VADP Vado Corporation (PK)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

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

For the transition period from                          to                        

COMMISSION FILE NO. 333-222593

Vado Corp.

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of incorporation)

30-0968244

(IRS Employer Identification No.)

13468 Beach Ave.

Marina Del Rey, CA 90292

Tel: (888) 545-0009

(Address and telephone number of registrant's executive office)

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

Indicate by checkmark whether the issuer: (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 filed, an accelerated filer, a non-accelerated filer, or 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.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:

Vado Corp.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Vado Corp.

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these financial statements.

Vado Corp.

Condensed Consolidated Statements of Operations

(unaudited)

The accompanying notes are an integral part of these financial statements.

Vado Corp.

Condensed Consolidated Statements of Cash Flows

(unaudited)

The accompanying notes are an integral part of these financial statements.

Vado Corp.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2023 and 2022

The accompanying notes are an integral part of these financial statements.

VADO CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business and operations following our recent acquisition of Socialcom, a digital marketing and services company, future trends and operating results of such business, the planned expansion of those operations into new markets and applications, characteristics and trends in the digital marketing industry and the demand for products and services we offer, the need for and use of proceeds from one or more financings for strategic arrangements and partnerships, our future capital needs and ability to obtain financings and liquidity. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, working capital sources, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include the future impact of the Russian invasion of the Ukraine, inflation and Federal Reserve interest rate increases in response thereto on the economy including the potential for a recession and a resulting reduction in  demand for our offerings, declines in expenditures for digital marketing campaigns and a trend towards in-housing those functions,  our limited operating history and revenue, our ability to effectively navigate challenges posed by the complex industries we serve including the potential for rapid and unpredictable technological change, regulatory burdens and an intense competitive environment, and the delay in the launch of our Regulation A offering and any inability to raise sufficient capital therefrom. Further information on the risk factors affecting our business is contained in “Risk Factors” of our Offering Circular on Form 1-A, filed with the SEC on April 19, 2023, as amended on July 25, 2023 and as may be further amended from time-to-time. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

Background of the Company

Vado, through Socialcom, operates as a digital marketing and services company focused on delivering integrated advertising and technology performance solutions to independent agencies and brands through its omnichannel trading desk platform.

During the fiscal year ended December 31, 2021, the Company acquired BigBuzz Marketing Group, a New York based creative digital marketing agency to expand its creative-based product and services offerings, including a focus on organic social content.

During the fiscal year ended December 31, 2022 (“FY 2022”), the Company partnered with The Trade Desk to launch Admatx its self-serve demand side platform (DSP) centered around the principle of democratizing access to enterprise-level adtech by placing control into the hands of the customer without requiring a prohibitive minimum spend or a long-term subscription commitment. Admatx is focused on SMB marketers, looking for an easy-to-use performance DSP without any spend minimums.

Strategic Growth Initiatives

During fiscal year 2022, and continuing into the first half of 2023, the Company lost certain key customers and saw decreased spend for certain existing customers, which had a material impact on revenue. We experienced turnover in members of our customer support team during the period, which directly impacted certain client relationships. We also saw an increasing trend toward in-housing of media buying by advertisers as well as increased access to enterprise technology and data-powered buying solutions by agencies, representing a competitive threat to the Company’s value proposition. Other reasons for the decline in revenue include macro-economic factors such as inflationary pressures and increased interest rates in response, economic uncertainty and diminished consumer spending, all contributing to reduced advertising budgets from customers in general.

In response, management has taken steps to (i) improve the employee experience and in turn improve employee retention; and (ii) enhance our product offerings and strengthen our core solutions to the middle market. More specifically, in order to drive increased customer acquisition, the Company is focused on improved market differentiation related to product development and innovation in the key three areas of: (i) predictive analytics, (ii) supply optimization, and (iii) creative automation. In the second quarter we have developed an industry leading, data-driven addition to our tech stack, successfully incorporating several layers of artificial intelligence (AI), predictive analytics, and automation in the application of data science, audience insights and tech-powered creative, an integrated and holistic system designed to optimize performance in real time for our brand and agency customers. We are currently taking this solution actively to market, for both existing and new customers, through ongoing various sales and marketing activities. We are further constantly assessing the mergers and acquisitions (M&A) landscape to identify potential acquisition targets, whether creative or media agencies, with stable customers and revenues, that can drive stronger business outcomes through integrated access to the Socialcom media services solution.

