SRAX SRAX Inc (CE)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

☒ Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended September 30, 2022

 

or

 

☐ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

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.)
1014 S. Westlake Blvd., Suite 14-29 Westlake Village, CA		91361
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code (323) 205-6109

 

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

 

Class A Common Stock, $0.001 par value		SRAX		N/A
(Title of each class)		(Trading Symbol)		(Name of each exchange on which registered)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐Yes ☒ No

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☒	Smaller reporting company ☒
Emerging growth company ☐

 

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

 

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

 

As of October 20, 2023, there were 29,438,762 shares of Class A common stock were issued and outstanding.

 

 

 

SRAX, Inc.

 

Table of Contents

 

		Page #
PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Quarters ended September 30, 2022 and 2021 (unaudited)	6-7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	8-9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	36
PART II -	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosure	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
	Signatures	44
	Certificates

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

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

 

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 well as our Annual Report on Form 10-K for the year ended December 31, 2021, including the “Risk Factors” section contained 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) “LD Micro” 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 $0.001 par value Class A common stock.

 

Any reference to “BIGToken” and “BIGToken, Inc.” refer to the Company’s previously wholly owned subsidiary, BIGToken, Inc. and the assets used in its operations which we transferred into Force Protection Video Equipment, Inc. (“FPVD”), which became our majority owned subsidiary on February 4, 2021 and was subsequently disposed of on December 29, 2021.

 

Unless otherwise stated, the information which appears on our web sites www.srax.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

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30, 2022
		(unaudited)				December 31, 2021
Assets
CURRENT ASSETS
Cash		$	116,000			$	1,348,000
Accounts receivable, net			319,000				821,000
Contracts receivable			499,000				844,000
Marketable securities			2,918,000				15,617,000
Designated assets for return of capital			221,000				3,925,000
Prepaid expenses and other current assets			352,000				430,000
TOTAL CURRENT ASSETS			4,425,000				22,985,000
Marketable securities, net of current portion			18,203,000				-
Notes receivable			-				935,000
Property and equipment, net			121,000				114,000
Intangible assets, net			-				1,443,000
Right of use assets			162,000				257,000
Other assets			8,000				36,000
Goodwill			7,706,000				17,906,000
TOTAL ASSETS		$	30,625,000			$	43,676,000
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Accounts payable and accrued expenses		$	10,099,000			$	4,095,000
Deferred revenue			12,862,000				12,859,000
Other current liabilities			844,000				763,000
Payroll protection loan			10,000				10,000
OID convertible note(s) payable			1,094,000				1,164,000
Senior secured revolving credit facility, net of OID			5,478,000				-
Series A redeemable preferred stock			1,045,000				3,925,000
TOTAL CURRENT LIABILITIES			31,432,000				22,816,000
Right of use liability, net of current portion			-				114,000
TOTAL LIABILITIES			31,432,000				22,930,000
STOCKHOLDERS’ EQUITY (DEFICIT)
Series A preferred stock, $0.001 par value, 36,462,417 shares authorized, issued and outstanding, as liability classified at September 30, 2022 and December 31, 2021			-				-
Class A common stock, $0.001 par value, 250,000,000 shares authorized, 26,355,951 and 25,995,172 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively			26,000				26,000
Class B common stock, $0.0001 par value, 9,000,000 shares authorized and 0 issued and outstanding, at September 30, 2022 and December 31, 2021			-				-
Common Stock Value
Additional paid-in capital			52,643,000				51,075,000
Accumulated deficit			(53,476,000	)			(30,355,000	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)			(807,000	)			20,746,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)		$	30,625,000			$	43,676,000

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

SRAX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2022				2021				2022				2021
Revenues		$	5,309,000			$	6,888,000			$	20,530,000			$	18,963,000
Cost and expenses
Cost of revenues			942,000				3,354,000				9,181,000				8,541,000
Employee related costs			2,185,000				1,892,000				5,840,000				5,347,000
Selling, general and administrative			1,305,000				929,000				5,182,000				2,562,000
Depreciation and amortization			17,000				251,000				403,000				710,000
Total costs and expenses			4,449,000				6,426,000				20,606,000				17,160,000
Income (loss) from operations			860,000				462,000				(76,000	)			1,803,000
Other income (expense)
Financing costs			(2,377,000	)			(528,000	)			(3,954,000	)			(10,098,000	)
Impairment of goodwill			-				-				(10,200,000	)			-
Impairment of intangibles			-				-				(1,481,000	)			-
Loss on sale of fixed assets			-				-				(47,000	)			-
Realized gain (loss) on marketable securities			(286,000	)			286,000				(6,521,000	)			1,095,000
Current period change in fair value of marketable securities			(2,196,000	)			(3,906,000	)			1,696,000				(4,784,000	)
Current period change in fair value of contract assets			22,000				-				(1,491,000	)			-
Realized loss on designated assets			(904,000	)			2,000				(1,803,000	)			2,000
Current period change in fair value of designated assets			622,000				(134,000	)			(710,000	)			(134,000	)
Change in fair value of preferred stock			281,000				134,000				2,513,000				134,000
Interest income			-				10,000				12,000				33,000
Other income (expense)			159,000				1,130,000				(1,058,000	)			1,145,000
Total other expense, net			(4,679,000	)			(3,006,000	)			(23,044,000	)			(12,607,000	)
Income (loss) before income tax expense			(3,819,000	)			(2,544,000	)			(23,120,000	)			(10,804,000	)
Income tax expense			-				-				-				-
Income (loss) from continuing operations			(3,819,000	)			(2,544,000	)			(23,120,000	)			(10,804,000	)
Discontinued operations
Loss before income tax expense			-				(2,059,000	)			-				(11,755,000	)
Noncontrolling interest in discontinued operations			-				774,000				-				1,900,000
Income tax expense			-				-				-				-
Loss from discontinued operations			-				(1,285,000	)			-				(9,855,000	)
Net income (loss)		$	(3,819,000	)		$	(3,829,000	)		$	(23,120,000	)		$	(20,659,000	)
Basic and diluted income (loss) per share
Continuing operations		$	(0.14	)		$	(0.10	)		$	(0.88	)		$	(0.48	)
Discontinued operations			-				(0.05	)		$	-				(0.43	)
Net income (loss) per share, basic and diluted		$	(0.14	)		$	(0.15	)		$	(0.88	)		$	(0.91	)
Weighted average shares outstanding, basic and diluted			26,341,615				25,019,645				26,207,696				22,707,446

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

SRAX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

 

		Preferred Stock								Common Stock								Additional paid-in				Accumulated				Non Controlling				Stockholders’ Equity
		Shares				Amount				Shares				Amount				Capital				Deficit				Interest				(Deficit)
Balance, December 31, 2021			-			$	-				25,995,172			$	26,000			$	51,075,000			$	(30,355,000	)		$	-			$	20,746,000
Share based compensation			-				-				-				-				358,000				-				-				358,000
Shares issued for exercise of employee options, net of taxes			-				-				91,981				-				(101,000	)			-				-				(101,000	)
Net income											-				-				-				3,728,000								3,728,000
Balance, March 31, 2022			-				-				26,087,153				26,000				51,332,000				(26,627,000	)			-				24,731,000
Share based compensation (benefit)			-				-				-				-				(870,000	)			-				-				(870,000	)
Shares issued for exercise of warrants on a cashless basis			-				-				195,525				-				-				-				-				-
Shares issued for exercise of warrants for cash											8,401				-				32,000				-				-				32,000
Net loss			-				-				-				-				-				(23,030,000	)			-				(23,030,000	)
Balance, June 30, 2022			-				-				26,291,079				26,000				50,494,000				(49,657,000	)			-				863,000
Share based compensation			-				-				-				-				281,000				-				-				281,000
Warrant modification expense			-				-				-				-				1,788,000				-				-				1,788,000
Shares issued for loan breakup fee			-				-				33,000				-				80,000				-				-				80,000
Shares issued for exercise of employee options											31,872				-				-				-				-				-
Net income (loss)			-				-				-				-				-				(3,819,000	)			-				(3,819,000	)
Balance, September 30, 2022			-				-				26,355,951			$	26,000			$	52,643,000			$	(53,476,000	)		$	-			$	(807,000	)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

