Quarterly Report (10-q)

Date : 08/14/2019 @ 9:25PM
Source : Edgar (US Regulatory)
Stock : SRAX Inc (SRAX)
Quote : 1.6  0.08 (5.26%) @ 12:16AM

Quarterly Report (10-q)




 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

(Mark One)


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


For the quarterly period ended June 30, 2019


or


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


For the transition period from________ to ________


Commission File Number 001-37916

———————

[SRAX_10Q001.JPG]

SOCIAL REALITY, 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.)

 

 

456 Seaton Street, Los Angeles, CA

90013

(Address of principal executive offices)

(Zip Code)


(323) 694-9800

(Registrant’s telephone number, including area code)


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  þ   NO  ¨


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


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


Large accelerated filer   ¨

 

Accelerated filer    ¨

Non-accelerated filer     þ

 

Smaller reporting company   þ

 

 

Emerging growth company   ¨


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


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


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


Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A common stock

 

SRAX

 

Nasdaq Capital Market


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 12,384,123 shares of Class A common stock are issued and outstanding as of August 14, 2019.

 

 

 




 


TABLE OF CONTENTS


 

 

Page

 

 

No

 

 

 

 

PART I-FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

Financial Statements .

1

 

 

 

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations .

14

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk .

18

 

 

 

ITEM 4.

Controls and Procedures .

18

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings .

20

 

 

 

ITEM 1A.

Risk Factors .

20

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds .

27

 

 

 

ITEM 3.

Defaults Upon Senior Securities .

28

 

 

 

ITEM 4.

Mine Safety Disclosures .

28

 

 

 

ITEM 5.

Other Information .

28

 

 

 

ITEM 6.

Exhibits .

28

 



i



 


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION


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


 

·

our history of losses;

 

·

our ability to continue as a going concern;

 

·

our reliance on third party vendors;

 

·

our dependence on revenues from a limited number of customers;

 

·

our ability to maintain our technology platforms and expand our product offerings;

 

·

our ability to manage our relationships with our publishers;

 

·

risks associated with loss of access to real time bidding inventory buyers and RTB platforms;

 

·

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

 

·

our dependence on our executive officers;

 

·

the continued appeal of Internet advertising;

 

·

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

 

·

the limited market for our Class A common stock;

 

·

risks associated with securities litigation;

 

·

our failure to meet financial performance guidance;

 

·

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

 

·

anti-takeover provisions of Delaware law;

 

·

the possible issuance of shares of our Class B common stock;

 

·

limited, inaccurate or unfavorable research about us or our business by securities or industry analysts; and

 

·

concentration of ownership by our management.


Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part I, Item 1A. - Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (“SEC”) on April 16, 2019 as well as other filings with the SEC. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.


OTHER PERTINENT INFORMATION


When used in this report, the terms “Social Reality,” refers to Social Reality, Inc., a Delaware corporation, and our subsidiary BigToken, Inc., a Delaware corporation which we refer to as "BigToken," (collectively, “we,” “us,” “our” or “the Company”). In addition, the "second quarter of 2019" refers to the three months ended June 30, 2019, the "second quarter of 2018" refers to the three months ended June 30, 2018, “2019” refers to the year ending December 31, 2019, and "2018” refers to the year ended December 31, 2018.


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




ii



 


PART 1 - FINANCIAL INFORMATION


ITEM 1.

FINANCIAL STATEMENTS.

SOCIAL REALITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,465,639

 

 

$

2,784,865

 

Accounts receivable, net

 

 

780,187

 

 

 

1,828,940

 

Prepaid expenses

 

 

550,003

 

 

 

466,823

 

Other current assets

 

 

300,898

 

 

 

387,085

 

Total current assets

 

 

4,096,727

 

 

 

5,467,713

 

 

 

 

 

 

 

 

 

 

Non-current Assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

211,240

 

 

 

192,065

 

Goodwill

 

 

15,644,957

 

 

 

15,644,957

 

Intangible assets, net

 

 

1,811,044

 

 

 

1,762,605

 

Right-of-Use Asset - Long Term Portion

 

 

466,253

 

 

 

 

Other assets

 

 

107,454

 

 

 

51,153

 

Total non-current assets

 

 

18,240,948

 

 

 

17,650,780

 

Total assets

 

$

22,337,675

 

 

$

23,118,493

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

1,456,965

 

 

 

3,574,926

 

Debenture warrant liability

 

 

8,215,035

 

 

 

4,323,499

 

Leapfrog warrant liability

 

 

1,161,350

 

 

 

622,436

 

Derivative liability

 

 

902,915

 

 

 

496,260

 

Other current liabilities

 

 

894,686

 

 

 

 

Total current liabilities

 

 

12,630,951

 

 

 

9,017,121

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Lease Obligation - Long Term Portion

 

 

326,471

 

 

 

 

Total non-current liabilities

 

 

326,471

 

 

 

 

Total liabilities

 

 

12,957,422

 

 

 

9,017,121

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, authorized 50,000,000 shares, $0.001 par value, no shares issued or outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 

 

 

 

Class A common stock, authorized 250,000,000 shares, $0.001 par value, 12,546,022 and 10,109,530 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

12,546

 

 

 

10,109

 

Class B common stock, authorized 9,000,000 shares, $0.001 par value, no shares issued or outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 

 

 

 

Common stock to be issued

 

 

 

 

 

 

Additional paid in capital

 

 

42,030,110

 

 

 

32,869,611

 

Accumulated deficit

 

 

(32,662,403

)

 

 

(18,778,348

)

Total stockholders' equity

 

 

9,380,253

 

 

 

14,101,372

 

Total liabilities and stockholders' equity

 

$

22,337,675

 

 

$

23,118,493

 


See accompanying footnotes to these unaudited condensed consolidated financial statements.



1



 


SOCIAL REALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(Unaudited)


 

 

Three Months ended

 

 

Six Months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

(restated)

 

 

 

 

 

(restated)

 

Revenue

 

$

904,222

 

 

$

4,697,351

 

 

$

1,495,977

 

 

$

6,808,201

 

Cost of revenue

 

 

410,892

 

 

 

1,320,464

 

 

 

753,239

 

 

 

2,138,569

 

Gross profit

 

 

493,330

 

 

 

3,376,887

 

 

 

742,738

 

 

 

4,669,632

 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General, selling and administrative expense

 

 

5,114,115

 

 

 

5,392,625

 

 

 

9,605,377

 

 

 

9,522,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,620,785

)

 

 

(2,015,738

)

 

 

(8,862,639

)

 

 

(4,853,251

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(183,257

)

 

 

(486,758

)

 

 

(250,944

)

 

 

(921,543

)

Amortization of debt issuance costs

 

 

 

 

 

(482,588

)

 

 

 

 

 

(918,254

)

Total Interest Expense

 

 

(183,257

)

 

 

(969,346

)

 

 

(250,944

)

 

 

(1,839,797

)

Gain or (loss) on sale of Assets

 

 

(77,373

)

 

 

(22,165

)

 

 

395,106

 

 

 

(22,165

)

Exchange Gain or Loss

 

 

 

 

 

(596

)

 

 

13,509

 

 

 

(5,260

)

Loss on repricing of equity warrants

 

 

(341,682

)

 

 

 

 

 

(341,682

)

 

 

 

Change in Fair Value of Warrant Liability

 

 

(2,875,554

)

 

 

(1,013,565

)

 

 

(4,837,405

)

 

 

2,710,129

 

Other non-operating income / (expense)

 

 

(3,294,609

)

 

 

(1,036,326

)

 

 

(4,770,472

)

 

 

2,682,704

 

Total other income / (expense)

 

 

(3,477,866

)

 

 

(2,005,672

)

 

 

(5,021,416

)

 

 

842,907

 

Loss before provision for income taxes

 

 

(8,098,651

)

 

 

(4,021,410

)

 

 

(13,884,055

)

 

 

(4,010,344

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(8,098,651

)

 

$

(4,021,410

)

 

$

(13,884,055

)

 

$

(4,010,344

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.67

)

 

$

(0.39

)

 

$

(1.24

)

 

$

(0.40

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

12,129,787

 

 

 

10,213,618

 

 

 

11,210,810

 

 

 

10,126,247

 

Diluted

 

 

12,129,787

 

 

 

10,213,618

 

 

 

11,210,810

 

 

 

10,126,247

 



See accompanying footnotes to these unaudited condensed consolidated financial statements.




2



 


SOCIAL REALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHARHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)


 

 

Preferred Stock

 

 

Common Stock

 

 

Common stock to be issued

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

 

 

$

 

 

 

10,109,530

 

 

$

10,109

 

 

 

 

 

$

 

 

$

32,869,611

 

 

$

(18,778,348

)

 

$

14,101,372

 

Share based compensation, related to employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120,885

 

 

 

 

 

 

120,885

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,785,404

)

 

 

(5,785,404

)

Balance, March 31, 2019

 

 

 

 

 

 

 

 

10,109,530

 

 

 

10,109

 

 

 

 

 

 

 

 

 

32,990,496

 

 

 

(24,563,752

)

 

 

8,436,853

 

Share based compensation, related to employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

325,511

 

 

 

 

 

 

325,511

 

Sale of common stock and warrants for cash

 

 

 

 

 

 

 

 

1,687,825

 

 

 

1,688

 

 

 

 

 

 

 

 

 

6,227,021

 

 

 

 

 

 

6,228,709

 

Exercise of warrants

 

 

 

 

 

 

 

 

328,667

 

 

 

329

 

 

 

 

 

 

 

 

 

1,145,820

 

 

 

 

 

 

1,146,149

 

Shares issued as collateral

 

 

 

 

 

 

 

 

220,000

 

 

 

220

 

 

 

 

 

 

 

 

 

(220

)

 

 

 

 

 

 

Loss on repricing of equity warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

341,682

 

 

 

 

 

 

341,682

 

Share of common stock in private placement

 

 

 

 

 

 

 

 

200,000

 

 

 

200

 

 

 

 

 

 

 

 

 

999,800

 

 

 

 

 

 

1,000,000

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,098,651

)

 

 

(8,098,651

)

Balance, June 30, 2019

 

 

 

 

$

 

 

 

12,546,022

 

 

$

12,546

 

 

 

 

 

$

 

 

$

42,030,110

 

 

$

(32,662,403

)

 

$

9,380,253

 


 

 

Preferred Stock

 

 

Common Stock

 

 

Common stock to be issued

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

 

 

$

 

 

 

9,910,565

 

 

$

9,911

 

 

 

150,000

 

 

$

879,500

 

 

$

32,546,820

 

 

$

(27,521,941

)