Trends and Uncertainties

Our operations and industry are subject to the following trends and uncertainties:

Seasonality

In the advertising industry, companies commonly experience seasonal fluctuations in revenue. For example, some advertisers may allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. Historically, the fourth quarter of the year reflects our highest level of advertising activity and the first quarter reflects the lowest level of such activity. We expect our revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

Developments in the Programmatic Advertising Market

Our operating results and prospects will be impacted by the overall adoption of programmatic advertising by inventory owners and content providers, as well as advertisers and the agencies and service providers that represent them. Programmatic advertising has grown rapidly in recent years, and any acceleration or slowing of this growth may affect our operating and financial performance. In addition, even if the programmatic advertising market continues to grow at its current rate, our ability to position ourselves within the market will impact the future growth of our business.

In addition, technological and other changes and developments in the digital ad space will also affect our operations and operating results. For example, many websites including Google are expected to update or alter their privacy settings and practices in the coming years, including by eliminating “cookies” and the collection of personal identifiable information about users, for which we and our industry will need to adjust in order to maintain and grow our operations.

Growth in and Retention of Customers

Our ability to generate and maintain revenue depends on retaining our existing customers and adding new customers. Our customers consist of small-to-medium sized businesses, with spending patterns that can be inconsistent or unpredictable. We also depend on a relatively small number of customers for a large proportion of our revenue streams. As a result, future revenue and growth depends upon our ability to retain our existing customers and to gain a larger amount of their advertising spend through our platform and related services.

Labor Shortages

Because of our focus on digital advertisements and the underlying technology and infrastructure involved in those processes, as well as providing a wide variety of businesses with their digital marketing needs, our operations depend on procuring, training and maintaining skilled personnel to assist us and our customers in fulfilling these demands. In recent periods, macroeconomic factors have contributed to labor shortages in the U.S. across industries. As a result of this and other factors, in FY 2022 the loss of certain personnel, including members of our sales and customer support team, adversely impacted our operating results in that period. If the tightened labor market trend continues in general or for our business in particular, this trend could persist.

Omnichannel Access

Because we assist in the selection and purchase of advertising inventory across a wide variety of formats for our customers, such as display, mobile, video, audio, social and native, our future growth will depend on our ability to maintain and grow the inventory of, and customer spend on, advertising channels. For instance, as we proceed further into the digital age, new channels can arise rapidly and gain popularity within relatively short periods, diverting attention from existing channels and forcing stakeholders in the industry, including us, to adapt quickly. Further, each channel we now or may in the future access to service our customers has its own policies in terms of content and use, and we must continually monitor and adhere to these requirements to continue to access those channels for our customers. We believe that our ability to integrate and offer access to new means of digital communication, such as Connected Television (CTV), digital out-of-home (DOOH), and digital radio advertising inventory and to manage the increased costs that will accompany these developments, will impact the operating results and future growth of our business.

Results of Operations for the Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Revenue

Revenue was $3,780,310 for the three months ended June 30, 2023, a decrease of $796,489, or 17.4% compared to revenue of $4,576,799 for the three months ended June 30, 2022. The decrease in revenue was primarily due to a loss of certain key customers and decrease in revenue from certain key customers resulting in part from the loss of key personnel, as well as trends in our industry and the U.S. economy including an increased in-housing of media buying by advertisers and agencies, inflationary pressures, interest rate hikes and recessionary concerns resulting in diminished demand and consumer spending. In response to these developments, management has taken steps to improve the employee experience and in turn improve employee retention, and enhance our product offerings and strengthen our core solutions to the middle market in order to drive increased customer acquisition, improved market differentiation and also campaign performance.

Costs of Revenue

Cost of revenue was $2,717,619 for the three months ended June 30, 2023, a decrease of $315,709, or 10.4% compared to $3,033,328 during the three months ended June 30, 2022. The decrease was driven primarily by a corresponding decrease in revenue as detailed above, as well as reduced operational costs related to the delivery of campaigns on lower revenues.