SRAX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)

(Unaudited)

 

		Preferred Stock								Common Stock								Additional paid-in				Accumulated				Non Controlling				Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Interest				Equity
Balance, December 31,2020			-			$	-				16,145,778			$	16,000			$	69,551,000			$	(50,342,000	)		$	-			$	19,225,000
Share based compensation			-				-				-				-				253,000				-				-				253,000
Shares issued for cash			-				-				53,616				-				284,000				-				-				284,000
Conversion of convertible debt to equity			-				-				2,041,551				2,000				3,445,000				-				-				3,447,000
Shares issued for exercise of warrants			-				-				4,945,320				5,000				12,215,000				-				-				12,220,000
Warrants issued as inducement to exercise warrants			-				-				-				-				7,737,000				-				-				7,737,000
Establishment of noncontrolling interest of FVPD			-				-				-				-				-				-				(95,000	)			(95,000	)
Warrants issued by FVPD for SRAX, Inc. debenture holders			-				-				-				-				-				-				885,000				885,000
Series B convertible preferred stock issued by FPVD			-				-				-				-				-				-				5,775,000				5,775,000
Beneficial conversion feature FPVD series B convertible preferred stock			-				-				-				-				-				-				5,775,000				5,775,000
Net loss			-				-				-				-				-				(11,090,000	)			(854,000	)			(11,944,000	)
Balance, March 31,2021			-				-				23,186,265				23,000				93,485,000				(61,432,000	)			11,486,000				43,562,000
Share based compensation			-				-				-				-				253,000				-				-				253,000
Conversion of convertible debt to equity			-				-				-				-				701,000				-				-				701,000
Shares issued for exercise of warrants			-				-				350,000				-				3,575,000				-				-				3,575,000
Series B convertible preferred stock issued by FPVD			-				-				1,310,198				1,000				-				-				85,000				86,000
Beneficial conversion feature FPVD series B convertible preferred stock			-				-				-				-				-				-				85,000				85,000
Net loss			-				-				-				-				-				(5,740,000	)			(272,000	)			(6,012,000	)
Balance, June 30, 2021			-				-				24,846,463				24,000				98,014,000				(67,172,000	)			11,384,000				42,250,000
Balance			-				-				24,846,463				24,000				98,014,000				(67,172,000	)			11,384,000				42,250,000
Share based compensation			-				-				-				-				251,000				-				-				251,000
Conversion of convertible debt to equity			-				-				730,616				1,000				1,824,000				-				-				1,825,000
Shares issued for exercise of warrants			-				-				53,668				-				157,000				-				-				157,000
Dividends on preferred stock			-				-				-				-				(6,387,000	)			-				-				(6,387,000	)
Net loss			-				-				-				-				-				(3,829,000	)			(774,000	)			(4,603,000	)
Net Income (loss)			-				-				-				-				-				(3,829,000	)			(774,000	)			(4,603,000	)
Balance, September 30, 2021			-			$	-				25,630,747			$	25,000			$	93,859,000			$	(71,001,000	)		$	10,610,000			$	33,493,000
Balance			-			$	-				25,630,747			$	25,000			$	93,859,000			$	(71,001,000	)		$	10,610,000			$	33,493,000

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

SRAX, INC. AND SUBSIDIARIES

CONDESNED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

 

		Nine months ended September 30,
		2022				2021
Cash Flows From Operating Activities:
Net loss		$	(23,120,000	)		$	(20,659,000	)
Less: net loss from discontinued operations, net of tax			-				9,855,000
Loss from continuing operations			(23,120,000	)			(10,804,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of goodwill			10,200,000				-
Impairment of intangibles			1,481,000				-
Loss on sale of fixed assets			47,000				-
Realized gain (loss) on marketable securities			6,521,000				(1,095,000	)
Current period change in fair value of marketable securities			(1,696,000	)			4,784,000
Current period change in fair value of contract assets			1,491,000				-
Realized gain (loss) on designated assets			1,803,000				(2,000	)
Current period change in fair value of designated assets			710,000				134,000
Change in fair value of preferred stock			(2,513,000	)			(134,000	)
Warrant modification expense			1,788,000				-
Stock based compensation (benefit)			(231,000	)			757,000
Interest income			-				(33,000	)
Amortization of debt discount			154,000				799,000
Loss on settlement of note receivable			35,000				-
Fair value of warrants issued by FPVD to SRAX, Inc. debenture holders			-				885,000
Forgiveness of payroll protection program loan			-				(1,116,000	)
Warrant inducement expense			-				7,737,000
Net provision for (recovery of) bad debts			(60,000	)			(305,000	)
Depreciation expense			53,000				61,000
Amortization of intangibles			350,000				1,061,000
Amortization of right of use assets			95,000				-
Non-cash financing expense			237,000				213,000
Changes in operating assets and liabilities
Accounts receivable, net			563,000				1,537,000
Prepaid expenses and other current assets			105,000				(631,000	)
Contracts receivable			(1,146,000	)			-
Designated assets for return of capital			685,000				-
Accounts payable and accrued expenses			6,002,000				370,000
Deferred revenue			(13,711,000	)			(16,582,000	)
Other current liabilities			1,573,000				(396,000	)
Right of use liability			(96,000	)			(15,000	)
Net cash used in continuing operations			(8,680,000	)			(12,775,000	)
Net cash used in discontinued operations			-				(5,895,000	)
Net cash used in operating activities			(8,680,000	)			(18,670,000	)
Cash flows from investing activities:
Proceeds from sale of marketable securities			3,385,000				7,144,000
Proceeds from note receivable			900,000				-
Deferred payments to LD Micro			-				(3,004,000	)
Proceeds from the sale of designated assets			506,000				-
Purchase of marketable securities			-				(429,000	)
Acquisition of property and equipment			(108,000	)			(97,000	)
Acquisition of intangible assets			(388,000	)			(541,000	)
Other assets			-				(33,000	)
Net cash from continuing operations			4,295,000				3,040,000
Net cash from discontinued operations			-				955,000
Net cash from investing activities			4,295,000				3,995,000
Cash flows from financing activities:
Preferred stock distributions			(365,000	)			-
Proceeds from issuance of common stock			-				284,000
Payments of taxes related to settlement of restricted stock units			(101,000	)			-
Proceeds from the exercise of warrants			32,000				15,953,000
Proceeds from factoring facilities			5,362,000				-
Repayments of factoring facilities			(6,184,000	)			-
Repayments of OID convertible notes payable			(277,000	)			-
Proceeds from senior secured revolving credit facility			4,686,000				-
Net cash from continuing operations			3,153,000				16,237,000
Net cash from discontinued operations			-				4,810,000
Net cash from financing activities			3,153,000				21,047,000