 

$

5,914,290

 

Stock based compensation

 

 

 

 

 

 

 

 

6,667

 

 

 

129

 

 

 

 

 

 

 

 

 

 

 

286,001

 

 

 

 

 

 

 

286,130

 

Shares issued for services

 

 

 

 

 

 

 

 

150,000

 

 

 

150

 

 

 

(150,000

)

 

 

(859,500

)

 

 

859,350

 

 

 

 

 

 

 

 

Common stock issued to directors

 

 

 

 

 

 

 

 

22,556

 

 

 

23

 

 

 

 

 

 

 

(10,000

)

 

 

39,977

 

 

 

 

 

 

 

30,000

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,068

 

 

 

11,068

 

Balance, March 31, 2018

 

 

 

 

 

 

 

 

10,089,788

 

 

 

10,213

 

 

 

 

 

 

10,000

 

 

 

33,732,148

 

 

 

(27,510,873

)

 

 

6,241,488

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

136,130

 

 

 

 

 

 

136,130

 

Exercise of warrants

 

 

 

 

 

 

 

 

61,482

 

 

 

61

 

 

 

 

 

 

 

 

 

 

 

49,938

 

 

 

 

 

 

49,999

 

Share to be issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150,000

 

 

 

859,500

 

 

 

 

 

 

 

 

 

859,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,021,410

)

 

 

(4,021,410

)

Balance, June 30, 2018

 

 

 

 

$

 

 

 

10,151,270

 

 

$

10,274

 

 

 

150,000

 

 

$

869,500

 

 

$

33,918,216

 

 

$

(31,532,283

)

 

$

3,265,706

 


See accompanying footnotes to these unaudited condensed consolidated financial statements.



3



 


SOCIAL REALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)


 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net Income (loss)

 

$

(13,884,055

)

 

$

(4,010,344

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Stock based compensation

 

 

446,395

 

 

 

1,161,760

 

Amortization of debt issuance costs

 

 

 

 

 

300,185

 

Accretion of debenture discount and warrants

 

 

 

 

 

618,069

 

Gain/Loss on valuation of warrant derivatives

 

 

4,837,406

 

 

 

(2,710,129

)

Loss on repricing of equity warrants

 

 

341,682

 

 

 

 

 

Gain on sale of SRAXmd

 

 

(395,106

)

 

 

 

Provision for bad debts

 

 

241,753

 

 

 

(5,426

)

Depreciation expense

 

 

33,749

 

 

 

20,036

 

Amortization of intangibles

 

 

495,178

 

 

 

350,165

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

807,000

 

 

 

1,630,258

 

Prepaid expenses

 

 

(83,480

)

 

 

(47,061

)

Other assets

 

 

29,886

 

 

 

(2,672

)

Accounts payable and accrued expenses

 

 

(1,363,056

)

 

 

2,140,856

 

Net cash used in operating activities

 

$

(8,492,648

)

 

$

(554,303

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from SRAXmd

 

 

395,106

 

 

 

 

Purchase of equipment

 

 

(52,924

)

 

 

(20,793

)

Development of software

 

 

(543,617

)

 

 

(451,168

)

Net cash (used in) provided by investing activities

 

$

(201,435

)

 

$

(471,961

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from the issuance of common stock units

 

 

7,228,709

 

 

 

 

Proceeds from the issuance of common stock in conjunction with warrant exercised

 

 

1,146,148

 

 

 

50,001

 

Net cash provided by financing activities

 

$

8,374,857

 

 

$

50,001

 

 

 

 

 

 

 

 

 

 

Net increase / (decrease) in cash and cash equivalents

 

 

(319,226

)

 

 

(976,263

)

Cash and cash equivalents, beginning of period

 

 

2,784,865

 

 

 

1,017,299

 

Cash and cash equivalents, end of period

 

$

2,465,639

 

 

$

41,036

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

100,278

 

 

$

313,791

 

Cash paid for taxes

 

$

 

 

$

 

Supplemental schedule of noncash financing activities

 

 

 

 

 

 

 

 

Recorded right-of-use asset

 

$

(466,253

)

 

$

 

Recorded lease obligation

 

$

466,253

 

 

$

 

 

Vesting of common stock award

 

$

 

 

$

150,000

 

Issuance of treasury shares for purposes of loan collateralization

 

$

220

 

 

$

 

Issuance of common stock to be issued

 

$

 

 

$

869,500

 

 

See accompanying footnotes to these unaudited condensed consolidated financial statements.


 



4



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 


NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNT POLICIES


The accompanying unaudited interim condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to prevent the information presented from being misleading. These financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K, which contains audited financial information for the two years in the period ended December 31, 2018.


Description of Business


We are a digital marketing and data technology company with tools to reach and reveal valuable audiences with marketing and advertising communication. Our machine-learning technology analyzes marketing data to identify brands and content owners' core consumers and their characteristics across marketing channels. In addition to our business services and technologies, we also operate a direct to consumer platform, BIGToken, which enables consumers to own, manage and sell access to their digital identity and data. This provides us with a direct consumer relationship and gives us valuable proprietary data. We derive our revenues from:


·

sales of digital advertising campaigns to advertising agencies and brands;

·

sales of media inventory through real-time bidding, or “RTB”, exchanges;

·

sale and licensing of our SRAX Social platform and related media; and,

·

creation of custom platforms for buying media on SRAX for large brands;

·

sales of proprietary consumer data.


The core elements of our business are:


·

Social Reality Ad Exchange or "SRAX" Real Time Bidding sell side and buy side representation is our technology which assists publishers in delivering their media inventory to the RTB exchanges. The SRAX platform integrates multiple market-leading demand sources, including OpenX, Pubmatic and AppNexus. We also build custom platforms that allow our agency partners to launch and manage their own RTB campaigns by enabling them to directly place advertising orders on the platform dashboard and view and analyze results as they occur;


·

SRAXauto tools enable targeting and engagement with potential auto buyers at dealerships, auto shows, and at home across desktop and mobile environments.


·

SRAXcore is our generalized services and technologies supporting brands and agencies in data management, audience optimization, and multi-channel and omnichannel media and marketing services ;


·

SRAXshopper tools enable brands and agencies to connect with shoppers driving in store an online sales; and


·

SRAXir tools to assist public companies in analyzing and marketing to their shareholder population; and


·

BIGToken is a platform that allows consumers to manage the sales of their digital data.




5



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 


Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The December 31, 2018 condensed balance sheet data was derived from financial statements, but does not include all disclosures required by GAAP. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim three and six month periods ended June 30, 2019 and 2018. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019 or for any future period.

 

These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2018, included in the Company's annual report on Form 10-K filed with the SEC on April 16, 2019.


Uses and Sources of Liquidity – Going Concern Our primary need for liquidity is to fund working capital requirements of our business, establish and develop new business units, development of internally used software and for general corporate purposes, including debt repayment. Our general, selling and administrative expenses decreased from $5,392,625 for the three months ended June 30, 2018 to $5,114,115 for the three months ended June 30, 2019. We had a net loss of $8,098,651 for the three months ended June 30, 2019 compared to a net loss of $4,021,410 for the three months ended June 30, 2018.  Net loss for the three months ended June 30, 2019 includes non-cash warrant liability valuation charges. At June 30, 2019, we had an accumulated deficit of $32,662,403. As of June 30, 2019, we had $2,465,639 in cash and cash equivalents and a working capital deficit of $8,534,224 as compared to $2,784,865 in cash and cash equivalents and a working capital deficit of $3,549,408 at December 31, 2018. We continue to face a challenging competitive environment and while we continue to focus on our overall profitability, including managing expenses, we reported losses and have historically funded our operations and investing activities with cash provided by financing activities. In late 2017, we announced several new initiatives intended to provide additional growth opportunities which launched in the third quarter of 2018.


Although we believe that the foregoing actions will assist with our liquidity needs during the 12 months following the issuance of the financial statements, there is no assurance that the outcome of our actions will result in liquidity. If we continue to experience operating losses, we may need to raise additional capital through the sale of our equity and/or debt securities. Although historically we have funded our operations through the sale of our debt and equity securities, there is no assurance that we will be able to raise additional capital or that if such capital is raised, it will be on favorable terms. A failure to generate additional liquidity could negatively impact our business, including our access to critical business services. Additionally, if we require additional capital and are not able to secure it, we may need to greatly curtail our current and planned business initiatives.


In connection with preparing consolidated financial statements for the year ended December 31, 2018, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued.

 

The Company considered the following:

 

 

·

Operating losses of $11,648,703 and $13,884,055 for the year ended December 31, 2018 and the year to date period ended June 30, 2019, respectively.

 

·

Negative cash flow from operating activities for 2019 and 2018.

 

·

At June 30, 2019 the Company had an accumulated deficit of $32,662,403.

 

·

Revenue decline in the six months period ended June 30, 2019 from the same period in the prior year of $5,312,224.


Ordinarily, conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern relate to the entity’s ability to meet its obligations as they become due.



6



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 



The Company evaluated its ability to meet its obligations as they become due within one year from the date that the financial statements are issued by considering the following:


 

·

The Company has no debt as of June 30, 2019

 

·

The Company has historically raised funds from debt and equity financings.

 

·

The Company’s sale of the SRAXmd vertical for $43.5 million in consideration.

 

·

In 2018, the Company is in compliance with NASDAQ Capital Markets listing requirements.

 

·

In 2018, the Company redeemed $6.5 million of convertible debentures.

 

·

Revenue declines were largely the result of a strategic shift away from lower margin sales the produced little to no positive cash flow benefit for the Company.


The Company will take the following actions if it starts to trend unfavorably to its internal profitability and cash flow projections, in order to mitigate conditions or events that would raise substantial doubt about its ability to continue as a going concern:


 

·

Raise additional capital through short-term loans.

 

·

Implement restructuring and cost reductions.

 

·

Raise additional capital through a private placement.

 

·

Secure a commercial bank line of credit.

 

·

Dispose of one or more product lines.

 

·

Sell or license intellectual property.


At June 30, 2019 the Company had $2,465,639 in cash and cash equivalents and negative working capital of $8,534,224.


Impact of Recently Issued Accounting Standards


Leases


In February 2016, the FASB issued ASU No. 2016-02 (“ASC 842”), Leases, to require lessees to recognize all leases, with certain exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. Subsequently, the FASB issued ASU No.2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend the guidance in ASU No. 2016-02. ASC 842 eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. This standard is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted.


We are using a modified retrospective adoption approach, is required to recognize and measure leases existing at the beginning of the adoption period, with certain practical expedients available.