Our gross profit margins were approximately 28% during the three months ended June 30, 2023 compared to 34% during the three months ended June 30, 2022. The decrease was driven primarily by an increase in lower margin revenue delivered during the three months ended June 30, 2023.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were $2,302,702 for the three months ended June 30, 2023, a decrease of $347,202, or 13.1%, compared to $2,649,904 during the three months ended June 30, 2022. The decrease was driven primarily by decreases in personnel related expenses related to sales and operations arising from the loss of certain members of those teams and lower operational costs due to lower revenue

Legal Settlement

Legal settlement expense was $894,274 for the three months ended June 30, 2023, an increase of $894,274, or 100%, compared to $0 during the three months ended June 30, 2022. The increase is due to an increase in the amount of liability claimed by a vendor in a legal dispute and to court costs. See note 16 and “Legal Proceedings”.

Other Income (Expense), Net

Other income (expense) consisted of interest expense net of interest income, which was $250,252 during the three months ended June 30, 2023, an increase of $100,096, or 66.7%, compared to interest expense of $150,156 during the three months ended June 30, 2022. The increase was driven primarily by interest expense charges on convertible debt as described above.

Results of Operations for the Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Revenue

Revenue was $7,315,549 for the six months ended June 30, 2023, a decrease of $1,167,381, or 13.8% compared to revenue of $8,482,930 for the six months ended June 30, 2022. The decrease in revenue was primarily due to a loss of certain key customers and decrease in revenue from certain key customers resulting in part from the loss of key personnel, as well as trends in our industry and the U.S. economy including an increased in-housing of media buying by advertisers and agencies, inflationary pressures, interest rate hikes and recessionary concerns resulting in diminished demand and consumer spending. In response to these developments, management has taken steps to improve the employee experience and in turn improve employee retention, and enhance our product offerings and strengthen our core solutions to the middle market in order to drive increased customer acquisition, improved market differentiation and also campaign performance.

Costs of Revenue

Cost of revenue was $5,057,340 for the six months ended June 30, 2023, a decrease of $708,437, or 12.3% compared to $5,765,777 during the six months ended June 30, 2022. The decrease was driven primarily by a corresponding decrease in revenue as detailed above, as well as reduced operational costs related to the delivery of campaigns on lower revenues.

Our gross profit margins were approximately 31% during the six months ended June 30, 2023 compared to 32% during the six months ended June 30, 2022. The decrease was driven primarily by an increase in lower margin revenue delivered during the six months ended June 30, 2023.

Selling, General, and Administrative Expenses

Operating expenses were $4,859,191 for the six months ended June 30, 2023, a decrease of $407,936, or 7.7%, compared to $5,267,127 during the six months ended June 30, 2022. The decrease was driven primarily by decreases in personnel related expenses related to sales and operations arising from the loss of certain members of those teams and lower operational costs due to lower revenue.

Legal Settlement

Legal settlement expense was $894,274 for the six months ended June 30, 2023, an increase of $894,274, or 100%, compared to $0 during the six months ended June 30, 2022. The increase is due to an increase in the amount of liability claimed by a vendor in a legal dispute and to court costs. See note 16.

Other Income (Expense), Net

Other income (expense) consisted of interest expense net of interest income, which was $445,629 during the six months ended June 30, an increase of $141,916, or 46.7%, compared to interest expense of $303,713 during the six months ended June 30, 2022. The increase was driven primarily by interest expense charges on convertible debt as described above.

Cash Flows from Operating Activities

Our cash flows from operating activities are primarily influenced by growth or decline in operations, increases or decreases in collections from our customers and related payments to suppliers for advertising media and data. Cash flows from operating activities are typically affected by changes in the components of working capital, particularly changes in accounts receivable, accounts payable, and accrued liabilities. Timing differences from cash receipts from customers and payments to suppliers have a significant impact on our cash flows from operating activities. We often pay suppliers in advance of collections from our customers. Our collection and payment cycles can vary from period to period, and we additionally expect seasonality to impact cash flows from operating activities on a quarterly basis during the year.

