited to, our ability to introduce new and innovative products and services, our pricing policies, and the cost-efficiency to Web publishers of outsourcing their advertising sales. In addition, the number of competing intermediaries that purchase media inventory from Web publishers continues to increase. In the event we are not able to maintain effective relationships with our publishers, our ability to distribute our advertising campaigns will be greatly hindered which will reduce the value of our services and adversely impact our results of operations in future periods.

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:

	●	discontinues or limits access to its platform by us and other application developers;

	●	modify terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers, or changes how the personal information of its users is made available to application developers;

	●	establishes more favorable relationships with one or more of our competitors; or

	●	develops its own competitive offerings.

We have benefited from Facebook’s strong brand recognition and large user base. Facebook has broad discretion to change its terms of service and other policies with respect to us and other developers, and any changes to those terms of service may be unfavorable to us. Facebook may also change its fee structure, add fees associated with access to and use of the Facebook platform, change how the personal information of its users is made available to application developers on the Facebook platform or restrict how Facebook users can share information with friends on their platform. In the event Facebook makes any changes in the future, we may have to modify the structure of our campaigns which could impact the effectiveness of our campaigns and adversely impact our results of operations in future periods.

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 executive officers, including Christopher Miglino and Michael Malone as well as Christopher Lahiji, the president of our wholly owned subsidiary, LD Micro. We are a party to an employment agreement with each of Mr. Miglino, Mr. Malone and Mr. Lahiji. Although we do not expect to lose their 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.

If advertising on the Internet loses its appeal, our revenue could decline.

Our business model may not continue to be effective in the future for a number of reasons, including:

	●	a decline in the rates that we can charge for advertising and promotional activities;

	●	our inability to create applications for our customers;

	●	Internet advertisements and promotions are, by their nature, limited in content relative to other media;

	●	companies may be reluctant or slow to adopt online advertising and promotional activities that replace, limit or compete with their existing direct marketing efforts;

	●	companies may prefer other forms of Internet advertising and promotions that we do not offer;

	●	the quality or placement of transactions, including the risk of non-screened, non-human inventory and traffic, could cause a loss in customers or revenue; and

	●	regulatory actions may negatively impact our business practices.

If the number of companies who purchase online advertising and promotional services from us does not grow, we may experience difficulty in attracting publishers, and our revenue could decline.

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

Certain of our subsidiaries and business 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 subsidiaries and 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 subsidiaries and business affiliates or the law, could have certain adverse effects on the financial condition of these subsidiaries and business affiliates. Any failure by these subsidiaries and business affiliates to effectively manage the challenges associated with the international operation of their businesses could materially adversely affect their, and hence our, financial condition.

Our success is dependent upon our ability to effectively expand and manage our relationships with our publishers. We do not have any long-term contracts with our publishing partners.

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

Risks Related to Ownership of our Securities

The market price of our common stock may be adversely affected by sales of substantial amounts of our common stock pursuant to our at the market sales agreement.

We are a party to an at-the-market sales agreement pursuant to which we are able to sell our Class A common shares directly into the market. Currently, we would be required to use the proceeds to pay for the redemption of the outstanding Debentures, subject to certain amounts as more fully set forth in the Debentures. If we are required to sell a substantial number of shares, or the public perceives that these sales may occur, it could cause the market price of our common stock to decline. In addition, the sale of these shares in the public market, or the possibility of such sales, could impair our ability to raise capital through the sale of additional equity securities.

We do not know whether an active and liquid trading market will develop for our Class A common stock.

The trading of our Class A common stock may be viewed as relatively sporadic and with limited liquidity. The lack of an active and liquid market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. Further, an inactive market may also impair our ability to raise capital by selling shares of our Class A common stock and may impair our ability to enter into collaborations or acquire companies or products by using our shares of Class A common stock as consideration. The market price of our offered securities may be volatile, and you could lose all or part of your investment.

The market price of our Class A 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 Class A 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:

	●	the success of competitive products;

	●	actual or anticipated changes in our growth rate relative to our competitors;

	●	announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

	●	regulatory or legal developments in the United States and other countries;

	●	the recruitment or departure of key personnel;

	●	the level of expenses;

	●	actual or anticipated changes in estimates to financial results, development timelines or recommendations by securities analysts;

	●	variations in our financial results or those of companies that are perceived to be similar to us;

	●	fluctuations in the valuation of companies perceived by investors to be comparable to us;

	●	inconsistent trading volume levels of our shares;

	●	announcement or expectation of additional financing efforts;

	●	sales of our Class A common stock by us, our insiders or our other stockholders;

	●	additional issuances of securities upon the exercise of outstanding options and warrants;

	●	market conditions in the technology sectors; and

	●	general economic, industry and market conditions.