We adopted the standard effective January 1, 2019. The standard allows a number of optional practical expedients to use for transition. The Company choose the certain practical expedients allowed under the transition guidance which permitted us to not to reassess any existing or expired contracts to determine if they contain embedded leases, to not to reassess our lease classification on existing leases, to account for lease and non-lease components as a single lease component for equipment leases, and whether initial direct costs previously capitalized would qualify for capitalization under FASB ASC 842. The new standard also provides practical expedients and recognition exemptions for an entity's ongoing accounting policy elections. The Company has elected the short-term lease recognition for all leases that qualify, which means that we do not recognize a ROU asset and lease liability for any lease with a term of twelve months or less. The most significant impact of adopting the standard was the recognition of ROU assets and lease liabilities for operating leases on the Company's consolidated balance sheet but it did not have an impact on the Company's consolidated statements of operations or consolidated statements of cash flows. We recorded a ROU and the related operating lease liability for our long-term facilities lease.




7



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 


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

 

Operating Leases*

 

Condensed Consolidated Balance Sheet Caption

 

Balance as of June 30,
2019

 

Operating lease right-of-use assets - non-current

 

Right of Use Asset

 

$

466,253

 

 

 

 

 

 

 

 

Operating lease liabilities - current

 

Accrued liabilities

 

$

139,782

 

Operating lease liabilities - non-current

 

Lease Obligation – Long-Term

 

$

326,471

 

Total operating lease liabilities

 

 

 

$

466,253

 

 

* As of June 30, 2019, we have no “finance leases” as defined in Topic 842 .

 

Components of Lease Expense

 

We recognize lease expense on a straight-line basis over the term of our operating leases, as reported within “selling, general and administrative” expense on the accompanying Condensed Consolidated Statement of Operations.

 

The components of our aggregate lease expense is summarized below:

 

 

 

Three Months Ended
June 30, 2019

 

 

Six Months Ended
June 30, 2019

 

Operating lease cost

 

 

76,277

 

 

 

152,842

 

Variable lease cost

 

 

 

 

 

 

Short-term lease cost

 

 

 

 

 

 

Total lease cost

 

 

76,277

 

 

 

152,842

 

 

Weighted Average Remaining Lease Term and Applied Discount Rate

 

 

 

 

 

 

Weighted Average Remaining Lease Term

 

 

Weighted Average Discount Rate

 

Operating leases as of June 30, 2019

 

 

 

4.25 years

 

 

 

18

%

  

Future Contractual Lease Payments as of June 30, 2019

 

The below table summarizes our (i) minimum lease payments over the next five years, (ii) lease arrangement implied interest, and (iii) present value of future lease payments:

 

Operating Leases - future payments

 

 

 

 

2019 (remaining)

 

 

$

81,609

 

2020

 

 

 

163,218

 

2021

 

 

 

163,218

 

2022

 

 

 

163,218

 

2023

 

 

 

133,296

 

Total future lease payments, undiscounted

 

 

 

704,559

 

Less: Implied interest

 

 

 

(238,306

)

Present value of operating lease payments

 

 

 

466,253

 

 



8



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 


Effective January 1, 2018, we adopted ASU No. 2016-15,  Statement of Cash Flows (Topic 230) , which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how cash receipts and cash payments are presented in the statement of cash flows. The adoption of ASU No. 2016-15 did not have a significant impact on our consolidated financial statements.


In February 2018, the FASB issued ASU 2018-02: Income Statement – Reporting Comprehensive Income (Topic 220) . Under current accounting guidance, the income tax effects for changes in income tax rates and certain other transactions are recognized in income from continuing operations resulting in income tax effects recognized in accumulated other comprehensive income that do not reflect the current tax rate of the entity (“stranded tax effects”). The new guidance allows us the option to reclassify these stranded tax effects to accumulated deficit that relate to the change in the federal tax rate resulting from the passage of the Tax Cuts and Jobs Act. This update is effective for fiscal years beginning after December 15, 2018, including interim periods therein, and early adoption is permitted. We do not expect the adoption of this standard will have a significant impact on our consolidated financial statements.


In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements in ASC 820 by adding, changing, or removing certain disclosures. The ASU applies to all entities that are required under this guidance to provide disclosures about recurring or nonrecurring fair value measurements. These amendments are effective for all entities for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. We do not expect ASU 2018-13 will have a material impact on our consolidated financial statements.


Accounting Guidance Issued but Not Adopted at June 30, 2019

 

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement," which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. We are currently evaluating the impact of adopting this guidance.

  

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information for credit loss estimates. In addition, new disclosures are required. The ASU is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of adopting this guidance.

 

During the six months ended June 30, 2019, the Financial Accounting Standards Board (“FASB”) has not issued any Accounting Standard Updates which are expected to have a material retrospective or future effect on the consolidated financial statements.


NOTE 2 – WARRANT LIABILITIES


The discussion below relates to the following (collectively, the “Derivative Warrant Instruments”):


1.

In January 2017, the Company issued Series A and Series B Warrants in our registered direct and concurrent private placement.  In April 2017, the Company repurchased the Series B Warrants for $2,500,000 and recognized a loss on the repurchase amounting to $2,053,975. Accordingly, only the Series A Warrants are currently outstanding.

2.

In April and October 2017, the Company issued the Series A1 Warrants and Series A2 Warrants in connection with the private placement of secured convertible debentures; and

3.

In November 2018, the Company issued the Series B1 Warrants upon redemption of the outstanding convertible debentures issued in April and October 2017, pursuant to the terms of such debentures.




9



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 


The Derivative Warrant Instruments have been accounted for utilizing ASC 815  “Derivatives and Hedging”.  The Company has incurred a liability for the estimated fair value of Derivative Warrant Instruments. The estimated fair value of the Derivative Warrant Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with the valuation offset against additional paid in capital, and at each reporting date, with changes in fair value recorded as gains or losses on revaluation in other income (expense).

 

The Company identified embedded features in the Derivative Warrant Instruments which caused the warrants to be classified as a liability. These embedded features included the right for the holders to request for the Company to cash settle the Warrant Instruments from the Holder by paying to the Holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the Derivative Warrant Instruments on the date of the consummation of a fundamental transaction. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as a derivative as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet dates.


The Warrant liabilities are comprised of the following at June 30:

 

 

 

Debenture Warrant Liability

 

 

Leapfrog Warrant Liability

 

 

Derivative Liability

 

Balance as of beginning of period (December 31, 2018)

 

 

4,323,357

 

 

 

622,296

 

 

 

496,241

 

Adjustments to Warrants Outstanding

 

 

 

 

 

 

 

 

 

Adjustment to fair value

 

 

1,577,865

 

 

 

208,072

 

 

 

175,914

 

Balance as of end of period (March 31, 2019)

 

 

5,901,222

 

 

 

830,368

 

 

 

672,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to Warrants Outstanding

 

 

 

 

 

 

 

 

 

 

Adjustment to fair value

 

 

2,313,813

 

 

 

330,982

 

 

 

230,760

 

Balance as of end of period (June 30, 2019)

 

 

8,215,035

 

 

 

1,161,350

 

 

 

902,915

 

 

 

 

Debenture Warrant Liability

 

 

Leapfrog Warrant Liability

 

 

Derivative Liability

 

Balance as of beginning of period (December 31, 2017)

 

 

7,256,864

 

 

 

1,873,107

 

 

 

2,026,031

 

Adjustments to Warrants Outstanding

 

 

 

 

 

 

 

 

 

Adjustment to fair value

 

 

(2,409,444

)

 

 

(629,171

)

 

 

(685,080

)

Balance as of end of period (March 31, 2018)

 

 

4,847,420

 

 

 

1,243,936

 

 

 

1,340,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to Warrants Outstanding

 

 

 

 

 

 

 

 

(328,627

)

Adjustment to fair value

 

 

862,115

 

 

 

269,127

 

 

 

210,950

 

Balance as of end of period (June 30, 2018)

 

 

5,709,535

 

 

 

1,513,063

 

 

 

1,223,274

 

 

NOTE 3 – STOCKHOLDERS' EQUITY

 

Stock Awards

 

During the year ended December 31, 2018 and as of June 30, 2019, respectively, we issued a 75,000 share stock grant to a contractor during the three months ended June 30, 2019.

 



10



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 


Stock Options

 

During the three month period ended June 30, 2019 the Company issued 11,252 options to purchase the Company’s common stock at a price of $5.49 to our non-executive directors. Each of our four non-executive directors received 2,813 options that vest 1/4 th quarterly over the next year with an expiration date of April 15, 2026. The options were valued using the Black Scholes option pricing model at a total of $60,000 based on the seven year term, implied volatility of 102% and a risk free equivalent yield of 2.46%, stock price of $5.49.

 

On March 27, 2019, 685,000 common stock options having an exercise price of $3.42 per share with an option value as of the grant date of $1,513,137 calculated using the Black-Scholes option pricing model were granted to several employees and members of our management team. This expense associated with this option award will be recognized in operating expenses ratably over the vesting period.

 

The expected option life assumption is estimated based on the simplified method. Accordingly, the Company has utilized the average of the contractual term of the options and the weighted average vesting period for all options to calculate the expected option term. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options. In April 2019, the Company amended its expected volatility assumption from using exclusively a historical volatility. The Company calculates its expected volatility assumption based on a its historical and implied volatilities over the expected life of the stock-based award. We do not anticipate paying dividends on the common stock in the foreseeable future.


We recognize stock-based compensation expense over the vesting period using the straight-line single option method. Stock-based compensation expense is recognized only for those awards that vest. We account for the forfeitures of unvested awards as they occur.

 

Total stock-based compensation expense for the three month period ended June 30, 2019 and 2018 was $326,000 and $996,000, respectively. Total stock-based compensation expense for the six month period ended June 30, 2019 and 2018 was $466,000 and $1,162,000, respectively. The expense is included in its entirety within General, selling and administrative expenses.