 

 

SRAX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Continued)

(Unaudited)

 

		Nine months ended September 30,
		2022				2021
Net (decrease) increase in cash from continuing operations			(1,232,000	)			6,502,000
Net decrease in cash from discontinued operations			-				(130,000	)
Cash, beginning of period			1,348,000				451,000
Cash, end of period		$	116,000			$	6,823,000
Supplemental schedule of cash flow information
Cash paid for interest		$	77,000			$	14,000
Cash paid for taxes		$	-			$	-
Supplemental schedule of noncash investing and financing activities
Fair value of marketable securities received for revenue contracts, net		$	15,943,000			$	26,564,000
Convertible notes converted into shares		$	-			$	6,423,000
Designation of marketable securities for dividend distributions		$	-			$	6,387,000
Dividends on preferred stock		$	-			$	6,387,000

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

SRAX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

 

NOTE 1 – ORGANIZATION AND LIQUIDITY

 

Organization

 

SRAX, Inc. (“SRAX”, “we”, “us”, “our” or the “Company”) is a Delaware corporation formed on August 2, 2011. SRAX is headquartered in Westlake Village, California but operates as a distributed virtual Company. As of September 30, 2022, the unaudited Condensed Consolidated Financial Statements consist of SRAX and its wholly owned subsidiary LD Micro, Inc. (“LD Micro”).

 

SRAX is a technology firm focused on enhancing communications between public companies and their shareholders and investors. The Company currently has one reportable and operating segment, which consists of one reporting unit consisting of two distinct business units:

 

	●	The unique SaaS platform, Sequire provides users many features which allow issuers to track their shareholders’ behaviors and trends, then use data-driven insights to engage with shareholders across marketing channels.
	●	Through LD Micro, the Company organizes and hosts investor conferences within the micro and small- cap markets, and plans to create several more niche events for the investor community.

 

Each of SRAX’s business units deliver valuable insights that assist the Company’s clients with their investor relations and communications initiatives.

 

On February 4, 2021, the Company acquired FPVD through a reverse acquisition involving BIG Token, Inc. On December 29, 2021, the Company deconsolidated the Company’s majority owned subsidiary BIG Token, Inc. (“BIGToken”) formerly known as Force Protection Video Equipment Corporation (or “FPVD”). See Note 3 –Discontinued Operations.

 

On March 3, 2023, the Company divested the LD Micro subsidiary.

 

Liquidity and Capital Resources

 

The Company has incurred significant losses since its inception and has not demonstrated an ability to generate cash in excess of its operating expenses for a sustained period of time. As of September 30, 2022, the Company had cash of $116,000 which is not sufficient to fund the Company’s planned operations through one year after the date the unaudited Condensed Consolidated Financial Statements are issued. These factors raise substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that the unaudited Condensed Consolidated Financial Statements are issued.

 

The unaudited Condensed Consolidated Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the unaudited Condensed Consolidated Financial Statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

In making this assessment, the Company performed a comprehensive analysis of current circumstances including: its financial position, 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.

 

The Company expects that its existing cash, accounts receivable and sale of marketable securities as of September 30, 2022, will not be sufficient to enable it to fund the anticipated level of operations through one year from the date these financial statements are issued. The Company projects the sale of its marketable security holding will represent a substantial portion of the cash required for operations for the foreseeable future. The Company’s sales of marketable securities are primarily through sale transactions that qualify for exemptions pursuant to Rule 144 of the Securities Act of 1933. The conditions required to be met to qualify for the exemptions under Rule 144 are often difficult to predict, making it difficult to predict the timing of the associated cash flows from the sales of these securities. The Company’s holdings of marketable securities are subject to risks and uncertainties such as fluctuations in pricing in the primary market, and legal restrictions that create uncertainty around realization and timing of cash flows.

 

The Company anticipates raising additional capital through the private and public sales of its equity or debt securities and selling its marketable securities, or a combination thereof. Although management believes that such capital sources will be available, there can be no assurances that financing will be available when needed in order to allow the Company to continue its operations, or if available, on terms acceptable to it. If the Company does not raise sufficient capital in a timely manner, among other things, it may be forced to scale back its operations or cease operations altogether.

 

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NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying Condensed Consolidated Financial Statements and notes thereto are unaudited. The unaudited interim Condensed Consolidated 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 United States 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, 2021 Condensed Consolidated Balance Sheet was derived from financial statements but does not include all disclosures required by GAAP. These interim unaudited Condensed Consolidated 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 nine-month periods ended September 30, 2022 and 2021. The results for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or for any future period.

 

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2021, included in the Company’s annual report on Form 10-K filed with the SEC.

 

Principles of Consolidation

 

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

 

Reclassification

 

Certain prior period amounts have been reclassified to conform to current period presentation.

 

Use of Estimates

 

The unaudited Condensed Consolidated Financial Statements have been prepared in conformity with GAAP and require management of the Company to make estimates and assumptions in the preparation of these unaudited Condensed Consolidated Financial Statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

 

The most significant areas that require management judgment and which are susceptible to possible change in the near term include, among other items, the Company’s revenue recognition, valuation of marketable investment securities, stock-based compensation, income taxes, purchase price for acquisitions, goodwill, other intangible assets, and the valuation of redemption features and other assets and liabilities.

 

Fair Value of Financial Instruments

 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

 

In determining fair value, the Company uses various valuation techniques. A fair value hierarchy for inputs is used in measuring fair value. It maximizes observable inputs and minimizes unobservable inputs. Valuation techniques consistent with the market or income approach are used to measure fair value. The fair value hierarchy is categorized into three levels:

 

	●	Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;
	●	Level 2 - Valuations based on inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and
	●	Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

Fair value is a market-based measure that is based on assumptions of prices and inputs considered from the perspective of a market participant on the measurement date.

 

The availability of valuation techniques and observable inputs can vary from investment to investment and are affected by a wide variety of factors. The determination of fair value requires prudent judgment. Due to the inherent uncertainty of valuation, estimated values may be materially different from values were a ready market available. Inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the item being valued is classified based on the hierarchy category of the lowest significant level input to the fair value measurement. See Note 12 Fair Value of Financial Instruments.

 

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Cash

 

The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. Cash is recorded at cost, which approximates its fair value. The Company did not have any cash equivalents as of September 30, 2022 and December 31, 2021. The Company maintains its cash in banks insured by the Federal Deposit Insurance Corporation (“FDIC”) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. As of September 30, 2022 and December 31, 2021, the Company had $0 and $1,098,000 in excess of the federal insurance limit, respectively.

 

Marketable Securities

 

Marketable Securities consist of debt and equity securities. The Company accounts for marketable equity securities, including convertible preferred shares at fair value pursuant to ASC 321 Investments – Equity Securities, and marketable debt securities at fair value in accordance with ASC 320 – Investments Debt Securities. Marketable securities were approximately $21.1 million and $15.6 million as of September 30, 2022 and December 31, 2021, respectively.

 

Accounts Receivable

 

Credit is extended to customers based on an evaluation of their financial condition and other factors, and the Company usually does not require collateral. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. The allowance for doubtful accounts was approximately $69,000 and $130,000 as of September 30, 2022 and December 31, 2021, respectively.