For the six months ended June 30, 2023, cash used in operating activities of ($2,134,676) resulted primarily from a net loss of ($3,940,885) adjusted for non-cash items totaling $1,010,286 and a net increase of $787,591 in the components of working capital. The $1,010,286 in non-cash adjustments to net income are attributable to charges of $408,910 related to employee stock-based compensation, $286,543 for amortization of our office lease, $112,992 for depreciation and amortization, $93,882 for bad debt expense, $110,248 for amortization of discount on convertible note payable, and ($2,289) for amortization of discount on investment. The change in the components of working capital of $787,591 was due primarily to a $769,274 change in accrued settlement expense with the remaining change attributable to normal operational fluctuations in current assets and current liabilities.

For the six months ended June 30, 2022, cash used in operating activities of ($2,766,323) resulted primarily from a net loss of ($2,853,687) adjusted for non-cash items totaling $517,823 and a net decrease of ($430,459) in the components of working capital. The $517,823 in non-cash adjustments to net income are attributable to charges of $270,962 for amortization of our office lease, $95,257 for depreciation and amortization, $52,512 related to employee stock-based compensation, and $99,092 for bad debt expense. The change in the components of working capital of ($430,459) during the period was due to normal operational fluctuations in current assets and current liabilities.

Cash Flows Used in Investing Activities

Our primary investing activities consist primarily of the purchase of fixed assets and costs paid for the development of software to improve our platform. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.

For the six months ended June 30, 2023, we used $1,024,065 of cash in investing activities, consisting of $1,000,786 invested into securities related to the funding of the surety bond described in Notes 13 and 16, $18,300 invested in capitalized software and $4,979 to purchase fixed assets.

For the six months ended June 30, 2022, we used $12,132 of cash in investing activities to purchase fixed assets.

Cash Flows Provided by Financing Activities

Our financing activities consisted primarily of the sale of common and preferred stock, borrowings and repayments of our debt, proceeds from forgiveness on borrowings, proceeds from the exercise of options issued under our equity compensation plan.

For the six months ended June 30, 2023, cash provided by financing activities of $4,076,442 was due to $2,100,000 in proceeds from the issuance of convertible notes payable to related parties, $1,500,000 in proceeds from the sale of preferred stock, $500,000 in proceeds from the sale of common stock, partially offset by $23,558 in principal payments on loans.

For the six months ended June 30, 2022, cash used in financing activities of $482,593 was due to $500,000 in proceeds from the issuance of notes payable to related parties, $50,000 in proceeds from notes payable, partially offset by $67,407 in principal payments on loans.

Non-GAAP Measures

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) before (a) certain stock-based compensation expense, (b) costs attributable to non-recurring settlement expense, legal activity, professional fees, and other transaction and offering costs, (c) interest, (d) tax, and (e) depreciation and amortization. We use Adjusted EBITDA to evaluate the performance of our core business operations. We believe that information about Adjusted EBITDA assists investors by allowing them to evaluate changes in the operating results of our business separate from non-operational factors that affect net income (loss), thus providing insights into both operations and the other factors that affect reported results. Adjusted EBITDA is not calculated or presented in accordance with GAAP. Accordingly, Adjusted EBITDA should be considered in addition to, and not as a substitute for, operating income (loss), net income (loss), and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, Adjusted EBITDA as presented herein may not be comparable to similarly titled measures of other companies.

The following table sets forth the reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure for the three and six months ended June 30, 2023 and 2022:

Liquidity and Capital Resources

As of July 31, 2023, we have unrestricted cash on hand of approximately $927,702. Management believes this amount is not sufficient to meet our operating needs for the next 12 months, and in order to meet our working capital requirements, we will need to either raise sufficient capital or reduce our expenditures. We will rely on our ability to improve operating cash flow or raise additional capital through the sale of debt or equity securities and draw on our existing credit facility, in addition to our existing cash and cash equivalents to meet our working capital requirements for at least the next 12 months.

The Company’s ability to continue as a going concern is dependent upon its ability to improve cash flow and the ability to obtain additional financing, including potentially through proceeds raised in this offering. These and other factors substantial doubt about the Company’s ability to continue as a going concern in the following 12-month period.