 

Transactions involving our stock options for the year to date period ending June 30, 2019 are summarized as follows:

 

 

 

Number of Shares

 

 

Weighted Average Strike Price/Share

 

 

Weighted Average Remaining Contractual Term ( Years)

 

 

Aggregate Intrinsic Value

 

Outstanding — December 31, 2018

 

 

547,662

 

 

$

5.27

 

 

 

2.7

 

 

$

 

Granted (weighted-average fair value of $2.21 per share)

 

 

696,252

 

 

 

3.45

 

 

 

3.0

 

 

 

842,465

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(2,400

)

 

 

13.50

 

 

 

 

 

 

 

Outstanding — June 30, 2019

 

 

1,241,514

 

 

 

4.24

 

 

 

2.3

 

 

 

521,436

 

Vested (exercisable) — June 30, 2019

 

 

348,933

 

 

 

6.15

 

 

 

2.3

 

 

 

 

Expected to vest after June 30, 2019 (unexercisable)

 

 

892,581

 

 

$

3.49

 

 

 

2.3

 

 

$

1,044,320

 

  

(1)

Aggregate intrinsic value represents the difference between the exercise price of the option and the closing market price of our common stock on June 28, 2019, which was $4.66 per share

  

Warrants

 

On May 13, 2019 the Company entered into a consulting agreement with a contractor for services related to BIGtoken. The agreement provides for 300,000 warrants with vesting conditions based on BIGtoken user growth in Asia.  The warrants were valued using the Black Scholes option pricing model at a total of $1,138,332 based on the five-year term, implied volatility of 101%, a risk free equivalent yield of 1.8% and stock price of $4.99.

 



11



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 


We typically issue warrants to purchase shares of our common stock to investors as part of a financing transaction or in connection with services rendered by placement agents and consultants. Our outstanding warrants expire on varying dates through November 2021. A summary of warrant activity is as follows:

 

Transactions involving our stock warrants for the year to date period ended June 30, 2019 include the following:

 

 

 

Number of Shares

 

 

Weighted Average Strike Price/Share

 

 

Weighted Average Remaining Contractual Term (Years)

 

 

Aggregate Intrinsic Value

 

Outstanding — December 31, 2018

 

 

4,325,423

 

 

$

3.77

 

 

 

2.9

 

 

$

3,849,626

 

Granted

 

 

399,610

 

 

 

4.81

 

 

 

5.0

 

 

 

 

Exercised

 

 

(328,667

)

 

 

3.49

 

 

 

0.3

 

 

 

384,540

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding — June 30, 2019

 

 

4,396,366

 

 

 

3.90

 

 

 

2.7

 

 

 

3,341,238

 

Vested (exercisable) — June 30, 2019

 

 

4,096,366

 

 

 

3.83

 

 

 

2.6

 

 

 

3,399,984

 

Expected to vest after June 30, 2019 (unexercisable)

 

 

300,000

 

 

$

5.00

 

 

 

4.8

 

 

$

 

  

The fair value of each warrant grant was estimated on the date of grant using Black-Scholes with the following weighted average assumptions:

 

Expected life (years)

1 - 7

Risk-free interest rate

1.31% - 2.3%

Volatility

100% - 167%

Dividend yield

0%

 

(1)

Aggregate intrinsic value represents the difference between the exercise price of the warrant and the closing market price of our common stock on June 28, 2019, which was $4.66 per share.


Total intrinsic value of warrants exercised during the three and six months ended June 30, 2019 was $345,776.


Loss per share

 

As the Company incurred a net loss during the six months ended June 30, 2019, and during the three months ended June 30, 2019, the loss and diluted loss per common share are based on the weighted-average common shares outstanding during the period, accordingly the company had no dilutive securities during the three and six months ended June 30, 2019 and 2018. The following outstanding instruments could have a dilutive effect in the future:

 

 

 

June 30,
2019

 

 

June 30
2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Warrants

 

 

4,396,366

 

 

 

2,196,700

 

Stock options

 

 

1,241,514

 

 

 

370,600

 

Total

 

 

5,637,880

 

 

 

2,567,300

 

 

The following transactions during the three and six months ended June 30, 2019 impacted the shares outstanding:


·

1,687,825 shares of common stock in a registered direct offering in April 2019.

·

328,667 shares from the exercise of warrants

·

200,000 shares in a private placement of shares




12



SOCIAL REALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 


The following transactions during the three and six months ended June 30, 2018 impacted the shares outstanding:


·

61,482 share from the exercise of warrants

·

150,000 shares issued to a contractor for services

·

29,223 shares as compensation to employees and directors


NOTE 4 COMMITMENTS AND CONTINGENCIES


BIGtoken Point liability


During the three and six months ended June 30, 2019 the Company instituted a policy that allows BIGtoken user to redeem outstanding BIGtoken points for cash if their account and point balances meet certain criteria. As of June 30, 2019, the Company has estimated the future liability for point redemptions to be $187,000. The Company considered the total number of points outstanding, the conversion rate in which points are redeemable for cash. Due to the recency of the BIGtoken platform and the ability for users to redeem points for cash, the Company does not have sufficient history to estimate account attrition and the associate breakage rates for outstanding points. Therefore, the Company utilized a breakage factor of zero percent as of June 30, 2019 in determining the estimated liability.


NOTE 5 – SUBSEQUENT EVENTS


On August 12, 2019, the Company entered into an agreement with existing investors to purchase 1,525,000 shares of class A common stock and Series A warrants to purchase an aggregate of 965,500 shares of common stock at $3.60 per share in registered direct offering. The Series A warrants are exercisable for 90 days at an exercise price of $3.60. Social Reality has also agreed to issue to the investors in a concurrent private placement Series B warrants to purchase an aggregate of 1,525,000 shares of common stock and Series C warrants to purchase an aggregate of 965,500 shares of common stock that each are exercisable six months following issuance, are exercisable until October 1, 2022, and have an exercise price of $4.00. The Series C warrants vest ratably upon the exercise of the Series A warrants. The closing of the offering is expected to take place on or about August 14, 2019, subject to the satisfaction of customary closing conditions.





13



 


ITEM 2.

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


The following discussion of our financial condition and results of operations for the three and six month periods ended June 30, 2019 and 2018 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements because of several factors, including those set forth under the Part I, Item 1A, Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in our Annual Report on Form 10-K for the year ended December 31, 2018, this report, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report.


Overview


We are a digital marketing and data technology company. We derive our revenues from:


·

sales of digital advertising campaigns to advertising agencies and brands;

·

sales of media inventory through real-time bidding, or “RTB”, exchanges;

·

creation of custom platforms for buying media on SRAX for large brands; and

·

sales of proprietary consumer data.


BIGToken Platform


On February 1, 2019, the BIGToken Platform became generally available to the public. Users of the BIGToken Platform receive points for undertaking certain actions on the platform. These points are then redeemable for cash directly from us. We also anticipate that users will be able to redeem the points for goods and/or services offered by our sponsors. The value each point being redeemed is at the discretion of management with regard to cash payments and we anticipate at the discretion of our sponsors with regard to goods and/or services. As of June 30, 2019, we have not generated any revenue through the sale of data gathered from users of the BIGToken Platform. Since commencing the BIGToken project, we have spent approximately $4 million in the development and management of the BIGToken Platform. Additionally, as stated above, we are currently obligated to redeem users’ points which are earned on our BIGToken Platform. We are currently redeeming each point for $0.01, subject to the user meeting certain conditions, including, being a US resident. As of June 30, 2019, we recorded a contingent liability for future point redemptions equal to $187,000 and we have redeemed an aggregate of 12 million points for $120,000. In March of 2019, we experienced a surge in the number of users of our BIGToken Platform. As of June 30, 2019, we had approximately 15 million users, based upon the points accumulated by qualified users, we may be required to redeem in excess of $500,000 worth of points.


In February of 2019, we filed a registration statement with the SEC in order to register shares of our BIGToken tracking stock (“BIGToken Stock”). Subsequently, we received comments from the SEC and are currently in the process of reviewing such comments. As of the date hereof, we have not issued any shares of BIGToken Stock.


Notwithstanding the foregoing, we believe that in order to fully launch the BIGToken Platform and recognize all the benefits therefrom, not only will we be required to further increase the functionally of the platform (the development of blockchain technology that has yet to be developed and implemented regarding the tracking of brand transactions) but we will also need to comply with both state and federal securities laws and regulations with regard to certain aspects of the platform and specifically, BIGToken. There can be no assurances that we will successfully develop the blockchain portion of the BIGToken Platform or that we will be able to comply with any applicable laws or regulations on a timely basis, if at all. Our failure successfully complete the development of the BIGToken Platform or to adequately comply with applicable laws and regulations, or comply with them on a timely basis, will greatly impact the value and utility of the BIGToken Platform and could materially impact the operations of our company.




14



 


Classification of Warrants


The Company has concluded that the certain Warrants issued in 2017 and 2018 were required to be classified as liabilities pursuant to the provisions of ASC 815-10 since all of the characteristics of a derivative instrument were met and the Warrants do not qualify for the equity classification scope exception in ASC 815-40-25-10 from derivative accounting, primarily because the Company may be required to cash settle the warrants in circumstances where holders of the Company’s common stock would not be entitled to cash, which is inconsistent with ASC 815-40-55-2 through 55-6. The warrant agreements include a fundamental transaction clause whereby, in the unlikely event that another person becomes the beneficial owner of 50% of the outstanding shares of the Company’s common stock, and if other conditions are met, the Company may be required to purchase the warrants from the holders by paying cash in an amount equal to the Black-Scholes value of the remaining unexercised portion of the warrants on the date of such fundamental transaction.


Going Concern

 

Our auditors’ report on our December 31, 2018 financial statements expressed an opinion that our capital resources as of the date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Accordingly, our current cash level raises substantial doubt about our ability to continue as a going concern through September 30, 2019. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.


Results of operations


Three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018


Selected Consolidated Financial Data


 

 

For the three months ended

 

 

For the six months ended

 

 

Change YoY

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

 

Qtr

 

 

YTD

 

Total revenue

 

 

904,222

 

 

 

4,697,351

 

 

 

1,495,977

 

 

 

6,808,201

 

 

 

-80.8

%

 

 

-78.0

%

Costs of revenue

 

 

410,892

 

 

 

1,320,464

 

 

 

753,239

 

 

 

2,138,569

 

 

 

-68.9

%

 

 

-64.8

%

Gross Profit

 

$

493,330

 

 

$

3,376,887

 

 

$

742,738

 

 

$

4,669,632

 

 

 

-85.4

%

 

 

-84.1

%

Gross Profit Margin

 

 

55

%

 

 

72

%

 

 

50

%

 

 

69

%

 

 

-1733 bps

 

 

 

-1894 bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expense

 

 

5,114,115

 

 

 

5,392,625

 

 

 

9,605,377

 

 

 

9,522,883

 

 

 

-5.2

%

 

 

0.9

%

Loss from operations

 

 

(4,620,785

)

 

 

(2,015,738

)

 

 

(8,862,639

)

 

 

(4,853,251

)

 

 

129.2

%

 

 

82.6

%

Non-cash financial instrument valuation adjustments

 

 

(2,875,554

)

 

 

(1,013,565

)

 

 

(4,837,405

)

 

 

2,710,129

 

 

 

183.7

%

 

 

-278.5

%

Interest

 

 

(183,257

)

 

 

(969,346

)

 

 

(250,944

)

 

 

(1,839,797

)

 

 

-81.1

%

 

 

-86.4

%

Other (income) / expense

 

 

(419,055

)

 

 

(22,761

)

 

 

66,933

 

 

 

(27,425

)

 

 

1741.1

%

 

 

-344.1

%

Net income (loss)

 

$

(8,098,651

)

 

$

(4,021,410

)

 

$

(13,884,055

)

 

$

(4,010,344

)

 

 

101.4

%

 

 

246.2

%

Earnings (loss) per share basic and diluted

 

 

(0.67

)

 

 

(0.39

)

 

 

(1.24

)

 

 

(0.40

)

 

 

69.6

%

 

 

212.7

%


Revenue


The decrease in our revenue during the three months ended June 30, 2019 compared to the same period of 2018 is the result of a decrease in revenue from our SRAX sell-side and buy-side clients and the loss of revenue from SRAXmd, partially offset by an increase in revenue from our SRAX verticals.