 

Concentration of Credit and Significant Customer Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, accounts receivable and notes receivable. Cash is deposited with financial institutions within the United States. The balances maintained at these financial institutions are generally more than the FDIC insurance limits. The Company has not experienced any loss on these accounts.

 

As of September 30, 2022, the Company did not have any customers with accounts receivable balances representing greater than 10% of the Company’s aggregate accounts receivable. As of December 31, 2021, the Company had one customer with an accounts receivable balance of approximately 11%.

 

For the nine months ended September 30, 2022 and 2021, the Company had no customers that account for a significant percentage of total revenues.

 

Goodwill and Intangible assets

 

Intangible assets consist of (i) goodwill, intellectual property, trademarks, trade names and non-compete agreements acquired in business combinations and capitalized software development costs. Other than goodwill and trademarks, intangible assets are stated at cost less accumulated amortization. Amortization is provided for on the straight-line basis over the estimated useful lives of the assets of five years.

 

Impairment of Goodwill, Intangible Assets and Other Long-lived Assets

 

Management evaluates the recoverability of the Company’s definitive lived intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in the Company’s stock price for a sustained period of time; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

 

Management evaluates the recoverability of the Company’s goodwill annually at December 31 or more often as events or circumstances indicate the fair value of a reporting unit is below its carrying value. The Company has determined that it operates as a single reporting unit for the purposes of conducting this goodwill impairment assessment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value.

 

12

 

An impairment in the amount of $10,200,000 to goodwill, and $1,481,000 to intangible assets was recognized for the nine months ended September 30, 2022. The impairment was determined as the carrying amount of goodwill exceeded its implied fair value based on a discounted cash flow projection. The transition to accepting only cash as compensation for services will cause a significant decrease in revenue and cash collections, which has a material negative impact on the discounted cash flow projection. No impairments of goodwill or other long-lived assets have been recognized for the nine months ended September 30, 2021.

 

Revenue Recognition

 

The Company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of promised goods or services to its customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. The Company determines the amount of revenue to be recognized through the application of the five-step process as follows:

 

	1)	identification of contracts with customers;
	2)	identification of the distinct performance obligations in the contract;
	3)	determination of the transaction price of the contract;
	4)	allocation of transaction price among the performance obligations in the contract; and
	5)	recognition of revenue as performance obligations are satisfied.

 

The Company has elected the following practical expedients allowed in accounting for its revenue recognition:

 

	●	not adjusting contract consideration for the effects of significant financing components if the period between transfer or service and customer payment is expected to be less than one year;
	●	not assessing performance obligations if they are immaterial in the context of the contract;
	●	excluding sales and similar taxes from the transaction price; and
	●	not disclosing the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

The Company generates revenue primarily from its Sequire SaaS platform and its LD Micro subsidiary. Specifically, the Sequire SaaS platform related revenue consists of (i) licensing subscriptions to access the platform, (ii) managed services involving data and marketing initiatives and (iii) ancillary data supplementing the use of the platform. LD Micro revenues consist of attendee fees and event sponsorship fees related investor conferences organized and hosted by the Company.

 

Sequire SaaS platform

 

Sequire SaaS platform agreements are typically for a period of 12-months and provide for monthly or annual payments in advance.

 

Prior to 2023 many of the Sequire SaaS platform agreements provide customers the ability to pay for the services with the issuance of the customers’ securities including common stock. The amount of consideration for these contracts is based on the estimated fair value of the underlying securities on the contract date. See “Fair Value of Financial Instruments” for details over the calculation of fair value. In 2023 the Company transitioned to accepting only cash as compensation for services. As we transition to accepting only cash as compensation for services there will be a significant decrease in Sequire revenue.

 

When Sequire SaaS platform contracts contain multiple performance obligations, transaction consideration is allocated to each individual performance obligation based on a relative Stand-Alone Selling Price (“SSP,”) basis. The Company determines SSP based on the price at which the performance obligation would be sold separately.

 

Subscription revenue is generally non-refundable regardless of the actual use and is recognized ratably over the non-cancellable contract term beginning on the commencement date of each contract, which is the date the Company’s service is first made available to customers.

 

Managed Services and Ancillary Data revenue is typically recognized using an output measure of progress by looking at the time elapsed as the contracts generally provide the customer equal benefit throughout the contract period because the Company transfers control evenly by providing a stand-ready service.

 

LD Micro - Conference Revenue

 

LD Micro agreements cover a specific event and provide for payment in advance or at the time of the event. Conference revenue from attendee fees and sponsorship fees is recognized at the time of the event (i.e., at a point-in-time).

 

Contracts Receivable

 

Contracts receivable represents amounts for which non-cancellable revenue contracts with customers have been finalized but the payment in the form of securities issued by the customer have not been received by the Company.

 

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Deferred Revenue

 

Deferred revenue resulting from amounts billed to, or cash received from, customers in advance of the Company satisfying its performance obligation and recognizing the applicable revenue.

 

Preferred stock

 

Preferred stock liability represents amounts payable to holders of the Preferred Stock Series A shares upon the eventual liquidation of assets designated for the sole purpose of paying dividends. Accordingly, the Company classified the Series A Preferred Shares as liability instruments because in-substance, they represent a right to the payment of dividends upon the liquidation of specified assets, are automatically returnable to the Company after the payments are made and feature no rights to further equity or residual interests in the Company. The Certificate of Designation of Preferences, Rights and Limitations of Series A Non-Voting Preferred Stock states dividend shall be paid conditioned upon, and subject to a determination by the Board that a distribution is not prohibited pursuant to applicable provisions of the DGCL or other applicable law.

 

Costs to Obtain or Costs to Fulfill a Contract

 

The Company has no costs that qualify as costs to obtain or costs to fulfill customer contracts.

 

Net Loss Per Share

 

Basic earnings per share is calculated by dividing net loss by the weighted-average number of shares outstanding during the period. Diluted loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding, after giving effect to all potentially dilutive common shares outstanding during the period. For periods with a net loss, basic and diluted earnings per share are the same, in that a potentially common stock equivalent would have the effect of being anti-dilutive in the computation of net loss per share. The number of potentially outstanding dilutive common shares excluded from the diluted net loss per calculation, as they were anti-dilutive were 911,868 for three and the nine months ended September 30, 2022, and 11,867,520 for the three months and nine months ended September 30, 2021.

 

Recent Accounting Pronouncements

 

In June 2022, the FASB issued Accounting Standards Update (“ASU”) ASU 2022-03 (“Fair Value Measurements”), which clarifies the guidance in ASC 820 (“Fair Value Measurement”) (“ASC 820”), (1) when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with ASC 820. The adoption did not impact the Company’s financial position, results of operations or cash flows.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt-Debt with Conversion and Other Options which simplifies the accounting for convertible instruments by removing certain separation models (including the cash conversion model and the beneficial conversion feature model) for convertible instruments. As a result, for convertible instruments with conversion features that are not required to be accounted for as derivative instruments or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features are no longer separated from the host contract. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost as long as no other features require bifurcation and recognition as derivatives. This guidance is effective on a modified retrospective or full retrospective basis for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact on the consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) addressing accounting for credit losses on financial instruments, which is designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. When determining such expected credit losses, the guidance requires companies to apply a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective on a modified retrospective basis for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact on the consolidated financial statements.

 

The Company’s management reviewed all recently issued ASU’s not yet adopted by the Company and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on the Company’s consolidated financial condition or the results of its operations.