Our recent and potential future financing transactions and outstanding indebtedness are summarized below.

Series A Financings

On September 28, 2021, the Company sold 50,000 shares of Series A to an accredited investor for a total of $100,000 in gross proceeds.

On November 22, 2022, the Company sold 20,000 shares of the Series A to an accredited investor for $40,000 in gross proceeds.

On February 24, 2023, the Company sold 25,000 shares of Series A Preferred Stock at a price of $30.00 per share for cash proceeds of $750,000 in the first tranche of a Securities Purchase Agreement originally entered into on January 30, 2023. In the second tranche, which closed on May 25, 2023, the Company sold an additional 25,000 shares of Series A Preferred Stock for an additional $750,000.

Financing Agreements

On June 13, 2019, Socialcom entered into an accounts receivable financing and security agreement (the “Financing Agreement”) with a current maximum amount of Socialcom $3,000,000 and an interest rate of LIBOR plus 7.25% per annum. The Financing Agreement provided for an initial financing fee equal to 1/12th of the facility interest rate and additional monthly financing fees of 1/12th of the facility interest rate. The Financing Agreement is subject to an early termination fee equal to 2% of the maximum amount available under the Financing Agreement. Further, the Financing Agreement provides that Socialcom shall at all times use at least 20% of the maximum amount. The revolving credit facility under the Financing Agreement is secured by the trade accounts receivable of Socialcom and guaranteed by its assets. Upon any event of default, the lender may, among other things, immediately demand repayment of all advanced amounts thereunder. As a result of the judgment rendered in the Zeta litigation disclosed under “Legal Proceedings,” the Financing Agreement is in default, and the Company is in ongoing discussions with the lender to potentially amend the Financing Agreement or obtain waiver of the default. The Financing Agreement provides, among other things, that the lender can immediately terminate the Financing Agreement and demand payment.

On December 31, 2019 Socialcom borrowed $3,000,000 (the “Decathlon Loan”). The Decathlon Loan is due June 30, 2024 and is secured by all the assets of Socialcom. The Decathlon Loan accrues interest at a variable rate based upon internal rate of return targets, which interest multiple is subject to increase by 0.015 upon an event of default. The effective rate of interest for the years ended December 31, 2021 and 2020 was approximately 17%. Repayments are required based upon a fixed percentage of our earned revenue. If not repaid prior the final balance is due on June 13, 2024. The Decathlon Loan is subject to minimum interest that escalates over the term of the loan. At June 30, 2023 and December 31, 2022, the potential liability for unearned minimum interest was $1,502,197 and $1,661,504, respectively. During the six months ended June 30, 2023, the Company made principal and interest payments in the amount $23,558 and $139,754, respectively, on the Decathlon loan. During the six months ended June 30, 2022, the Company made principal and interest payments in the amount $67,407 and $203,043, respectively, on the Decathlon loan.

Related Party Indebtedness

As disclosed in “Related Party Transactions” and in footnote 11 and 12 to our financial statements, Socialcom has a total of $3,200,000 in outstanding related party indebtedness payable to our officers and directors or affiliated entities. $600,000 of this indebtedness accrues interest at 15% and matures in March 2024, $800,000 of this indebtedness accrues interest at 7.25%, matures December 31, 2023, and is convertible into our common stock at a conversion price of approximately $0.233 per share. $500,000 of this indebtedness accrues interest at the rate of $2.19% and matures on December 31, 2024, with the remaining $1,300,000 accruing interest at 7.25% and maturing in December 2025.

Litigation Indebtedness

On February 7, 2023, in connection with the Zeta litigation described under “Legal Proceedings,” Socialcom borrowed $800,000 from Kahala19 LLC, an entity controlled by Reeve Benaron, the Company’s director and a principal shareholder. The note accrues interest at 7.25% per annum and matures in December 2024. The interest rate is subject to increase to 18% upon the occurrence of an event of default. In March 2023, we issued Kahala 19 LLC an identical note and it cancelled the Socialcom note. The principal and accrued interest on this note is convertible into the Company’s common stock at a conversion price of approximately $0.233 per share.