Cost of revenue


Cost of revenue consists of certain labor costs, payments to website publishers and others that are directly related to a revenue-generating event and project and application design costs. During the three months ended June 30, 2019, our gross margin decreased substantially as a result of a loss of our higher margin revenue from SRAXmd. Cost of revenue as a percent of total revenue increased to 45.4% for the three-month period ended June 30, 2019 as compared to 28.1% for the comparable period ended June 30, 2018.




15



 


Operating expense


Our operating expense is comprised of salaries, commissions, marketing, and general overhead expense. Overall, operating expense decreased approximately 5% for the three-month period ended June 30, 2019 as compared to the three-month period ended June 30, 2018. This decrease was primarily due to lower expenses resulting from the sale of the SRAXmd business unit. During the third quarter of 2017 we launched BIGToken. During the year ended December 31, 2018 operating expenses relating to the BIGToken project were approximately $2.2 million.


Interest expense


Interest expense for the period ending June 30, 2019 represents accounts receivable factoring fees. Interest expense, net of interest income for the three-month period ending June 30, 2019 decreased from the same period in the prior year by $786,089 due to the redemption of the Company’s 12.5% secured debentures on November 29, 2018.


Non-GAAP financial measures


We use Adjusted net loss to measure our overall results because we believe it better reflects our net results by excluding the impact of non-cash equity-based compensation and the accretion of warrants. We use Adjusted EBITDA to measure our operations by excluding interest and certain additional non-cash expenses and gain or loss on sale of assets and changes in the valuation of derivatives. We believe the presentation of Adjusted net loss and Adjusted EBITDA enhances our investors' overall understanding of the financial performance of our business.


You should not consider Adjusted net loss and Adjusted EBITDA as an alternative to net income (loss), determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as an indicator of operating performance. A directly comparable GAAP measure to Adjusted net loss and Adjusted EBITDA is net loss.


The following is a reconciliation of net income (loss) Adjusted EBITDA for the periods presented:


 

 

For the three months ended

 

 

For the six months ended

 

 

Change YoY

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

 

Qtr

 

 

YTD

 

Net Income / (Loss)

 

$

(8,098,651

)

 

$

(4,021,410

)

 

$

(13,884,055

)

 

$

(4,010,344

)

 

 

101

%

 

 

246

%

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity based compensation

 

 

325,511

 

 

 

995,630

 

 

 

325,511

 

 

 

1,161,760

 

 

 

-67

%

 

 

-72

%

Interest (income) expense

 

 

183,257

 

 

 

969,346

 

 

 

250,944

 

 

 

1,839,797

 

 

 

-81

%

 

 

-86

%

Depreciation and amortization

 

 

275,884

 

 

 

194,576

 

 

 

275,884

 

 

 

370,201

 

 

 

42

%

 

 

-25

%

Change in Fair Value of Warrant Liability

 

 

2,875,554

 

 

 

1,013,565

 

 

 

4,837,405

 

 

 

(2,710,129

)

 

 

184

%

 

 

-278

%

Financing Costs

 

 

341,682

 

 

 

 

 

 

341,682

 

 

 

 

 

 

n/m

 

 

 

n/m

 

Gain on Sale

 

 

77,373

 

 

 

49,513

 

 

 

(395,106

)

 

 

71,678

 

 

 

56

%

 

 

-651

%

Other (income)/ expense

 

 

 

 

 

596

 

 

 

(13,509

)

 

 

5,260

 

 

 

-100

%

 

 

-357

%

Adjusted EBITDA

 

$

(4,019,390

)

 

$

(798,184

)

 

$

(8,261,243

)

 

$

(3,271,777

)

 

 

404

%

 

 

153

%


Liquidity and capital resources


Liquidity generally refers to the ability to generate adequate amounts of cash to meet our cash needs. We require cash to fund our operating expenses and working capital requirements, to make required payments of principal and interest under our outstanding debt instruments and, to a lesser extent, to fund capital expenditures.




16



 


Working Capital

  

The following table presents working capital as of June 30, 2019 and December 31, 2018:


 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

Current assets(1)

 

$

4,096,727

 

 

$

5,467,713

 

Current liabilities

 

 

(12,630,951

)

 

 

(9,017,121

)

Working capital

 

$

(8,534,224

)

 

$

(3,549,408

)


Our   current assets include cash and cash equivalents of $2.5 million and $2.8 million as of June 30, 2019 and December 31, 2018, respectively. Current assets decreased by $1.4 million driven by a decrease in cash and accounts receivable driven by cash used to fund our operations during the quarter.

  

Our current liabilities include warrant and derivative liabilities of $10.3 million and $5.4 million as of June 30, 2019 and December 31, 2018, respectively.  Current liabilities increased by $3.6 million primarily from increase in derivative liabilities driven by increase in the valuation of these derivatives, which was partially off-set by a decrease in accounts payable of $2.1 million.

  

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. Our primary need for liquidity is to fund working capital requirements of our business and other general corporate purposes, including debt repayment. At June 30, 2019, we had an accumulated deficit of $32,662,403. As of June 30, 2019, we had $2.5 in cash and cash equivalents and net working capital deficit of $8,534,224 as compared to $2,784,865 in cash and cash equivalents and net working capital deficit of $3,549,408 at December 31, 2018. Based on our cash and cash equivalents as of June 30, 2019, and our working capital needs, we have enough cash to continue our operations until September 30, 2019.


On February 1, 2019 the BIGToken Platform became generally available to the public.  To date, we have not generated any revenue from the platform.  We anticipate that once the BIGToken Platform begins generating revenue, we will be able to finance it independently from Social Reality through the sale of the subsidiary’s equity, debt, or equity-linked securities.  Until such time, we anticipate we will continue funding the BIGToken Platform internally. Based on our current development plans, and assuming there is no revenue for the first twelve months, we estimate that the BIGToken Platform will require approximately $2 million and $4 million for the initial and subsequent 12-month periods from the time it became generally available to the public, respectively, provided however that such capital requirements may increase or decrease based on the speed of development, user adoption rates, revenues and the rate at which users redeem points. In the event that BIGToken is not able to secure independent funding once it commences generating revenue, we may nonetheless continue to develop the BIGToken project internally albeit on a reduced scope and extended time frame.  In such instance, we do not believe the project will initially result in a material increase to our operating expenses as the majority of BIGToken’s initial expenses are either duplicative administrative expenses or related to customer acquisition once the platform is successfully launched.


As part of the BIGToken Platform becoming generally available to the public, we offered to redeem points earned on the platform from our users.  Accordingly, we are currently obligated to redeem users’ points which are earned on our BIGToken Platform. We are currently redeeming each point for $0.01, subject to the user meeting certain conditions, including, being a US resident. As of June 30, 2019, we recorded a contingent liability of approximately $187,000 and we have redeemed an aggregate of 12 million points for $120,000. In March of 2019, we experienced a surge in the number of users of our BIGToken Platform. As of June 30, 2019, we had approximately 15.5 million users, based upon the points accumulated by qualified users, we may be required to redeem in excess of $500,000 worth of points.


Cash flows from operating activities


Net cash used in operating activities was $8,492,648 during the six months ended June 30, 2019 compared to $554,303 for the comparable period in 2018. During the six months ended June 30, 2019, the Company’s accounts receivable decreased by $807,000 compared to a decrease of $1,630,258 for the comparable period in 2018. Accounts payable and accrued liabilities during the six months ended June 30, 2019 decreased by $1,363,056 compared to an increase of $2,140,856 for the comparable period in 2018.




17



 


Cash flows from investing activities


During the six months ended June 30, 2019 net cash used in investing activities was $201,435 compared to $471,961 for the six months ended June 30, 2018.


Cash flows from financing activities


During the six months ended June 30, 2019 net cash provided by financing activities $8.4 million, consisting of $6.3 million from the sale of common stock shares in a registered direct offering, $1 million from the sale of common stock units in a private placement of our common stock and $1.1 million from the conversion of warrants into common stock units.


During the six months ended June 30, 2018 net cash provided by financing activities was $50,001, consisting of proceeds from the exercise of warrants for common stock.


Based on our cash and cash equivalents as of June 30, 2019, and our working capital needs, we have sufficient cash to continue our operations until September 30, 2019. Inadequate working capital would have a material adverse effect on our business and operations and could cause us to fail to execute our business plan, fail to take advantage of future opportunities or fail to respond to competitive pressures or customer requirements. A lack of sufficient funding may also require us to significantly modify our business model and/or reduce or cease our operations, which could include implementing cost-cutting measures or delaying, scaling back or eliminating some or all of our ongoing and planned investments in corporate infrastructure, research and development projects, business development initiatives and sales and marketing activities, among other activities. Modification of our business model and operations could result in an impairment of assets, the effects of which cannot be determined. Furthermore, if we continue to issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience significant dilution, and the new equity or debt securities may have rights, preferences and privileges that are superior to those of our existing stockholders.


Additionally, if we are not able to maintain the listing of our common stock on the Nasdaq Capital Market, the challenges and risks of equity financings may significantly increase, including potentially increasing the dilution of any such financing or decreasing our ability to affect such a financing at all. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization or have other material consequences. If we pursue asset or technology sales or licenses or other alternative financing arrangements to obtain additional capital, our operational capacity may be limited and any revenue streams or business plans that are dependent on the sold or licensed assets may be reduced or eliminated. Moreover, we may incur substantial costs in pursuing any future capital-raising transactions, including investment banking, legal and accounting fees, printing and distribution expenses and other similar costs, which would reduce the benefit of the capital received from the transaction.


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not applicable, as we are a smaller reporting company.


ITEM 4.

CONTROLS AND PROCEDURES.


Evaluation of Disclosure Controls and Procedures . We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of continuing material weaknesses in our internal control over financial reporting identified in our Annual Report on Form 10-K for the year ended December 31, 2018.




18



 


On April 7, 2019, our management concluded and our audit committee concurred that previously issued quarterly and audited consolidated financial statements for the year ending December 31, 2017 should no longer be relied upon. We believe that management’s determination of non-reliance could partially be attributed to our failure to maintain effective controls and procedures.


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


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





19



 


PART II - OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS.


None


ITEM 1A.

RISK FACTORS.


Please consider the following risk factors carefully. If any one or more of the following risks were to occur, it could have a material adverse effect on our business, prospects, financial condition and results of operations, and the market price of our securities could decrease significantly. Statements below to the effect that an event could or would harm our business (or have an adverse effect on our business or similar statements) mean that the event could or would have a material adverse effect on our business, prospects, financial condition and results of operations, which in turn could or would have a material adverse effect on the market price of our securities. Although we have organized the risk factors below under headings to make them easier to read, many of the risks we face involve more than one type of risk. Consequently, you should read all of the risk factors below carefully before making any decision to acquire or hold our securities.


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


Risks Related to our Business


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


Although we reported Net Income for the year-ended December 31, 2018 we reported losses from operations of $11,719,151.  At December 31, 2018 and June 30, 2019, we had an accumulated deficit of $18,778,348 and $32,662,403 respectively. Our future success depends upon our ability to continue to grow our revenues, contain our operating expenses and generate profits. We do not have any long-term agreements with our customers. There are no assurances that we will be able to increase our revenues and cash flow to a level which supports profitable operations. We may continue to incur losses in future periods until such time, if ever, as we are successful in significantly increasing our revenues and cash flow beyond what is necessary to fund our ongoing operations and pay our obligations as they become due. If we are not able to grow, increase revenue and begin generating consistent profits, it is unlikely we will be able to generate sufficient cash from operations to pay our operating expenses and service our debt obligations, or report profitable operations in future periods.


We may not be able to continue as a going concern if we do not obtain additional financing.

 

We have incurred losses since our inception and have not demonstrated an ability to generate revenues from the sales of our proposed products. Our ability to continue as a going concern is dependent on raising capital from the sale of our common stock and/or obtaining debt financing. Our cash, cash equivalents and short-term investment balance at June 30, 2019 was approximately $2.5 million. Based on our current expected level of operating expenditures, we expect to be able to fund our operations until September 30, 2019.  Our ability to remain a going concern is wholly dependent upon our ability to continue to obtain sufficient capital to fund our operations.

 

Accordingly, despite our ability to secure capital in the past, there can be no assurance that additional equity or debt financing will be available to us when needed or that we may be able to secure funding from any other sources.  In the event that we are not able to secure funding, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.




20



 


Our management and audit committee have determined we needed to restate certain of our consolidated financial statements for the year ending December 31, 2017 and quarters ending March 31, 2017, June 30, 2017, September 30, 2017, December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018 as a result of the improper accounting treatment of certain warrants.

 

On April 7, 2019, management and the audit committee of our board of directors determined that our previously issued quarterly and year-to-date unaudited consolidated financial statements for March 31, 2017, June 30, 2017, September 30, 2017, December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018 and our audited consolidated financial statements for the year ending December 31, 2017 should no longer be relied upon. In addition, we determined that related press releases, earnings releases, and investor communications describing our financial statements for these periods should no longer be relied upon. The errors identified are all non-cash and primarily related to our classification of certain outstanding warrants with provisions that allow the warrant holder to force cash redemption under certain circumstances.


Accordingly, although we previously disclosed that we had ineffective controls, investors in our securities may lose confidence in our financial statements and management, which could result in a decrease in our stock price and negative sentiment in the investment community.


The restatement of certain of our financial statements may subject us to additional risks and uncertainties, including the increased possibility of legal proceedings and shareholder litigation.

 

As a result of our restatements of previously issued quarterly and year-to-date unaudited consolidated financial statements for March 31, 2017, June 30, 2017, September 30, 2017, December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018 and our  audited consolidated financial statements for the year ending December 31, 2017, we may become subject to additional risks and uncertainties, including, among others, the increased possibility of legal proceedings, shareholder lawsuits or a review by the SEC and other regulatory bodies, which could cause investors to lose confidence in our reported financial information and could subject us to civil or criminal penalties, shareholder class actions or derivative actions. We could face monetary judgments, penalties or other sanctions that could have a material adverse effect on our business, financial condition and results of operations and could cause our stock price to decline.


Our failure to maintain an effective system of internal control over financial reporting, has resulted in the need for us to restate previously issued financial statements.  As a result, current and potential stockholders may lose confidence in our financial reporting, which could harm our business and value of our stock.


As described in our Annual Report on Form 10-K for the year ended December 31, 2018, as well as for the period ended June 30, 2019, our management has determined that, as of December 31, 2018 and June 30, 2019, we did not maintain effective internal controls over financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework as a result of identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.


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


We have concluded that certain of our previously issued financial statements should not be relied upon and have restated certain of our previously issued financial statements, which may lead to, among other things, shareholder litigation, loss of investor confidence, negative impact on our stock price and certain other risks.


As discussed in the Explanatory Note, 16, “Restatement of Previously Reported Consolidated Annual Financial Statements” and in Note 14, “Quarterly Financial Information (unaudited)” under Item 8 of our 2018 Form 10-K filed on April 16, 2019, we have concluded that our previously issued financial statements as of December 31, 2017 and for each of the quarterly and year-to-date periods in 2017, and the quarterly periods through September 30, 2018 should no longer be relied upon. The determination that the applicable financial statements should no longer be relied upon and that certain financial statements would be restated was made following the identification of misstatements. As a result of these misstatements, we have become subject to a number of additional risks and uncertainties, including unanticipated costs for accounting and legal fees in connection with or related to the restatement, shareholder litigation and government investigations. Any such proceeding could result in substantial defense costs regardless of the outcome of the litigation or investigation. If we do not prevail in any such litigation, we could be required to pay substantial damages or settlement costs.




21



 


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


We are in the process of implementing certain remediation actions. To the extent these steps are not successful, not sufficient to correct our material weakness in internal control over financial reporting or are not completed in a timely manner, future financial statements may contain material misstatements and we could be required to restate our financial results. Any of these matters could adversely affect our business, reputation, revenues, results of operations, financial condition and stock price and limit our ability to access the capital markets through equity or debt issuances.


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


Users of the BIGToken Platform receive points for undertaking certain actions on the platform that may be redeemed directly for cash from us, with such value as determined by management. Accordingly, we are currently obligated to redeem users’ points which are earned on our BIGToken Platform. We are currently redeeming each point for $0.01, subject to the user meeting certain conditions, including, being a US resident. As of June 30, 2019, we recorded a contingent liability for future point redemptions equal to $187,000 and we have redeemed an aggregate of 12 million points for $120,000. In March of 2019, we experienced a surge in the number of users of our BIGToken Platform. As of June 30, 2019, we had approximately 15 million users. Notwithstanding the foregoing, in the event that our users under the BIGToken Platform continue to increase, we will be required to have sufficient cash reserves to redeem points held by our qualified users for cash. There can be no assurance that we will have sufficient cash reserves, or in the event that we do have sufficient cash, if we will be able to continue to fund our other business obligations and operational expenses.


Security breaches and improper access to or disclosure of our data or user data, or other hacking and phishing attacks on our systems, could harm our reputation and adversely affect our business.


Our industry is prone to cyber-attacks by third parties seeking unauthorized access to our data or users’ data or to disrupt our ability to provide service. Any failure to prevent or mitigate security breaches and improper access to or disclosure of our data or user data, including personal information, content, or payment information from or to users, or information from marketers, could result in the loss or misuse of such data, which could harm our business and reputation and diminish our competitive position. In addition, computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent in our industry. Our BIGToken platform has experienced an increase in the occurrence of such attempts and we cannot be assured that we will be able to prevent a successful attack on our systems in the future. We also regularly encounter attempts to create false or undesirable user accounts or take other actions on our BIGToken Platform for purposes such as spreading misinformation, attempting to have us improperly purchase user data or other objectionable ends. As a result of recent attention and growth of our BIGToken Platform, the size of our user base, and the types and volume of personal data on our systems, we believe that we are a particularly attractive target for such breaches and attacks. Our efforts to address undesirable activity may also increase the risk of retaliatory attacks. Such attacks may cause interruptions to the services we provide, degrade the user experience, cause users or marketers to lose confidence and trust in our products, impair our internal systems, or result in financial harm to us. Our efforts to protect our company data or the information we receive may also be unsuccessful due to software bugs or other technical malfunctions; employee, contractor, or vendor error or malfeasance; government surveillance; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users' data. Cyber-attacks continue to evolve in sophistication and volume, and inherently may be difficult to detect for long periods of time. Although we are currently in the process of developing systems and processes that are designed to protect our data and user data, to prevent data loss, to disable undesirable accounts and activities on our BIGToken Platform, and to prevent or detect security breaches, we cannot assure you that such measures will ultimately become operational or provide absolute security, and we may incur significant costs in protecting against or remediating cyber-attacks.


Affected users or government authorities could initiate legal or regulatory actions against us in connection with any actual or perceived security breaches or improper disclosure of data, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices, especially with regard to the BIGToken Platform. Such incidents or our efforts to remediate such incidents may also result in a decline in our active user base or engagement levels. Any of these events could have a material and adverse effect on our business, reputation, or financial results.




22



 


Our operations rely on various third party vendors and if we lose these vendors it may adversely affect our financial position and results of operations.


We rely on third party vendors to provide us with media inventory to facilitate sales of advertising, the majority of which are engaged on a per order basis. Due to our lack of working capital, we are delinquent on payments to several of these media suppliers. While we will attempt to negotiate payment terms and forbearance agreements with these vendors on a case by case basis, many of these vendors may cease providing services to our company and may seek legal remedies against us. Any loss of these vendors or ligation arising out of our failure to satisfy our obligations to any of these vendors could disrupt our business and have a material negative effect on our operations.


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


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


If we lose access to RTB inventory buyers our business may suffer.


In an effort to reduce our dependency on any one provider of advertising demand, we created a platform that utilizes feeds from a number of demand sources for our inventory. We believe that our proprietary technology assists us in aggregating this demand, as well as providing the tools needed by our publishing partners to evaluate and track the effectiveness of the demand that we are aggregating for them. In the event that we lose access to a majority of this demand, however, our revenues would be impacted and our results of operations would be materially adversely impacted until such time, if ever, as we could secure alternative sources of demand for our inventory.


We depend on the services of our executive officers and the loss of any of their services could harm our ability to operate our business in future periods


Our success largely depends on the efforts and abilities of our executive officers, including Christopher Miglino, Kristoffer Nelson and Michael Malone. We are a party to an employment agreement with each of Mr. Miglino, and Mr. Malone, and an "at will" agreement with Mr. Nelson. Although we do not expect to lose their services in the foreseeable future, the loss of any of them could materially harm our business and operations in future periods until such time as we were able to engage a suitable replacement.


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


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


·

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

 

 

·

our inability to create applications for our customers;

 

 

·

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

 

 

·

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

 

 

·

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

 

 



23



 




·

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

 

 

·

regulatory actions may negatively impact our business practices.


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


Additional acquisitions may disrupt our business and adversely affect results of operations.


We may pursue acquisitions in an effort to increase revenue, expand our market position, add to our technological capabilities, or for other purposes. However, any future acquisitions would likely involve risk, including the following:


·

the identification, acquisition and integration of acquired businesses requires substantial attention from management. The diversion of management's attention and any difficulties encountered in the transition process could hurt our business;

 

 

·

the anticipated benefits from an acquisition may not be achieved, we may be unable to realize expected synergies from an acquisition or we may experience negative culture effects arising from the integration of new personnel;

 

 

·

difficulties in integrating the technologies, solutions, operations, and existing contracts of the acquired business;

 

 

·

we may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company, technology, or solution;

 

 

·

to pay for future acquisitions, we could issue additional shares of our Class A common stock or pay cash, raised through equity sales or debt issuance. The issuance of any additional shares of our Class A common stock would dilute the interests of our current stockholders, and debt transactions would result in increased fixed obligations and would likely include covenants and restrictions that would impair our ability to manage our operations; and

 

 

·

new business acquisitions can generate significant intangible assets that result in substantial related amortization charges and possible impairments.


While our general growth strategy includes identifying and closing additional acquisitions, we are not presently a party of any agreements or understandings. There are no assurances we will acquire any additional companies.


Weak economic conditions may reduce consumer demand for products and services.


A weak economy in the United States could adversely affect demand for advertising products, and services. A substantial portion of our revenue is derived from businesses that are highly dependent on discretionary spending by individuals, which typically falls during times of economic instability. Accordingly, the ability of our advertisers to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline further. We currently are unable to predict the extent of any of these potential adverse effects.


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


Certain of our subsidiaries and business affiliates have operations in countries other than the United States. In many foreign countries, it is not uncommon to encounter business practices that are prohibited by certain regulations, such as the Foreign Corrupt Practices Act and similar laws. Although certain of our subsidiaries and business affiliates have undertaken compliance efforts with respect to these laws, their respective employees, contractors and agents, as well as those companies to which they outsource certain of their business operations, may take actions in violation of their policies and procedures. Any such violation, even if prohibited by the policies and procedures of these subsidiaries and business affiliates or the law, could have certain adverse effects on the financial condition of these subsidiaries and business affiliates. Any failure by these subsidiaries and business affiliates to effectively manage the challenges associated with the international operation of their businesses could materially adversely affect their, and hence our, financial condition.




24



 


Risks Related to Ownership of our Securities


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


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


The market price of our Class A common stock may be volatile.


The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than those of a seasoned issuer. The volatility in our share price is attributable to a number of factors. Mainly however, we are a speculative or “risky” investment due to our limited operating history, lack of significant revenues to date, our continued operating losses and missed guidance. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Additionally, in the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.


The trading price of the shares of our Class A common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this annual report, these factors include:


·

the success of competitive products;

 

 

·

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

 

 

·

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

 

 

·

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

 

 

·

the recruitment or departure of key personnel;

 

 

·

the level of expenses;

 

 

·

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

 

 

·

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

 

 

·

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

 

 

·

inconsistent trading volume levels of our shares;

 

 

·

announcement or expectation of additional financing efforts;

 

 

·

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

 

 

·

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

 

 

·

market conditions in the technology sectors; and

 

 

·

general economic, industry and market conditions.




25



 


In addition, the stock market in general, and advertising technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Class A common stock, regardless of our actual operating performance. The realization of any of these risks could have a dramatic and material adverse impact on the market price of the shares of our Class A common stock.


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


The market price of the shares of our Class A common stock may be volatile, and in the past companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. To the extent that any claims or suits are brought against us and successfully concluded, we could be materially adversely affected, jeopardizing our ability to operate successfully. Furthermore, our human and capital resources could be adversely affected by the need to defend any such actions, even if we are ultimately successful in our defense.


Failure to meet the financial performance guidance or other forward-looking statements we have provided to the public could result in a decline in our stock price .


We have previously provided, and may provide in the future, public guidance on our expected financial results for future periods. Although we believe that this guidance provides investors with a better understanding of management's expectations for the future and is useful to our stockholders and potential stockholders, such guidance is comprised of forward-looking statements subject to the risks and uncertainties. Our actual results may not always be in line with or exceed the guidance we have provided. For example, in the past, we have missed guidance a number of times. If our financial results for a particular period do not meet our guidance or if we reduce our guidance for future periods, the market price of our Class A common stock may decline.


Delaware law contains anti-takeover provisions that could deter takeover attempts that could be beneficial to our stockholders.


Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of our company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring us, without our board of directors' consent, for at least three years from the date they first hold 15% or more of the voting stock.


The two class structure of our Class A common stock could have the effect of concentrating voting control with a limited group.


Our authorized capital includes two classes of common stock which have different voting rights. Our Class B common stock has 10 votes per share and our Class A common stock has one vote per share. While there are presently no shares of Class B common stock outstanding, in the future our board could choose to issue shares to one or more individuals or entities. As a result of the voting rights associated with the Class B common stock, those individuals or entities could have significant influence over the management and affairs of the company and control over matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated voting control could limit your ability to influence corporate matters and could adversely affect the price of our Class A common stock.


If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the trading price of our Class A common stock and trading volume could decline.


The trading market for our shares of our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. A small number of securities and industry analysts currently publish research regarding our Company on a limited basis. In the event that one or more of the securities or industry analysts who have initiated coverage downgrade our securities or publish inaccurate or unfavorable research about our business, the price of our shares of Class A common stock would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the trading price of our shares of Class A common stock and trading volume to decline.




26



 


The elimination of monetary liability against our directors and officers under Delaware law and the existence of indemnification rights held by our directors and officers may result in substantial expenditures by us and may discourage lawsuits against our directors and officers.


Our certificate of incorporation eliminates the personal liability of our directors and officers to our company and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible under Delaware law. Further, our bylaws provide that we are obligated to indemnify any of our directors or officers to the fullest extent authorized by Delaware law. We are also parties to separate indemnification agreements with certain of our directors and our officers which, subject to certain conditions, require us to advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even if such actions, if successful, might otherwise benefit us or our stockholders.


Risks Related to the BIG Platform and BIGToken Project


There can be no assurance that BIGToken Preferred Tracking Stock will ever be issued.

 

The Company recently launched the BIG Platform as a means of securing higher quality user data. In February of 2019, we filed a registration statement with the SEC in order to register shares of our BIGToken Stock. Subsequently, we received comments from the SEC and are in the process of reviewing such comments. Should our registration statement not be declared effective, the attractiveness of the BIG Platform may be materially affected, and we may only recognize limited benefits from the project, if any.


The further development and acceptance of blockchain networks, which are part of a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of blockchain networks and blockchain assets would have an adverse material effect on the successful development and adoption of BIGToken Platform. Notwithstanding the foregoing, BIGToken could seek to utilize alternative technologies to operate its platform.

 

The growth of the blockchain industry in general, as well as the blockchain networks on which brand data will be stored on the BIG Platform, is subject to a high degree of uncertainty. The factors affecting the further development of blockchain networks, include, without limitation:

 

·

worldwide growth in the adoption and use of blockchain technologies;


·

government and quasi-government regulation of blockchain assets and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems;


·

changes in consumer demographics and public tastes and preferences; or


·

the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using existing networks


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


The following information is given with regard to unregistered securities sold since January 1, 2019. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act of 1933, as amended (the “Securities Act”) and the rules promulgated thereunder in reliance on Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering:


·

On April 1, 2019, we sold a non-performing receivable in the amount of $567,977, (such amount includes a mutually agreed upon gross-up with our customer of $150,000) for $417,977. In connection with the sale, we agreed to repurchase the receivable if the purchaser was not able to collect on the amounts owed by June 30, 2019. As security for our repurchase obligation, we issued and pledged 220,000 shares of our Class A common stock.




27



 


·

On May 13, 2019, the Company entered into a securities purchase agreement with an accredited investor whereby the investor purchased 200,000 shares of the Company’s Class A common stock at a price per share of $5.00. The Company received aggregate gross proceeds of $1,000,000. Pursuant to the terms of the securities purchase agreement, the investor has piggyback registration rights with respect to the shares.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.

MINE SAFETY DISCLOSURES.


Not applicable to our company’s operations.


ITEM 5.

OTHER INFORMATION.


None.


ITEM 6.

EXHIBITS.


 

 

 

 

 

 

Incorporated by Reference

 

 

 

 

Filed/

 

 

 

 

 

 

 

 

Exhibit

 

 

 

Furnished

 

 

 

Exhibit

 

 

 

Filing

No.

 

Description

 

Herewith

 

Form

 

No. 

 

File No.