 

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NOTE 3 – DISCONTINUED OPERATIONS

 

Background

 

On February 4, 2021, the Company completed a share exchange agreement (“Exchange Agreement”) with FPVD. As part of the Exchange Agreement the Company transferred all of the BIGToken assets and 100% of the issued and outstanding shares of BIGToken for 149,562,566,534 shares of FPVD’s common stock and 5,000,000 shares of FPVD’s series A preferred stock. The Company accounted for the transaction as a reverse capitalization and resulted in reducing the Company’s ownership in BIGToken from 100% to 88.9% and establishment of a non-controlling interest. Subsequently, FPVD was renamed BIGToken.

 

Deconsolidation

 

On December 29, 2021, BIGToken (formerly FPVD) completed a merger transaction with BritePool, Inc. (“BritePool”) (the “Merger”) resulting in the Company’s ownership in BIGToken being reduced from 66% to approximately 4.99%. As a result of the Merger, BIGToken issued 183,445,351,631 shares of its common stock (“Acquisition Shares”) for all of the issued and outstanding equity shares of BritePool. On December 29, 2021, as a condition for the closing of the Merger, the Company exchanged 149,562,566,534 shares of BIGToken common stock for 242,078 shares of BIGToken’s Series D Convertible Preferred Stock (“Series D Stock”) (the “Exchange”). Simultaneously with the Exchange, the Company converted 22,162 shares of the Series D Stock into 13,692,304,136 shares of BIGToken’s common stock, or approximately 4.99% of the issued and outstanding shares of BIGToken’s common stock.

 

Subsequent to the transaction, the Company now owns 220,000 shares of BIGToken’s series D convertible, non-redeemable, non-voting preferred stock and 13,692,304,136 shares of its common stock. As a result of the transaction, the Company no longer has a controlling financial interest in BIGToken and deconsolidated BIGToken effective December 29, 2021, recognizing a loss of $10.7 million as follows:

 SCHEDULE OF DECONSOLIDATION OF BUSINESS

Consideration		Amount
Fair value of Series D Stock and Common Stock		$	31,000
Carrying amount of non-controlling interests of BIGToken			6,045,000
Previous equity adjustments of non-controlling interest			(12,510,000	)
Total			(6,434,000	)
Book basis of investment in BIGToken			4,250,000
Loss on disposal of subsidiary		$	(10,684,000	)

 

The Company determined the Series D Stock would be classified as a Level 3 asset as there is no observable market for quoted market price for an identical asset. The Company engaged an independent third-party valuation expert to estimate the fair value of the Series D Stock.

 

The financial results of BIGToken are presented as loss from discontinued operations, net of income taxes and net of income attributable to non-controlling interests on the Company’s unaudited Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2021. The historical Condensed Consolidated Statement of Cash Flows has also been revised to reflect the effect of the deconsolidation. The following table presents the financial results of BIGToken:

 SCHEDULE OF ASSET AND LIABILITIES INCOME FROM DISCONTINUE OPERATIONS

		Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
Revenues		$	765,000			$	2,469,000
Cost and expenses
Cost of revenues			207,000				715,000
Employee related costs			988,000				2,649,000
Marketing and selling expenses			372,000				861,000
Platform costs			78,000				245,000
Depreciation and amortization			101,000				412,000
General and administrative expenses			1,078,000				3,483,000
Total cost and expenses			2,824,000				8,365,000
Loss from operations			(2,059,000	)			(5,896,000	)
Other expense
Deemed dividend on preferred stock			-				(5,859,000	)
Total other expense			-				(5,859,000	)
Loss from discontinued operations before income tax expense			(2,059,000	)			(11,755,000	)
Income tax expense			-				-
Loss from discontinued operations		$	(2,059,000	)		$	(11,755,000	)

 

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NOTE 4 – NOTES RECEIVABLE

 

In October 2020, the Company entered into unit redemption agreements with two counterparties providing for the counterparties to repurchase from the Company units of the counterparty’s securities owned by the Company. Pursuant to the redemption agreements, the counterparties repurchased the units for a combined repurchase price of $8 million with $7 million being paid on closing and the additional $1 million being deferred and due on the earlier of the three-year anniversary or upon sale of the counterparties. The Company had no cost basis in the units and as a result the note receivable has no cost basis. The Company accounts for the note receivable as a loan pursuant to ASC 310 – Loans . The $1 million in deferred payments was recorded with an implied discount of approximately $107,000, which is to be amortized over 3 years. During the nine months ended September 30, 2022, the Company accepted an offer to settle note balance for a one-time payment of $900,000. Notes receivable as of September 30, 2022 and December 31, 2021 amounted to $0 and $935,000, respectively.

 

NOTE 5 – MARKETABLE SECURITIES

 

The Company offers its customers the option to settle the contract price in the customer’s issued and publicly trading securities or securities convertible into publicly traded securities (e.g., convertible debt), which could be in the form of common stock, preferred stock or convertible debentures. The Company initially values the securities received at the fair market value on the date the contract is executed, which value is used for revenue recognition purposes. After receipt of the securities, the securities are accounted for as investments in debt and equity securities. The Company has concluded that all its debt securities should be classified as trading securities based on its intent to sell them in the near term. Debt securities classified as trading securities and the equity securities are measured at each reporting period at fair value with changes reported in earnings. Upon the sale of the securities, the Company recognizes the final realized gain or (loss) in the consolidated statement of operations as a component of net income (loss).

 

As of September 30, 2022 marketable securities amounted to $21,121,000, with a current portion $2,918,000, and the long term portion of $18,203,000.

 

The following tables summarize the changes in the Company’s marketable securities during the nine months ended September 30, 2022:

SCHEDULE OF MARKETABLE SECURITIES 

		Total				Common Stock				Convertible Debentures				Preferred Stock				Warrants
Balance as of December 31, 2021		$	15,617,000			$	10,735,000			$	4,187,000			$	599,000			$	96,000
Transfers			-				356,000				(325,000	)			(31,000	)			-
Additions			15,943,000				14,006,000				937,000				1,000,000				-
Sales proceeds			(3,385,000	)			(3,385,000	)			-				-				-
Realized loss			(6,521,000	)			(6,521,000	)			-				-				-
Current period change in fair value			(533,000	)			(3,462,000	)			4,429,000				(1,467,000	)			(33,000	)
Balance as of September 30, 2022		$	21,121,000			$	11,729,000			$	9,228,000			$	101,000			$	63,000

 

The Company’s sales of securities for the nine months ended September 30, 2022, was approximately $3.4 million, with a book basis of approximately $9.9 million which represented a loss of approximately $6.5 million, which the Company recorded as other expense included in the gains from marketable securities.

 

The equity securities may be accounted for and 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. 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. For equity investments without readily determinable fair values, when an orderly transaction for the identical or similar investment of the same issuer is identified, the Company uses valuation techniques to evaluate the observed transaction(s) and adjust the fair value of the equity investment.

 

Concentration Risk

 

The Company’s holdings in marketable securities subject the Company to concentrations of market risks. As of September 30, 2022, the Company’s top marketable security position had a fair value of $2.3 million, which represented approximately 11% of the Company’s holdings, the top five marketable security positions had an aggregate fair value of $8.7 million, which represented approximately 41% of the Company’s holdings, and the top ten marketable security positions had an aggregate fair value of $13.0 million, which represented approximately 61% of the Company’s holdings

 

Volatility

 

The Company’s holdings in marketable securities are subject to a high level of volatility, and can experience drastic price changes.

 

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BIGtoken Investment

 

On February 15, 2022, the Company entered into a simple agreement for future equity (the “SAFE”) with its former BIGToken subsidiary. Pursuant to the SAFE, the Company invested $1,000,000 in the SAFE. The amount funded into the SAFE at a given time is referred to herein as the “SAFE Amount”. The Company is accounting for the SAFE as an equity investment carried at fair value with changes recorded in earnings each period and is reflected as such in the above table. As of September 30, 2022 the SAFE had an aggregate fair value of $0, as the Company believed the SAFE to have no value due to the financial condition its former BIGToken subsidiary.

 

Pursuant to the terms of the SAFE, at any time that BIGtoken sells its securities (a “Financing”) prior to the termination of the SAFE, the Company may, at its option, convert the SAFE into: (i) the number of shares of non-voting Series D Convertible Preferred Stock (“Series D Preferred Stock”) equal to such (a) SAFE Amount divided by (b) the lowest price per share of equity securities sold in any Financing (prior to the termination of the SAFE) multiplied by eighty percent (80%) (the “Conversion Price”) and (ii) such number of warrants to purchase Series D Preferred Stock (the “Warrants”) equal to the SAFE Amount divided by the Conversion Price. Upon issuance, the Warrants will (i) have a term of five (5) years, (ii) an exercise price equal to the Conversion Price, and (iii) contain price protection provisions for subsequent financings.

 

NOTE 6 – DESIGNATED ASSETS FOR RETURN OF CAPITAL

 

On August 17, 2021, the Company announced that it will be issuing a one-time dividend consisting of a share of Series A Preferred Stock to shareholders, debenture holders, and certain warrant holders (“Recipients”) of record on September 20, 2021. The Board of Directors designated certain of the Company’s marketable equity securities (“Designated Assets”) as of September 20, 2021 to be used when liquidated, as a return of capital to the Recipients. See Note 9 - Series A Preferred Stock for more details.

 

The balance of designated assets consists of the following:

 SCHEDULE OF DESIGNATED ASSETS

		September 30, 2022				December 31, 2021
Cash		$	-			$	686,000
Marketable equity securities			221,000				3,239,000
Total		$	221,000			$	3,925,000

 

The marketable equity security activity in designated assets is as follows:

 SCHEDULE OF MARKETABLE EQUITY SECURITY ACTIVITY IN DESIGNATED ASSETS

		Total
Balance as of December 31, 2021		$	3,239,000
Sales proceeds			(505,000	)
Realized loss			(1,803,000	)
Current period change in fair value			(710,000	)
Balance as of September 30, 2022		$	221,000

 

The Company’s sale of marketable securities underlying designated assets for the nine months ended September 30, 2022, were approximately $0.5 million with a cost basis of approximately $2.3 million, which resulted in a realized loss of approximately $1.8 million, which the Company recorded as other expense included in the realized loss from designated assets.

 

NOTE 7 – SALES AND PURCHASE OF ACCOUNTS RECEIVABLE AND SHORT TERM FINANCINGS

 

Sales of Accounts Receivable

 

In 2020, the Company entered into certain financing agreements providing for the sale, with full recourse, of certain of its accounts receivable. These transactions were accounted for as financing of accounts receivables and the related accounts receivable were not removed from the Company’s consolidated balance sheet at the time of the transaction; rather, a liability was recorded for the proceeds received. In 2020 subsequent to the transactions, the purchaser converted the payables into approximately $788,000 of the OID Convertible Notes payable (“Debentures”) (See Note 8 - OID Convertible notes payable).

 

For the year ended December 31, 2021, the Company entered into agreements with a third-party lender whereby it sold the Company’s right to future subscription revenues of $625,000 for net proceeds of $576,000. Under the terms of the agreement, the Company may borrow funds collateralized by the right to the revenues from Sequire platform contracts. The third-party lender receives a discount on the amount sold and remits the net amount to the Company. The Company bears the risk of credit loss on the contracts. These transactions are accounted for as secured borrowing arrangements and not as a sale of financial assets. During the six months ended June 30, 2022 the Company entered into agreements with third party lenders to borrow against future receipts in the amount of $4,170,000 for net proceeds of $3,044,000. These borrowings have terms of less than 12 months.

 

In August 2022, proceeds from the Senior Secured Revolving Credit Facility were used to pay off the entire balance of outstanding borrowings. The amount of borrowings outstanding was approximately $0 and $633,000 as of September 30, 2022 and December 31, 2021, respectively, and are included in other current liabilities within our unaudited condensed consolidated balance sheets.

 

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CVR Agreement

 

During the nine months ended September 30, 2022, the Company entered into an agreement with an institutional investor whereby in exchange for the payment of $405,000, the investor received (i) the right to receive the net proceeds upon the sale of certain marketable securities held by the Company with a guaranteed minimum return of 120% of such Purchase Price or $486,000 and (ii) the right after 90 days but before 120 days to demand payment of 120% of the Purchase Price in cash less amounts previously paid from the sales of such securities. As of September 30, 2022 a liability in the amount of $613,000 was recorded in other current liabilities within our unaudited condensed consolidated balance sheets.

 

NOTE 8 – OID CONVERTIBLE NOTE(S) PAYABLE

 

On June 30, 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 consisted of (a) $13,000,000 in cash and (b) the cancellation of $1,169,000 in outstanding debt. The Company received net proceeds of approximately $9,100,000 after deducting the Placement Agent fees, the Debt Repayments and other offering expenses. The Company’s obligations under the Debentures are secured by substantially all of the assets of the Company.

 

The Debentures pay interest in cash at the rate of 12.0% per annum commencing on June 30, 2021, with such interest originally payable quarterly, beginning on October 1, 2021. Commencing after the six-month anniversary of the issuance of the Debentures, the Company was 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 (5%) in principal being added to the balance of such applicable Debenture on each such Extension. The Debentures had an original maturity date of December 31, 2021 but were extended three times and now mature 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.

 

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.

 

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.

 

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.

 

Subject to the Company’s compliance with certain 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 the Company (i) sells or reprices any securities (each, a “Redemption Financing”), or (ii) 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 (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, payment default, breaches of covenants, the occurrence of an event of default under certain material contracts of the Company, failure to register the shares underlying the Debentures and Warrants, 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 prohibited from certain activities (unless waived by 67% of the then outstanding Purchasers, and including the lead Purchaser), 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.

 

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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 the Company’s failure to file and/or have the registration statement declared effective within the time periods provided. As of June 30, 2022, the Company has continuously met its obligations under the Registration Rights Agreement.

 

Bradley Woods & Co. Ltd. (“Placement Agent”) acted as the placement agent, in connection with the sale of the securities. Pursuant to an engagement agreement, the Company agreed to pay the Placement Agent a cash commission of $1,040,000 and issue 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. Additionally, upon the exercise of the Warrants issued in the Offering, the Placement Agent will be entitled to eight percent (8%) of the cash proceeds received from such exercises. The fair value of the PA Warrants at issuance was estimated to be $360,000.

 

The Company first allocated the cash proceeds to the loan and the equity classified warrants on a relative fair value basis, secondly, the proceeds were allocated to the beneficial conversion feature. The proceeds allocated to the warrants and the beneficial conversion feature resulted in a debt discount being amortized as additional interest expense using the effective interest method over the term.

 

Extension of Outstanding Original Issue Discount Senior Secured Convertible Debentures

 

On July 1, 2022, the holders (“Holders”) of $1,197,000 in principal of the Company’s Original Issue Discount Senior Secured Convertible Debentures (“Debentures”), representing all of the outstanding Debentures that were originally issued on June 30, 2020, entered into an agreement with the Company to (i) extend the maturity date of the Debentures until June 30, 2023 and (ii) extend the first date that monthly redemptions are required to be made by the Company to begin on January 1, 2023 (the “Debenture Extension”). As consideration for the Debenture Extension, the Company increased the principal amount outstanding on the Debentures by five percent (5%). Additionally, the holders of the Debentures have the unilateral right to extend the maturity date and monthly redemption period by an additional six (6) month period at any time prior to January 1, 2023 for an additional five percent (5%) to be added to the outstanding principal of such Debentures. The Debentures, including the additional principal added to the Debentures are secured by substantially all of the assets of the Company pursuant to a security agreement entered into between the Company and Holders contemporaneous with the original issuance of the Debentures (the “Security Agreement”). ATW Master Fund held the nearly all of the $1,197,000 in Debenture principal on June 30, 2020.

 

Amendment of Convertible Debenture

 

On September 13, 2023, the remaining Debenture, solely held by ATW Master Fund was temporarily amended for a period of up to fourteen months from the Effective date of September 11, 2023. The amendments include, but are not limited to, provisions related to the payment of amounts owing under the Credit Agreement from the proceeds of the sale of third-party securities held by the company. Per the agreement ATW shall receive one hundred percent of the proceeds from sales from third party securities owned by the Company until such time as outstanding amounts due under the respective agreements have been repaid. The Company shall maintain the rights to all proceeds from sales of the marketable securities once the amounts due to ATW have been satisfied. The Company also agreed to various covenants and conditions, including providing access to certain accounts and notifying ATW Opportunities and ATW Master Fund of material changes.

 

The table below summarizes the Debenture related activity during the three and nine months ended September 30, 2022:

 SCHEDULE OF OID CONVERTIBLE DEBENTURES

		Principal				Debt Discount				Net Book Value
Balance as of December 31, 2021		$	1,267,000			$	(103,000	)		$	1,164,000
Amortization			-				17,000				17,000
Balance as of March 31, 2022		$	1,267,000			$	(86,000	)		$	1,181,000
Amortization			-				16,000				16,000
Balance as of June 30, 2022		$	1,267,000			$	(70,000	)		$	1,197,000
Principal adjustments			74,000				-				74,000
Repayments			(195,000	)			-				(195,000	)
Amortization			-				18,000				18,000
Balance as of September 30, 2022		$	1,146,000			$	(52,000	)		$	1,094,000

 

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NOTE 9 – SENIOR SECURED REVOLVING CREDIT FACILITY (REVOLVING NOTE)

 

Bridge Note

 

On July 1, 2022, the Company issued an original issue discount bridge note in principal amount of $650,000 (“Bridge Note”) to an institutional investor in exchange for $500,000 in cash. The bridge note was non-interest bearing and had a maturity date of August 15, 2022. The Company’s obligations pursuant to the bridge note were secured by substantially all of the assets of the Company pursuant to the terms of the Security Agreement.

 

On August 8, 2022, as described below, the Bridge Note was exchanged for a revolving note in the Senior Secured Revolving Credit Facility.

 

Senior Secured Revolving Credit Facility (Revolving Note)

 

On August 8, 2022, the Company entered into a senior secured revolving credit facility agreement with ATW Opportunities fund to initially borrow up to $9,450,000 in the aggregate from time to time (each a “Revolving Note”). The loan maximum amount accessible is limited to $5.5 million until the Company is current with its reporting obligations. The loan is secured by all the assets of the Company and is guaranteed by the Company’s wholly owned subsidiary, LD Micro, Inc. As part of the transaction, the Company also amended and restated lender’s outstanding warrants to extend the maturity date of a total of 2,590,358 Common Stock purchase warrants until September 30, 2023.

 

On closing, the lender advanced $5,580,000 consisting of $4,930,000 in cash and the exchange of the existing outstanding $650,000 bridge note. Upon the Company meeting certain conditions, the Lender will advance up to an additional $3,870,000.

 

The principal balance of each Revolving Note will reflect an original issue discount of ten percent (10%); provided that beginning on the date that is twelve (12) months from the Effective Date, such original issue discount will increase to twelve percent (12%) in the event the Prime borrowing rate increases to 6.75%, and 18% in the event of default. The Revolving Note have a maturity date of the earlier of (i) twenty-four (24) months from the Effective Date or (ii) the occurrence of an event of default, as described in the Loan Documents.

 

Commencing on the first day of each month after the Effective Date, the outstanding balance of the Revolving Note will be paid as calculated based on a percentage of the Company’s collections from the sale of certain of its marketable securities.

 

The Revolving Note is initially convertible into shares of Common Stock at a conversion price of $15.00 per share (“Conversion Price”). The Conversion Price is subject to adjustment in the event of stock splits, dividends, fundamental transactions and certain future sales of the Company’s Common Stock.

 

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

 

For the Company to enter into the Credit Agreement, we were required to issue 33,000 shares of the Company’s common stock as a breakup fee to an unrelated lender as a result of a failed offering.

 

Amendment of Senior Secured Revolving Credit Facility

 

On September 13, 2023, the Revolving Note and Credit Agreement were temporarily amended for a period of up to fourteen months from the Effective date of September 11, 2023. The amendments include, but are not limited to, provisions related to the payment of amounts owing under the Credit Agreement from the proceeds of the sale of third-party securities held by the company. Per the agreement ATW shall receive one hundred percent of the proceeds from sales from third party securities owned by the Company until such time as outstanding amounts due under the respective agreements have been repaid. The Company shall maintain the rights to all proceeds from sales of the marketable securities once the amounts due to ATW have been satisfied.

The Company also agreed to various covenants and conditions, including providing access to certain accounts and notifying ATW Opportunities and ATW Master Fund of material changes.

 

The table below summarizes the senior secured revolving credit facility related activity during the three months ended September 30, 2022:

 SCHEDULE OF SENIOR SECURED REVOLVING CREDIT FACILITY RELATED ACTIVITY

		Principal				Debt Discount				Net Book Value
Balance as of June 30, 2022		$	-			$	-			$	-
Loan proceeds			6,128,000				-				6,128,000
Original issue discount			-				(750,000	)			(750,000	)
Repayments			(4,000	)			-				(4,000	)
Amortization			-				104,000				104,000
Balance as of September 30, 2022		$	6,124,000			$	(646,000	)		$	5,478,000

 

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Extension of Warrants

 

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

 

(a) a warrant to purchase 1,313,636 shares of Common Stock issued on June 30, 2020, that was initially disclosed on the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2020;

 

(b) a warrant to purchase 166,667 shares of Common Stock issued on November 29, 2018, that was initially disclosed on the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018; and

 

(c) a warrant to purchase 480,027 shares of Common Stock issued on November 29, 2018, that was initially disclosed on the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2018;

 

(d) a warrant to purchase 480,028 shares of Common Stock issued on October 27, 2017 that was initially disclosed on the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2017.

 

NOTE 10 – COMMON AND PREFERRED STOCK

 

Common Stock

 

The Company’s certificate of incorporation provides for 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.