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 Class A 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 Class A common stock.

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

The market price of the shares of our Class A 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 Class A 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 Class A common stock and trading volume could decline.

The trading market for our shares of our Class A 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 Class A 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 Class A 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.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following information is given with regard to unregistered securities sold since January 1, 2020. 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(2) thereof, relating to offers of securities by an issuer not involving any public offering:

	●	In January 2020, we sold non-performing receivables in the aggregate amount of $529,000 for a purchase price of $510,000 whereby in the event of payment on the receivables being received, we agreed to provide a true-up to the purchaser of the receivable of between 10% and 36% depending on the payment date. In the event of nonpayment of the receivables by March 24, 2020 and March 30, 2020, as applicable to the receivables, the purchaser may require us to purchase any outstanding portion of the receivables for 136% of its outstanding balance (“Payment Date”). In order to secure our performance to repurchase the receivables, we pledged 239,029 shares of our Class A common stock. The purchaser and Company agreed to extend the Payment Date until June 23 and June 30, 2020, as applicable, in exchange for an aggregate of 36,700 Class A common shares If we fail to repay the receivable, the purchaser may sell the pledged shares and we are liable for the any deficiency on amounts owed thereunder. On June 30, 2020, the holder exchanged all of the outstanding value in the receivables for securities sold in the June 2020 Offering (as described below).

	●	On February 28, 2020, we entered into a term loan and security agreement with BRF Finance Co., LLC to borrow up to $5,000,000 subject to certain restrictions. We initially drew down gross proceeds of $2,500,000 less fees and expenses and we can access the remaining $2,500,000 within thirty (30) days of entering into an at the market sales agreement with the Lender. The loan bears interest at 10% annually and had a maturity date of March 1, 2022. We were required to make monthly payments of principal and interest on an eighteen (18) month straight line amortization schedule beginning July 31, 2020. The loan was secured by substantially all of the assets of the company. On June 30, 2020 pursuant to proceeds received from our June 2020 Offering (as described below), we repaid the full amount of the loan.

	●	In February 2020, we sold a series of short-term notes with a total principal amount of $450,000. These short-term notes have maturities of 90 days from the date of sale. The notes are redeemable by the Company at any time prior to maturity at face value plus a fee determined by the number of days the notes are outstanding. These fees range from 10% to 36% of the face value. The notes are collateralized by a total of 450,000 shares of the Company’s Class A common stock, subject to certain adjustments. In connection with our June 2020 Offering, the notes were exchanged for securities old in the June 30, 2020 Offering (as described below), except for 100,000 Class A shares which were issued to a note holder in exchange for an extension of the maturity date and waiver of interest under the notes.

	●	On June 30, 2020, in a private placement, we issued (i) $16,101,388 in principal of Debentures consisting of an original issue discount on (a) $13,000,000 in cash and (b) $1,169,264 in debt cancellation, and (ii) an aggregate of 6,440,561 common stock purchase warrants (the “June 2020 Offering”). The Debentures (i) have a maturity date of December 31, 2021 (subject to three (3) extensions of six (6) months each by the holder, (ii) have a conversion price of $2.69, (iii) accrue interest at twelve percent (12%) per annum beginning six (6) months after issuance, and (iv) are secured by substantially all of the assets of the Company. The warrants (i) have an exercise price of $2.50 per share, and (ii) expire on October 30, 2022. In connection with the offering, we issued the Special Equities Group 478,854 placement agent warrants, which (i) have an exercise price of $3.3625 per share, and (ii) expire on October 30, 2022. Pursuant to the June 2020 Offering, we entered into a registration rights agreement whereby we are required to register the shares underlying the Debentures and warrants within ninety (90) days of the closing of the June 2020 Offering, or by September 23, 2020. As of the date hereof, the registration statement registering the shares underlying the Debentures and warrants was declared effective.

●

On September 4, 2020, pursuant to an agreement and plan of merger (“Merger Agreement”), we acquired LD Micro, Inc. as a wholly owned subsidiary in exchange for the following compensation paid to LD Micro’s stockholders: (i) four million dollars ($4,000,000) payable as follows (collectively, the “Cash Payment”): (a) $1,000,000 at the closing, (b) one million dollars ($1,000,000) on January 1, 2021, (c) one million dollars ($1,000,000) on April 1, 2021, and (d) one million dollars ($1,000,000) on July 1, 2021; and (ii) one million six hundred thousand (1,600,000) shares of Class A common stock issued at the closing.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable to our company’s operations.

ITEM 5.

OTHER INFORMATION.

None.

ITEM 6.

EXHIBITS.

Incorporated by Reference

Filed/

Exhibit

Furnished

Exhibit

Filing

No.

Description

Herewith

Form

No.

File No.

Date

3.01(i)

Certificate of Incorporation, filed on 8/3/11

S-1

3.01(i)

333-179151

1/24/12

3.02(i)

Certificate of Correction to Certificate of Incorporation, filed on 8/31/11

S-1

3.01(ii)

333-179151

1/24/12

3.03(i)

Certificate of Amendment to Certificate of Incorporation authorizing 1:5 reverse stock split

8-K

3.5

000-54996

9/19/16

3.04(i)

Certificate of Designation of Series 1 Preferred Stock

8-K

3.4

000-54996

8/22/13

3.05(i)

Certificate of Amendment to Certificate of Incorporation as Amended, effective 8/25/19

8-K

3.01(i)

001-37916

8/15/19

3.06(i)

Certificate of Designation of BIGToken Preferred Tracking Stock

S-1/A

3.05(i)

333-229606

10/16/19

3.07(ii)

Amended and Restated Bylaws of Social Reality, Inc. adopted March 27, 2019

8-K

3.01(ii)

001-37916

4/2/19

4.01

Specimen of Class A Common Stock Certificate

8-A12B

4.1

001-37916

10/12/16

4.02

Class A Common Stock Purchase Warrant Issued to Investors in October 2014

8-K

4.7

000-54996

11/4/14

4.03

Class A Common Stock Purchase Warrant issued in Steel Media Transaction dated October 30, 2014

8-K

4.8

000-54996

11/4/14

4.04

Class A Common Stock Warrant issued in September 2016 Offering

8-K

4.6

000-54996

10/6/16

4.05

Class A Common Stock Warrant issued to October 2013 Offering

8-K

4.7

000-54996

10/24/13

4.06

Class A Common Stock Warrant issued to T.R. Winston & Company issued 8/22/13

10-Q

4.5

000-54996

11/13/13

4.07

Class A Common Stock Warrant issued to Investors in January 2014 Offering

8-K

4.6

000-54966

1/27/14

4.08

Class A Common Stock Warrant issued to Investors in September 2016

8-K

4.6

000-54966

10/6/16

4.09

Class A Common Stock Warrant issued to Investors in January 2017 Offering

8-K

4.1

001-37916

1/4/17

4.10	Class A Common Stock Warrant issued to Investors in January 2017 Offering (2^nd Warrant)	8-K	4.2	001-37916	1/4/17
4.11	Class A Common Stock Placement Agent Warrant issued in January 2017 Offering	8-K	4.3	001-37916	1/4/17
4.12	Class A Common Stock Placement Agent Warrant issued in October 2016 Offering	10-K	4.12	001-37916	3/31/17
4.13	Class A Common Stock Warrant issued in Leapfrog Media Trading Acquisition	10-K	4.13	001-37916	4/2/18
4.14	Form of 12.5% Secured Convertible Debenture issued in April 2017 Offering	8-K	4.2	001-33672	4/21/17
4.15	Class A Common Stock Warrant issued in April 2017 Offering	8-K	4.1	001-33672	4/21/17
4.16	Form of Class A Common Stock Placement Agent Warrant issued in April 2017 Offering	8-K	4.3	001-33672	4/21/17
4.17**	2016 Equity Compensation Plan	1/20/17	A-1	001-37916	1/20/17
4.18**	2014 Equity Compensation Plan	8-K	10.33	000-54996	11/10/14
4.19	2012 Equity Compensation Plan	S-1	4.02	333-179151	1/24/12
4.20	Form of Stock Option Agreement for 2012, 2014 and 2016 Equity Compensation Plan	S-1	4.03	333-179151	1/24/12
4.21	Form of Restricted Stock Unit Agreement for 2012, 2014 and 2016 Equity Compensation Plan	S-1	4.04	333-179151	1/24/12
4.22	Form of Restricted Stock Award Agreement for 2012, 2014 and 2016 Equity Compensation Plan	S-1	4.05	333-179151	1/24/12
4.23	Form of 12.5% Secured Convertible Debenture issued in October 2017 Offering	8-K	4.01	001-37916	10/27/17
4.24	Class A Common Stock Warrant Issued to Investors and Placement Agents in October 2017 Offering	8-K	4.02	001-37916	10/27/17
4.25	Form of Placement Agent Warrant from April 2019 Offering	8-K	4.01	001-37916	4/10/19

4.26	Form of Series A Common Stock Warrant from August 2019 Offering	8-K	4.01	001-37916	8/14/19
4.27	Form of Series B and Series C Common Stock Warrant from August 2019 Offering	8-K	4.02	001-37916	8/14/19
4.28	Form of Placement Agent Warrant from August 2019 Offering	8-K	4.03	001-37916	8/14/19
4.29	Form of Class A common stock purchase warrant issued in February 2020 Offering	8-K	4.01	001-37916	3/5/20
4.30	Form of Original Issue Discount Senior Secured Convertible Debenture from June 2020 Offering	8-K	4.01	001-37916	6/30/20
4.31	Form of Warrant from June 2020 Offering	8-K	4.02	001-37916	6/30/20
4.32	Form of Placement Agent Warrant from June 2020 Offering	S-1	4.06	333-240270	7/31/20
10.01	Purchase Agreement among Richard Steel, Steel Media, and Social Reality, dated 10/30/14	8-K	2.1	000-54996	11/4/14
10.02	Asset Purchase Agreement with LeapFrog Media Trading dated 4/20/17	10-K	10.02	001-37916	4/2/18
10.03	Amendment to Asset Purchase Agreement with Leapfrog Media Trading dated 8/17/17	10-K	10.03	001-37916	4/2/18
10.04	Transition Services Agreement in Leapfrog Media Trading Transaction	10-K	10.04	001-37916	4/2/18
10.05	Sample Leakout Agreement in Leapfrog Media Trading Transaction	10-K	10.05	001-37916	4/2/18
10.06	Form of Securities Purchase Agreement for April 2017 Offering	8-K	10.1	001-37916	4/21/17
10.07	Form of Security Agreement for April 2017 Offering	8-K	10.2	001-37916	4/21/17
10.08	Form of Registration Rights Agreement for April 2017 Offering	8-K	10.3	001-37916	4/21/17
10.09	Form of Securities Purchase Agreement for October 2017 Offering	8-K	10.01	001-37916	10/27/17
10.10	Form of Registration Rights Agreement for October 2017 Offering	8-K	10.02	001-37916	10/27/17
10.11**	Employment Agreement with Christopher Miglino dated 1/1/12	S-1	10.01	333-179151	1/24/12

10.12**	Employment Agreement with Erin DeRuggiero dated 10/19/15	10-K	10.3	000-54996	2/26/16
10.13**	Employment Agreement with Joseph P. Hannan dated 10/17/16	10-Q	10.48	001-37916	11/14/16
10.14**	Employment Agreement with Richard Steel dated 10/30/14	8-K	10.27	000-54996	11/4/14
10.15**	Employment Agreement with Chad Holsinger dated 10/30/14	8-K	10.28	000-54996	11/4/14
10.16	Employment Agreement with Adam Bigelow dated 10/30/14	8-K	10.29	000-54996	11/4/14
10.17**	Separation Agreement and Release with Richard Steel dated 1/25/17	8-K	10.1	333-215791	1/27/17
10.18**	Employment Agreement with Dustin Suchter dated 12/19/14	8-K	10.36	000-54996	12/22/14
10.19**	Form of Proprietary Information, Inventions and Confidentiality Agreement	S-1	10.03	333-179151	1/25/12
10.20**	Form of Indemnification Agreement with Officers and Directors	S-1	10.04	333-179151	1/25/12
10.21	Indemnification Agreement with Richard Steel dated 10/30/14	8-K	10.30	333-215791	11/4/14
10.22	Sublease for principal executive offices dated 8/12/12 with TrueCar, Inc.	S-1	10.16	333-193611	1/28/14
10.23	Services Agreement with Servicios y Asesorias Planic, S.A. de cv dated 1/25/13	10-K	10.9	000-54996	3/31/15
10.24	Sublease Agreement with Amarcore, LLC dated 1/1/15	S-1	10.17	333-206791	9/4/15
10.25	Advisory Agreement with Kathy Ireland Worldwide, LLC dated 11/14/16	10-Q	10.49	001-37916	11/14/16
10.26	Financing and Security Agreement with FastPay Partners, LLC	8-K	10.41	000-54996	9/23/16
10.27	Share Acquisition and Exchange Agreement with Five Delta, Inc.	8-K	10.34	000-54996	12/22/14
10.28	Secured Subordinated Promissory Note to Richard Steel dated 10/30/14	8-K	10.18	000-54996	11/4/14
10.29	Subordination Agreement with Richard Steel and Victory Park Management, LLC dated 10/30/14	8-K	10.22	000-54996	11/4/14
10.30	Securities Purchase Agreement for January 2017 Offering	8-K	10.1	001-37916	1/4/17

10.31	Placement Agent Agreement for January 2017 Offering with Chardan Capital Markets	8-K	10.2	001-37916	1/4/17
10.32	Financing Agreement with certain Lenders and Victory Park Management, LLC	8-K	10.23	000-54996	11/4/14
10.33	First Amendment to Financing Agreement dated 5/14/15	10-Q	10.38	000-54996	5/15/15
10.34	Pledge and Security Agreement with Steel Media and Victory Park Management, LLC dated 10/30/14	8-K	10.25	000-54996	11/4/14
10.35	Registration Rights Agreement dated 10/30/14	8-K	10.26	000-54996	11/4/14
10.36	Forbearance Agreement with Steel Media, Five Delta, Inc, Lenders and Victory Park Management, LLC dated 8/22/16	8-K	10.46	000-54996	8/24/16
10.37	Letter Agreement dated 1/5/17	10-K	10.35	001-37916	3/31/17
10.38	Insider Trading Policy adopted as of 2/23/16	10-K	10.36	001-37916	3/31/17
10.39	Form of Securities Purchase Agreement for April 2019 Offering	8-K	10.01	001-37916	4/10/19
10.40	Form of Placement Agent Agreement from April 2019 Offering	8-K	10.02	001-37916	4/10/19
10.41	Form of Securities Purchase Agreement from August 2019 Offering	8-K	10.01	001-37916	8/14/19
10.42	Form of First Placement Agent Agreement from August 2019 Offering	8-K	10.02	001-37916	8/14/19
10.43	Form of Second Placement Agent Agreement from August 2019 Offering	8-K	10.03	001-37916	8/14/19
10.44	Form of Term Loan and Security Agreement from February 2020 Offering	8-K	10.01	001-37916	3/5/20
10.45	Form of Intellectual Property Security Agreement from February 2020 Offering	8-K	10.01	001-37916	3/5/20
10.46	Form of Securities Purchase Agreement from June 2020 Offering	8-K	10.01	001-37916	6/30/20
10.47	Form of Registration Rights Agreement from June 2020 Offering	8-K	10.02	001-37916	6/30/20
10.48	Form of Security Agreement from June 2020 Offering	8-K	10.03	001-37916	6/30/20

10.49

Agreement and Plan of Merger dated September 4, 2020 between SRAX, Inc., Townsgate Merger Sub 1, and LD Micro, Inc.

8-K

10.01

001-37916

9/11/20

10.50

Lock-up agreement dated September 4, 2020 between SRAX and Christopher Lahiji

8-K

10.02

001-37916

9/11/20

10.51

Voting Proxy Agreement dated September 4, 2020 between SRAX and Christopher Lahiji

8-K

10.03

001-37916

9/11/20

10.52

Employment Agreement between SRAX and Christopher Lahiji Dated September 4, 2020

8-K

10.04

001-37916

9/11/20

10.53

Unit Redemption Agreement dated October 30, 2020 between SRAX and Halyard MD, LLC

8-K

10.01

001-37916

11/3/20

10.54

Unit Redemption Agreement dated October 30, 2020 between SRAX and MD CoInvest, LLC

8-K

10.02

001-37916

11/3/20

10.55

Share Exchange Agreement between SRAX, Force Protection Video Equipment Corp, and Paul Feldman, dated September 30, 2020

8-K

10.01

001-37916

10/4/20

18.01

Preference Letter regarding Change in Accounting Principle

10-Q

18.1

001-37916

11/14/16

31.1 / 31.2

Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

11/16/2020

32.1 / 32.2

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. § 1350

11/16/2020

101.INS

XBRL Instance Document

11/16/2020

101.SCH

XBRL Taxonomy Extension Schema

11/16/2020

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

11/16/2020

101.DEF

XBRL Taxonomy Extension Definition Linkbase

11/16/2020

101.LAB

XBRL Taxonomy Extension Label Linkbase

11/16/2020

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

11/16/2020

* Filed herein

** Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SRAX, INC.

November 16, 2020	By:	/s/ Christopher Miglino
		Christopher Miglino, Chief Executive Officer, principal executive officer

November 16, 2020	By:	/s/ Michael Malone
		Michael Malone, Chief Financial Officer, principal financial and accounting officer