 

Date

                    

   

 

   

                    

   

                    

   

                    

   

                    

   

                    

3.01(i)

 

Certificate of Incorporation, filed on 8/3/11

 

 

 

S-1

 

3.01(i)

 

333-179151

 

1/24/12

3.0 2(i)

 

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

 

 

 

S-1

 

3.01(ii)

 

333-179151

 

1/24/12

3. 03 (i)

 

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

 

 

 

8-K

 

3.5

 

000-54996

 

9/19/16

3. 0 4(i)

 

Certificate of Designation of Series 1 Preferred Stock

 

 

 

8-K

 

3.4

 

000-54996

 

8/22/13

3.0 5(ii)

 

Bylaws of Social Reality, Inc. adopted in August 2011

 

 

 

S-1

 

3.03

 

333-179151

 

1/24/12

4.01

 

Specimen of Class A Common Stock Certificate

 

 

 

8-A12B

 

4.1

 

001-37916

 

10/12/16

4. 02

 

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

 

 

 

8-K

 

4.7

 

000-54996

 

11/4/14

4.03

 

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

 

 

 

8-K

 

4.8

 

000-54996

 

11/4/14

4.04

 

Class A Common Stock Warrant issued in September 2016 Offering

 

 

 

8-K

 

4.6

 

000-54996

 

10/6/16

4.05

 

Class A Common Stock Warrant issued to October 2013 Offering

 

 

 

8-K

 

4.7

 

000-54996

 

10/24/13

4. 06

 

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

 

 

 

10-Q

 

4.5

 

000-54996

 

11/13/13

4.07

 

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

 

 

 

8-K

 

4.6

 

000-54966

 

1/27/14

4.08

 

Class A Common Stock Warrant issued to Investors in September 2016

 

 

 

8-K

 

4.6

 

000-54966

 

10/6/16

4.09

 

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

 

 

 

8-K

 

4.1

 

001-37916

 

1/4/17

4.10

 

Class A Common Stock Warrant issued to Investors in January 2017 Offering (2 nd Warrant)

 

 

 

8-K

 

4.2

 

001-37916

 

1/4/17



28



 





4.11

 

Class A Common Stock Placement Agent Warrant issued in January 2017 Offering

 

 

 

8-K

 

4.3

 

001-37916

 

1/4/17

4.12

 

Class A Common Stock Placement Agent Warrant issued in October 2016 Offering

 

 

 

10-K

 

4.12

 

001-37916

 

3/31/17

4.13

 

Class A Common Stock Warrant issued in Leapfrog Media Trading Acquisition

 

 

 

10-K

 

4.13

 

001-37916

 

4/2/18

4.14

 

Form of 12.5% Secured Convertible Debenture issued in April 2017 Offering

 

 

 

8-K

 

4.2

 

001-33672

 

4/21/17

4.15

 

Class A Common Stock Warrant issued in April 2017 Offering

 

 

 

8-K

 

4.1

 

001-33672

 

4/21/17

4.16

 

Form of Class A Common Stock Placement Agent Warrant issued in April 2017 Offering

 

 

 

8-K

 

4.3

 

001-33672

 

4/21/17

4.17**

 

2016 Equity Compensation Plan

 

 

 

1/20/17

 

A-1

 

001-37916

 

1/20/17

4.18**

 

2014 Equity Compensation Plan

 

 

 

8-K

 

10.33

 

000-54996

 

11/10/14

4.19

 

2012 Equity Compensation Plan

 

 

 

S-1

 

4.02

 

333-179151

 

1/24/12

4.20

 

Form of Stock Option Agreement for 2012, 2014 and 2016 Equity Compensation Plan

 

 

 

S-1

 

4.03

 

333-179151

 

1/24/12

4.21

 

Form of Restricted Stock Unit Agreement for 2012, 2014 and 2016 Equity Compensation Plan

 

 

 

8-K

 

4.04

 

333-179151

 

1/24/12

4.22

 

Form of Restricted Stock Award Agreement for 2012, 2014 and 2016 Equity Compensation Plan

 

 

 

8-K

 

4.05

 

333-179151

 

1/24/12

4.23

 

Form of 12.5% Secured Convertible Debenture issued in October 2017 Offering

 

 

 

8-K

 

4.01

 

001-37916

 

10/27/17

4.24

 

Class A Common Stock Warrant Issued to Investors and Placement Agents in October 2017 Offering

 

 

 

8-K

 

4.02

 

001-37916

 

10/27/17

4.25

 

Form of Placement Agent Warrant from April 2019 Offering

 

 

 

8-K

 

4.01

 

001-37916

 

4/10/19

10.01

 

Purchase Agreement among Richard Steel, Steel Media, and Social Reality, dated 10/30/14

 

 

 

8-K

 

2.1

 

000-54996

 

11/4/14

10.02

 

Asset Purchase Agreement with LeapFrog Media Trading dated 4/20/17

 

 

 

10-K

 

10.02

 

001-37916

 

4/2/18

10.03

 

Amendment to Asset Purchase Agreement with Leapfrog Media Trading dated 8/17/17

 

 

 

10-K

 

10.03

 

001-37916

 

4/2/18

10.04

 

Transition Services Agreement in Leapfrog Media Trading Transaction

 

 

 

10-K

 

10.04

 

001-37916

 

4/2/18

10.05

 

Sample Leakout Agreement in Leapfrog Media Trading Transaction

 

 

 

10-K

 

10.05

 

001-37916

 

4/2/18

10.06

 

Form of Securities Purchase Agreement for April 2017 Offering

 

 

 

8-K

 

10.1

 

001-37916

 

4/21/17

10.07

 

Form of Security Agreement for April 2017 Offering

 

 

 

8-K

 

10.2

 

001-37916

 

4/21/17

10.08

 

Form of Registration Rights Agreement for April 2017 Offering

 

 

 

8-K

 

10.3

 

001-37916

 

4/21/17

10.09

 

Form of Securities Purchase Agreement for October 2017 Offering

 

 

 

8-K

 

10.01

 

001-37916

 

10/27/17



29



 





10.10

 

Form of Registration Rights Agreement for October 2017 Offering

 

 

 

8-K

 

10.02

 

001-37916

 

10/27/17

10.11**

 

Employment Agreement with Christopher Miglino dated 1/1/12

 

 

 

S-1

 

10.01

 

333-179151

 

1/24/12

10.12**

 

Employment Agreement with Erin DeRuggiero dated 10/19/15

 

 

 

10-K

 

10.3

 

000-54996

 

2/26/16

10.13**

 

Employment Agreement with Joseph P. Hannan dated 10/17/16

 

 

 

10-Q

 

10.48

 

001-37916

 

11/14/16

10.14**

 

Employment Agreement with Richard Steel dated 10/30/14

 

 

 

8-K

 

10.27

 

000-54996

 

11/4/14

10.15**

 

Employment Agreement with Chad Holsinger dated 10/30/14

 

 

 

8-K

 

10.28

 

000-54996

 

11/4/14

10.16

 

Employment Agreement with Adam Bigelow dated 10/30/14

 

 

 

8-K

 

10.29

 

000-54996

 

11/4/14

10.17**

 

Separation Agreement and Release with Richard Steel dated 1/25/17

 

 

 

8-K

 

10.1

 

333-215791

 

1/27/17

10.18**

 

Employment Agreement with Dustin Suchter dated 12/19/14

 

 

 

8-K

 

10.36

 

000-54996

 

12/22/14

10.19**

 

Form of Proprietary Information, Inventions and Confidentiality Agreement

 

 

 

S-1

 

10.03

 

333-179151

 

1/25/12

10.20**

 

Form of Indemnification Agreement with Officers and Directors

 

 

 

S-1

 

10.04

 

333-179151

 

1/25/12

10.21

 

Indemnification Agreement with Richard Steel dated 10/30/14

 

 

 

8-K

 

10.30

 

333-215791

 

11/4/14

10.22

 

Sublease for principal executive offices dated 8/12/12 with TrueCar, Inc.

 

 

 

S-1

 

10.16

 

333-193611

 

1/28/14

10.23

 

Services Agreement with Servicios y Asesorias Planic, S.A. de cv dated 1/25/13

 

 

 

10-K

 

10.9

 

000-54996

 

3/31/15

10.24

 

Sublease Agreement with Amarcore, LLC dated 1/1/15

 

 

 

S-1

 

10.17

 

333-206791

 

9/4/15

10.25

 

Advisory Agreement with Kathy Ireland Worldwide, LLC dated 11/14/16

 

 

 

10-Q

 

10.49

 

001-37916

 

11/14/16

10.26

 

Financing and Security Agreement with FastPay Partners, LLC

 

 

 

8-K

 

10.41

 

000-54996

 

9/23/16

10.27

 

Share Acquisition and Exchange Agreement with Five Delta, Inc.

 

 

 

8-K

 

10.34

 

000-54996

 

12/22/14

10.28

 

Secured Subordinated Promissory Note to Richard Steel dated 10/30/14

 

 

 

8-K

 

10.18

 

000-54996

 

11/4/14

10.29

 

Subordination Agreement with Richard Steel and Victory Park Management, LLC dated 10/30/14

 

 

 

8-K

 

10.22

 

000-54996

 

11/4/14

10.30

 

Securities Purchase Agreement for January 2017 Offering

 

 

 

8-K

 

10.1

 

001-37916

 

1/4/17

10.31

 

Placement Agent Agreement for January 2017 Offering with Chardan Capital Markets

 

 

 

8-K

 

10.2

 

001-37916

 

1/4/17

10.32

 

Financing Agreement with certain Lenders and Victory Park Management, LLC

 

 

 

8-K

 

10.23

 

000-54996

 

11/4/14

10.33

 

First Amendment to Financing Agreement dated 5/14/15

 

 

 

10-Q

 

10.38

 

000-54996

 

5/15/15

10.34

 

Pledge and Security Agreement with Steel Media and Victory Park Management, LLC dated 10/30/14

 

 

 

8-K

 

10.25

 

000-54996

 

11/4/14



30



 





10.35

 

Registration Rights Agreement dated 10/30/14

 

 

 

8-K

 

10.26

 

000-54996

 

11/4/14

10.36

 

Forbearance Agreement with Steel Media, Five Delta, Inc, Lenders and Victory Park Management, LLC dated 8/22/16

 

 

 

8-K

 

10.46

 

000-54996

 

8/24/16

10.37

 

Letter Agreement dated 1/5/17

 

 

 

10-K

 

10.35

 

001-37916

 

3/31/17

10.38

 

Insider Trading Policy adopted as of 2/23/16

 

 

 

10-K

 

10.36

 

001-37916

 

3/31/17

10.39

 

Form of Securities Purchase Agreement for April 2019 Offering

 

 

 

8-K

 

10.01

 

001-37916

 

4/10/19

10.40

 

Form of Placement Agent Agreement from April 2019 Offering

 

 

 

8-K

 

10.02

 

001-37916

 

4/10/19

18.01

 

Preference Letter regarding Change in Accounting Principle

 

 

 

10-Q

 

18.1

 

001-37916

 

11/14/16

31.1 / 31.2

 

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

 

*

 

 

 

 

 

 

 

 

32.1 / 32.2

 

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

 

*

 

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

*

 

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

*

 

 

 

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

*

 

 

 

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

 

*

 

 

 

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

*

 

 

 

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

*

 

 

 

 

 

 

 

 







31



 


SIGNATURES


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


 

SOCIAL REALITY, INC.

 

 

 

 

 

 

August 14, 2019

By:

/s/ Christopher Miglino

 

 

Christopher Miglino, Chief Executive Officer, principal executive officer


August 14, 2019

By:

/s/ Michael Malone

 

 

Michael Malone, Chief Financial Officer, principal financial and accounting officer







32


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