 

In August 2021, the Board of Directors approved a share repurchase program pursuant to which the Company is authorized to repurchase up to $10,000,000 of Class A Common Stock in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices. Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. This includes purchases pursuant to Rule 10b5-1 plans, including accelerated share repurchases. The program does not have an expiration date.

 

During the year ended December 31, 2021, the Company repurchased 155,000 shares of Common Stock, for an aggregate purchase price of $793,000 pursuant to the Company’s Share Buy-Back program. The shares were retired as of December 31, 2021. No amounts were repurchased in the six months ended June 30, 2022. The total remaining authorization for future common share repurchases under the Company’s share repurchase program was $9.2 million as of June 30, 2022.

 

During the year ended December 31, 2021, the Company sold 53,616 shares of common stock, resulting in proceeds of approximately $284,000, through sales under its At the Market (ATM) offering.

 

On January 2, 2022, Michael Malone, our former Chief Financial Officer exercised an option to purchase 100,000 shares of our common stock that was issued on December 15, 2018. The option was exercised on a cashless basis and included 57,016 shares withheld pursuant to the cashless exercise and an additional 16,732 shares withheld for tax withholding. Accordingly, we issued Mr. Malone 26,252 shares of common stock.

 

During the month of January 2022, non-executive employees exercised a total of 227,667 stock options. These options were exercised on a cashless basis, and included 161,938 shares withheld pursuant to cashless exercise and tax withholdings. This resulted in the issuance of 65,729 shares of common stock.

 

During the month of July 2022, the Company issued 31,872 shares of common stock from the exercise of 100,000 stock options on a cashless basis by an executive.

 

During the three months ended June 30, 2022, the Company issued 203,926 shares of common stock from the exercise of 697,574 warrants, including 689,173 that were exercised on a cashless basis, and 8,401 exercised for $32,000 in cash.

 

Preferred Stock

 

The Company is authorized to issue 50,000,000 of preferred stock, par value $0.001, of which 36,462,417 shares are designated as Series A Preferred Stock (“Dividend Shares”). The Company’s 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. The Board of Directors may authorize the issuance of preferred stock, which ranks senior to the Company’s common stock for the payment of dividends and the distribution of assets on liquidation. In addition, the Board of Directors can fix limitations and restrictions, if any, upon the payment of dividends on both classes of the Company’s common stock to be effective while any shares of preferred stock are outstanding.

 

21

 

On September 20, 2021, the Company filed a certificate of designation (the “COD”) of preferences, rights, and limitations of Series A Non-Voting Preferred Stock (“Series A Preferred Stock”) with the Secretary of State of Delaware. Pursuant to the COD, the Company is authorized to issue up to 36,462,417 shares of Series A Preferred Stock (the “Dividend Shares”).

 

On September 27, 2021, the Company issued a one-time dividend of 36,462,417 shares of series A preferred stock (“Preferred Stock”) to certain Qualified Recipients (the “Dividend”). The preferred stock entitles the Qualified Recipients with the right to receive the net proceeds from sales of certain marketable securities that the Company received through its Sequire Platform services. See Note 6 – Designated Assets for Return of Capital.

 

As of the Record Date, the following holders of securities were entitled to receive the Dividend (collectively, the “Qualified Recipients):

 

	i.	each outstanding share of Class A common stock (the “Common Stock”), of which 25,160,504 shares were issued and outstanding,
	ii.	each share of Common Stock underlying outstanding common stock purchase warrants containing a contractual right to receive the Dividend (“Warrants”) of which, 10,327,645 were outstanding, and
	iii.	each original issue discount senior convertible debenture (the “Debentures”) issued on June 30, 2021, containing a contractual right to receive the Dividend on an as converted to Common Stock basis, of which $2,486,275 of Debentures were outstanding in principal and interest, convertible into 974,268 shares of Common Stock.

 

The Company’s management has evaluated the Preferred Stock and determined that Preferred Stock is mandatorily redeemable upon the distribution of the net proceeds from the sale of the designated marketable securities. Accordingly, it is classified as a liability recorded at fair value, with changes in fair value being reflected in earnings.

 

Preferred stock liability represents amounts payable to holders of the Preferred Stock Series A shares upon the eventual liquidation of assets designated for the sole purpose of paying dividends. Accordingly, the Company classified the Series A Preferred Shares as liability instruments because in-substance, they represent a right to the payment of dividends upon the liquidation of specified assets, are automatically returnable to the Company after the payments are made and feature no rights to further equity or residual interests in the Company. The Certificate of Designation of Preferences, Rights and Limitations of Series A Non-Voting Preferred Stock states dividend shall be paid conditioned upon, and subject to a determination by the Board that a distribution is not prohibited pursuant to applicable provisions of the DGCL or other applicable law.

 

NOTE 11 – EQUITY COMPENSATION PLANS AND WARRANTS

 

Equity Compensation Plans

 

As of September 30, 2022, the Company has approximately 228,000 shares of Class A Common Stock reserved for issuance under the Company’s equity compensation plans.

 

For the nine months ended September 30, 2022, the Company issued the below shares and granted the following stock-based awards:

 

On January 2, 2022, Michael Malone, our former Chief Financial Officer exercised an option to purchase 100,000 shares of our common stock that was issued on December 15, 2018. The option was exercised on a cashless basis and included 57,016 shares withheld pursuant to the cashless exercise and an additional 16,732 shares withheld for tax withholding. Accordingly, we issued Mr. Malone 26,252 shares of common stock.

 

On January 3, 2022, we issued four (4) common stock purchase options to our non-employee directors, pursuant to our amended non-employee director compensation policy. Each option entitled the holder to purchase 29,533 shares of common stock at an exercise price of $4.35 per share, for an aggregate exercise amount of $128,500. The options vest in equal quarterly over a one (1) year period from the issuance date. The options expire on the seven (7) year anniversary of the issuance date. Each option has a Black-Scholes value of $100,000.

 

During the month of January 2022, non-executive employees exercised a total of 227,667 stock options. These options were exercised on a cashless basis, and included 161,938 shares withheld pursuant to cashless exercise and tax withholdings. This resulted in the issuance of 65,729 shares of common stock.

 

On January 6, 2022, we issued non-executive employees, options to purchase 380,000 shares of Class A common stock. The option has an exercise price of $4.25 per share, a term of five (5) years and vests in equal quarterly installments over a three (3) year period from the grant date. The option had a Black-Scholes value on the grant date of $1,038,000.

 

On January 6, 2022, we issued Christopher Miglino, our Chief Executive Officer, an option to purchase 120,000 shares of common stock. The option has an exercise price of $4.25 per share, a term of seven (7) years and vests in equal quarterly installments over a three (3) year period from the grant date. The option had a Black-Scholes value on the grant date of $356,000.

 

22

 

On January 6, 2022, we issued an employee an option to purchase 100,000 shares of common stock. The option has an exercise price of $4.25 per share, a term of seven (7) years and vests in equal quarterly installments over a three (3) year period from the grant date. The option had a Black-Scholes value on the grant date of $296,000.

 

On January 6, 2022, we issued Michael Malone, our former Chief Financial Officer, a conditional option to purchase 100,000 shares of Class A common stock. The option is a conditional grant, subject to shareholder approval. Assuming approval by the shareholders, the option has an exercise price of $4.25 per share, a term of seven (7) years and vests in equal quarterly installments over a three (