On May 12, 2023, also in connection with the Zeta litigation, Socialcom borrowed $1,300,000 from an entity affiliated to Jason Wulfsohn, the Company’s CEO and a director. The note accrued interest at 7.25% per annum and matures on December 31, 2025. This note is convertible into common stock of the Company at a price of $0.32 per share.

These loans are included in the $3,200,000 of related party indebtedness described above.

SBA Loan

One July 7, 2020 Socialcom borrowed $150,000 pursuant to the Small Business Administration Economic Injury Disaster Loan Program (the “EIDL Loan”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On March 31, 2022, Socialcom borrowed an additional $50,000 under the EIDL Loan. Under the EIDL Loan, payments in the amount of $989 per month are due beginning in January 2023. The term of the EIDL Loan is 30 years, and the annual interest rate is 3.75%. EIDL Loan recipients can apply for, and be granted forgiveness for, all or a portion of loans granted if certain conditions are met. During the years ended December 31, 2022 and 2021, Socialcom accrued interest in the amount of $6,935 and $5,410, respectively, on the EIDL Loan. EIDL Loan amounts in excess of $25,000 are secured by Socialcom’s assets.

Regulation A Offering

On April 19, 2023, the Company filed an Offering Circular on Form 1-A contemplating the sale of up to 10,000,000 shares of its common stock for gross proceeds of up to $10,000,000, before deducting offering expenses, fees and commissions, in an offering exempt from registration under the Securities Act of 1933 as a Tier 2 offering pursuant to Regulation A promulgated thereunder. On July 25, 2023 we filed an amendment to the Offering Circular to, among other things, reduce the offering amount to $8,000,000, reduce the offering price per share to $0.40, and add a bonus share incentive feature wherein investors who purchase within enumerated thresholds are entitled to receive additional shares for no additional consideration. As of the date of this report, the Offering Circular has not been qualified by the SEC. The offering has been delayed due to a change in the initially contemplated broker-dealer for the offering and the offering terms, and there can be no assurance that we will be successful in raising all or a substantial portion of the offering proceeds sought.

General

Historically, we have financed the Company through a combination of debt and equity transactions. To meet future capital requirements, we plan to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements, to the extent our operating cash flow is insufficient to fund our operations in future periods.

There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives. In addition, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We continue to monitor macro-economic factors such as inflationary pressures, continued Federal Reserve interest rate hikes and recessionary fears, as well as trends within our industry, all of which may affect our working capital requirements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Mr. Jason Wulfsohn, our Chief Executive Officer and Mr. Ryan Carhart, our Chief Financial Officer, have reviewed the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q and have concluded that our disclosure controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Socialcom is subject to the following material litigation:

As previously described, Zeta Global Corp. (“Zeta”) filed a complaint against Socialcom arising from a contract dispute for outstanding accounts payable of approximately $1.3 million. Socialcom filed a cross-complaint against the plaintiff seeking breach of contract and business tort damages. Zeta Global Corp. v Socialcom, Inc., Los Angeles Superior Court Case No. 19SMCV01066. The Court rendered a final decision in January 2023 following a bench trial, with the plaintiff entitled to recover $2,144,652 on its complaint ($1.2 million plus interest), and Socialcom entitled to recover $562,000 on its cross-complaint as an offset, with a final judgment entered by the Court against Socialcom in February 2023. Later in February 2023 Socialcom appealed, and its former principal shareholder has lent $800,000 to act as an appeal bond which will stay enforcement of the adverse judgement.

Following the Court’s final decision, the following developments occurred in the Zeta litigation:

On March 17, 2023, Zeta filed a new complaint against Socialcom seeking $162,457 plus 10% prejudgment interest from July 30, 2019 for alleged unpaid invoices.

On July 18, 2023, the Court awarded Zeta attorneys’ fees totaling approximately $750,000 in connection with the original Zeta litigation. Socialcom intends to appeal this award.

ITEM 1A. RISK FACTORS

See the Company’s Offering Circular on Form 1-A (File No. 024-12227), most recently filed on July 25, 2023, for the Risk Factors applicable to the Company and its securities.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS