SRAX, Inc. (NASDAQ: SRAX) is a technology firm focused on enhancing communications between public companies and their shareholders and investors. The company operates two distinct business units: Sequire, a unique SaaS platform that allows issuers to track shareholder behaviors and trends, and LD Micro, which organizes and hosts investor conferences for micro and small-cap companies.
BUSINESS OVERVIEW
Sequire, SRAX's flagship offering, is a centralized platform that provides public companies with valuable insights into their shareholder base. The platform utilizes advanced analytics and machine learning to deliver actionable data, enabling clients to better understand their position in the market and engage more effectively with existing and potential investors. Through Sequire, SRAX offers tools, data, and insight services that help issuers of publicly traded securities optimize their investor relations efforts.LD Micro, the company's event-focused business unit, is the premier platform for organizing and hosting investor conferences catered to the micro and small-cap markets. SRAX acquired LD Micro in 2020, further strengthening its position as a comprehensive provider of investor relations solutions.
FINANCIAL PERFORMANCE
For the full year 2022, SRAX reported annual revenue of $28,550,000, a 5% increase from the prior year. Net income for the year was $1,955,000. The company's annual operating cash flow was -$23,435,000, and annual free cash flow was -$24,302,000.In the third quarter of 2022, SRAX generated revenue of $5,309,000, a 23% decrease compared to the same period in 2021. The company reported a net loss of $3,819,000 for the quarter. Operating cash flow and free cash flow for the quarter were -$2,293,000 and -$2,401,000, respectively.
The decrease in third-quarter revenue was primarily due to the company's transition to accepting only cash as compensation for its services, which resulted in a significant decline in Sequire platform revenue. This shift in the company's business model is expected to have a lasting impact on its financial performance going forward.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, SRAX had cash of $116,000 and current marketable securities of $3,700,000. The company's current ratio was 1.02, and its quick ratio was 1.0, indicating a relatively strong liquidity position.However, the company has incurred significant losses since its inception and has not demonstrated an ability to generate operating cash flow consistently. This has raised substantial doubt about SRAX's ability to continue as a going concern within one year from the issuance date of the financial statements.
To address its liquidity concerns, SRAX has taken several actions, including entering into a senior secured revolving credit facility in August 2022 that allows the company to borrow up to $9.45 million, subject to certain conditions. The company has also been actively selling its marketable securities to fund operations, though the timing and amount of these sales are subject to market conditions and legal restrictions.
RISKS AND CHALLENGES
SRAX faces several risks and challenges that could impact its future performance. The company's heavy reliance on the sale of marketable securities to fund operations introduces significant uncertainty and volatility into its cash flow. Additionally, the company's delisting from the Nasdaq exchange in 2022 has made it more challenging to raise capital through the sale of equity or debt securities, as investors are generally less likely to purchase securities that are not listed on a major exchange.Furthermore, the company's transition to accepting only cash as compensation for its services could have a material adverse effect on its revenue and profitability, as a significant portion of its historical revenue was derived from non-cash transactions.