| Summary of Significant Accounting Policies | 2. Summary
of Significant Accounting Policies Principles of Consolidation The accompanying Unaudited Consolidated
Financial Statements include the accounts of SITO Mobile, Ltd. and its wholly-owned subsidiaries, SITO Mobile Solutions Inc., SITO
Mobile R&D IP, LLC, SITO Mobile Media Inc. and DoubleVision Networks Inc. ("DoubleVision"). All intercompany transactions
and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements
in conformity with Generally Accepted Accounting Principles in the United States of America ("US GAAP") requires management
to make estimates and form assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those estimates. Generally, the Company makes significant
estimates in connection with establishing the allowance for doubtful accounts, the recovery of capitalized software development
costs, other intangible assets, and goodwill. Basis of Presentation The accompanying Unaudited Consolidated
Financial Statements have been prepared in accordance with US GAAP and applicable rules and regulations of the U.S. Securities
and Exchange Commission ("SEC") regarding interim financial reporting. Certain information and disclosures normally
included in the financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules
and regulations. As such, the unaudited consolidated financial information included in this quarterly report on Form 10-Q should
be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual
Report on Form 10-K for the fiscal year-ended December 31, 2018 filed on April 1, 2019. The consolidated balance sheet as of December
31, 2018 included herein was derived from the audited financial statements as of that date, but does not include all disclosures,
including notes, required by US GAAP. Certain reclassifications of prior-period
financial statement reported amounts have been made to conform to the current period's presentation. Going Concern The accompanying Unaudited Consolidated
Financial Statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained net losses since
inception and has experienced negative cash flows from operations. As of September 30, 2019, the Company has an accumulated deficit
of approximately $203.2 million and an approximate working capital deficiency of $12.7 million; working capital is computed by
excluding from current liabilities the note payable, net of $3.2 million, the warrant liability of $0.2 million, and deferred revenue
of $0.03 million, which approximate amounts are presented on the Unaudited Consolidated Balance Sheet as of September 30, 2019.
As shown in the Unaudited Consolidated Statement of Operations and the Unaudited Statement of Cash Flows, the Company incurred
an approximate net loss of $30.3 million and negative cash flows from operations of approximately $3.6 million for the nine-months
ended September 30, 2019, respectively. These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern for the next twelve months from the issuance of these Unaudited Consolidated Financial Statements. In June through August 2019, the Company
sold $3.05 million of original issue discount promissory notes for net cash proceeds of $2.5 million. The Company is currently
in technical default on its obligation to remit the principal value of the Notes plus accrued interest. The Company is in discussions
with the Note Holders to refinance the Notes, which discussions are on-going. In the interim, the Company continues to accrue interest
at the stated rate of the original obligations, which interest is added to the principal amount owed in the month following accrual.
As of February 5, 2020, the principal balance due the Note Holders is approximately $3.9 million. Management has implemented a plan to reduce
expenditures, the most significant of which has been a reduction in workforce of approximately 70% that has resulted in reduced
expenditures of approximately $360 thousand per each semimonthly pay cycle; management continues to monitor and/or reduce expenditures
in other non-critical areas. Additionally, management continues to execute the Company's plan to seek longer and more profitable
customer agreements and has obtained additional funding of approximately $2.75 million during the nine-months ended September 30,
2019 (see Notes Payable The Company's existence is dependent
upon management's ability to identify additional sources from which to obtain funding and/or to enter into significant (e.g.,
large-scale, multi-year) contracts to generate profits and increase cash flows. There can be no assurance that the Company's
efforts will result in the resolution of the Company's financing needs. These Unaudited Consolidated Financial Statements
do not include any adjustments that might result should the Company be unable to continue as a going concern. NASDAQ Listing Deficiencies On July 5, 2019, the Company received written
notification from NASDAQ informing it that its stock had traded under $1.00 for thirty (30) consecutive business days, and that
if its stock does not trade at or above $1.00 for ten (10) consecutive business days during the next 180 days, the Company's
stock would be delisted absent meeting other conditions for delaying delisting. The 180 days to regain compliance ended
on January 2, 2020, during which time the Company's stock failed to meet the minimum closing bid price of $1.00 for ten (10)
consecutive business days. On January 6, 2020, since the Company's stock closing bid price did not meet NASDAQ's minimum,
the Company received notification that its stock would be delisted. On January 13, 2020, in accordance with NASDAQ Listing Rules,
the Company requested a hearing with the NASDAQ Listing Council to seek a 180-day extension to correct the minimum bid price deficiency.
If, at the conclusion of the 180-day extension period, the Company has not achieved compliance, the Company's stock will
be delisted. The Company was granted a hearing by NASDAQ's Listing Council, which hearing is scheduled for February 20, 2020;
however, there can be no assurance that the Listing Council will grant the Company a 180-day extension, or that the Company will
be successful in regaining compliance with NASDAQ Listing Rules. Among the deficiencies to be cured are: (i) realizing a stock
closing minimum bid price equal to or greater than $1.00 for ten (10) consecutive business days, which may be accomplished by enacting
a reverse stock-split; if such, is approved by the Company's stockholders, (ii) holding its 2019 annual shareholder meeting,
which was adjourned pending resolution of certain SEC matters related to the failed merger with MediaJel, Inc. (see Business
Combinations Revenue Recognition and Deferred Revenue Adoption of Accounting Standards Codification
("ASC") - Topic 606 ("Topic 606"), "Revenue from Contracts with Customers" On January 1, 2018, the Company adopted
Topic 606 using the modified retrospective transition method applied to those contracts, which were not completed as of January
1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts
have not been adjusted and continue to be reported in accordance with US GAAP Topic 605 and the methodologies adopted by the Company
thereunder. There was no adjustment to the accumulated deficit at January 1, 2018 attributable to the impact of adopting Topic
606. Topic 606 requires that revenue is recognized
when a customer obtains control of promised services in an amount that reflects the consideration that an entity expects to receive
in exchange for those services. To achieve this core principal, Topic 606 follows a five-step approach:
1) Identify
the contract, or contracts, with a customer A contract with a customer exists when
(i) the Company enters into an enforceable contract with a customer that defines each party's rights regarding the services
to be transferred and identifies the payment terms related to those services, (ii) the contract has commercial substance and (iii)
the Company determines that collection of substantially all consideration for services that are transferred is probable based on
the customer's intent and ability to pay the promised consideration.
2) Identify
the performance obligations in the contract At contract inception, an entity shall
assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise
to transfer such goods or deliver such services to the customer. To be separately recognized, performance obligations must be distinct.
For a performance obligation to be distinct, both the following criteria must exist: (i) the customer can benefit from the service
either on its own or together with other resources that are readily available from the Company or third parties and (ii) the goods
or services are separately identifiable from other promises in the contract. If these criteria are not met, the promised services
are accounted for as a combined performance obligation.
3) Determine
the transaction price The transaction price is the amount of
total contract consideration the Company expects to receive for carrying out its contractual obligations.
4) Allocation
of the transaction price to the performance obligations in the contract Once a contract and associated performance
obligations have been identified and the transaction price has been determined, Topic 606 requires an entity to allocate the transaction
price to each performance obligation. To allocate the transaction price to each identified performance obligation, the Company
must accurately estimate the stand-alone selling price of each performance obligation. As a practical expedient, Topic 606 allows
the Company to recognize revenue when it invoices a customer, if the right to payment from such customer corresponds directly with
the value of the Company's performance completed to date.
5) Recognize
revenue when, or as, performance obligations are satisfied Revenue is recognized when or as performance
obligations are satisfied by transferring control of a promised good or service to a customer. Control transfers either over time
or at a point in time. Media placement services constitute the
Company's core business from which it derives substantially all its revenue from contracts with customers. Media placement
contracts with customers predominantly contain a single performance obligation for which the related revenues are recognized over
time, using an output measure to reflect progress. The Company invoices its customers as it performs its contractual obligations
and therefore has adopted the aforementioned Topic 606 revenue recognition "right to invoice" practical expedient. Media Placement The Company's media placement contracts
with customers generally provide for the measurement of services based on the activity of users viewing ads through developer applications
and websites. User activity consists of views, clicks, or actions on advertisements placed by the Company. Based on the specific
terms of the media placement contracts with customers, revenues are recognized as the Company's advertising services are
delivered, that is, when the Company has a right to invoice for its services. Most of the Company's media placement services
contracts have a performance term of less than twelve months and, generally, customer payments are received in a timely manner
from the invoice date. Media placement revenue for the three-
and nine-months ended September 30, 2019 and 2018 was approximately $2.8 million and $9.1 million and $25.1 million and $28.6 million,
respectively. Deferred Revenue In certain situations, the Company will
receive advances of its media placement services, which advances are recognized as deferred revenue in the consolidated balance
sheets. As the Company delivers the contracted media placement services, deferred revenues are recognized in the Unaudited Consolidated
Statement of Operations. Sales commissions are generally expensed
as incurred because the amortization period would be one year or less and the Company's revenues are not given to significant
cyclical fluctuation. Sales commissions are recognized in sales and marketing expenses in the accompanying Unaudited Consolidated
Statement of Operations. Cash and Cash Equivalents The Company considers all liquid investments
with an original maturity of three months or less or three months to maturity when purchased to be cash equivalents. As of September
30, 2019 and December 31, 2018, the Company did not have any cash equivalents. Accounts Receivable, net Accounts receivable are reported at the
customers' outstanding balances, less any allowance for doubtful accounts. Interest is not accrued on overdue accounts
receivable. Allowance for Doubtful Accounts An allowance for doubtful accounts receivable
is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes
is adequate to cover any probable losses. Management determines the adequacy of the allowance based on the historical write-off
of receivables as a percentage of accounts receivable, as well as revenue and information collected from individual customers.
Accounts receivable are charged off against the allowance for doubtful accounts when such amounts are deemed uncollectable. Property and Equipment, net Property and equipment is stated at cost.
Major renewals and improvements are capitalized, while replacements, maintenance, and repairs that do not improve or extend the
lives of the respective assets are expensed. At the time property and equipment are sold or disposed of, the asset and related
accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses on sales or disposals of property and
equipment are recognized in earnings. Depreciation is computed on the straight-line
and accelerated methods for financial and income tax reporting purposes, respectively, based upon the following estimated useful
lives:
Asset Class Useful Lives
Software development 3
Equipment and computer hardware 5
Office furniture 5
Leasehold improvements* 5
* Leasehold improvements are amortized over their useful
life of five (5) years or the lease term through expiration, if shorter. Long-Lived Assets The Company accounts for long-lived assets
in accordance with ASC 360-10 " Impairment or Disposal of Long-Lived Assets Goodwill Goodwill represents the future economic
benefits to be derived from non-individually identified or separately recognized assets acquired in a business combination. Goodwill
generally may be computationally defined as the excess of the fair value of the consideration transferred over the acquisition-date
fair values of the identifiable assets acquired less the liabilities assumed and any noncontrolling interest in the acquired assets. ASC 350-20 requires that goodwill be tested
at least annually for impairment. Application of the goodwill impairment test requires judgment, including determining the fair
value. Significant judgments are required to estimate the fair value, including estimating future cash flows, determining appropriate
discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair
value and/or goodwill impairment. The Company has evaluated qualitative and quantitative factors (e.g., events, conditions) as
of September 30, 2019 and December 31, 2018 and determined that at the later date that goodwill as reported has been impaired and,
as such, an impairment in the approximate amount of $6.4 million has been recognized during the three- and nine-months ended September
30, 2019. Capitalized Software Development Costs The Company accounts for costs incurred
to develop or purchase computer software for internal use in accordance with ASC Topic 350-40 " Internal-Use Software In June 2019, based on perceived cost-benefit
relationships, the Company decided on a strategic direction to adopt and employ already existing third-party software platforms
used in the servicing of customer accounts, rather than to continue developing, bettering, and maintaining existing platforms.
Management believes its internally developed software has market value, but there is no immediate plan to license or sell the software,
nor has a definitive acquirer been identified. As such, management has determined to impair
the asset fully as the originating projects have been discontinued during June 2019 and there is no immediate plan to employ the
software in the foreseeable future. A loss on impairment of approximately $1.9 million has been recognized during the nine-months
ended September 30, 2019. Patent and Patent Application Costs Intangible assets are recorded at cost
and include patents developed and purchased. The cost of patents is amortized over their useful lives. Patents are an integral investment, which
protects management's rights of ownership over the underlying communications related intellectual property. The patents continue
to have value to the Company and represent an investment in technologies that potentially benefit mobile communication companies
and users. Leases The Company reviews and evaluates its contracts
to determine if any contain leases. As of September 30, 2019 and December 31, 2018, the Company has agreements with two providers
that have been determined to contain leases. One of the agreements is for the Company's primary office space and the other
is for office equipment. In accordance with ASC Topic 842, which the Company adopted as of January 1, 2018, a contract contains
a lease if it conveys a right to direct the use of an identified asset and derive substantially all the economic benefits from
the use thereof. If a contract is determined to contain a lease, it is further evaluated for purposes of classifying the arrangement
as a finance lease. Any arrangement that does not meet the criteria to be accounted for as a finance lease is an operating lease. Income Taxes The Company accounts for its income taxes
under the provisions of ASC Topic 740 " Income Taxes" Stock-Based Compensation Stock-based compensation is accounted for
based on the requirements of the Share-Based Payment topic of ASC Topic 718, which requires recognition in the financial statements
of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee
or director is required to perform the services in exchange for the award (presumptively, the vesting period) and forfeitures are
recognized as they occur. US GAAP also requires measurement of the cost of employee and director services received in exchange
for an award based on the grant-date fair value of the award. Pursuant to ASC 505-50, for share-based
payments to consultants and other third parties, compensation expense is determined at the measurement date. The expense is recognized
over the vesting period of the award. The Company records compensation expense based on the fair value of the award at the reporting
date. The value of stock-based awards is determined
using the Binomial option-pricing model. The Binomial option-pricing model determines compensation cost as the excess of the fair
value of the award at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting
amount is charged to expense on a straight-line basis over the period in which the Company expects to receive the benefit, which
is generally the vesting period. In the case that the requisite service period is not completed or the grantee terminates their
relationship with the Company, the stock award granted may be forfeited and, if forfeited, the accumulated amount of compensation
cost recognized for that award is reversed in the period of forfeiture. Loss per Share The Company reports loss per share in accordance
with ASC 260-10 " Earnings per Share Concentrations of Credit Risk The Company's primary banking relationship
is with Wells Fargo Bank. The amount on deposit with Wells Fargo Bank may from time to time exceed federally insured limits. For the three-months ended September 30,
2019, the Company derived approximately $1.8 million or 64.1% of total revenue from three customers and for the three-months ended
September 30, 2018, no one customer accounted for a significant amount of total revenue. For the nine-months ended September 30,
2019, the Company derived approximately $10.4 million or 41.5% of total revenue from one customer and for the nine-months ended
September 30, 2018, the Company derived approximately $5.3 million or 18.5% of total revenue from one customer. During the nine-months ended September
30, 2019, the Company obtained an approximate $10.4 million contract for media placement services, of which approximately $8.2
million of revenue was recognized during the three-months ended June 30, 2019 and the balance was recognized during the three-months
ended March 31, 2019. At contract outset, as is normal and customary, management considered many factors in accepting and contractually
committing itself, including the Company's ability to deliver its contractual performance obligations and the probability
of collection of its contractually stipulated compensation, which probability considers the likelihood of and customer's
ability to pay. At the time, nothing came to the Company's attention that would have altered its assessment at contract initiation
that the customer would not uphold its contractual obligation to pay for the services received. On October 7, 2019, the Company
filed a complaint for judgment against the customer for payment under the contract, which matter is more fully discussed throughout
these notes to the Unaudited Consolidated Financial Statements. The Company's accounts receivable
is typically unsecured and derived from U.S. customers in different industries. The Company performs ongoing credit evaluations
of its customers and maintains allowances for potential credit losses. Historically, excluding the aforementioned significant receivable
in litigation, such losses have been within management's expectations of 3% of accounts receivable and 1% of year-to-date
revenue. Business Combinations The Company accounts for all business combinations
using the acquisition method of accounting. Under this method, assets and liabilities are recognized at fair value at the date
of acquisition. The excess of the fair value of the consideration transferred over the acquisition-date fair values of the identifiable
assets acquired less the liabilities assumed and any noncontrolling interest in the acquired assets is recognized as goodwill.
Certain adjustments to the assessed fair values of the assets acquired and liabilities assumed are made subsequent to the acquisition
date, but within the measurement period, which is up to one year; such adjustments are recorded as adjustments to goodwill. Any
adjustments to the assets acquired and liabilities assumed subsequent to the measurement period are recorded in income. Results
of operations of acquired entities are included in the Company's results of operations as of the date of acquisition. The
Company expenses all acquisition related costs as incurred, which costs are classified as general and administrative expenses in
the Unaudited Consolidated Statements of Operations. In September 2019, the Company entered
into an Agreement and Plan of Merger (the "Agreement") with MediaJel, Inc. ("MediaJel") (collectively,
the "Parties"), whereby the Company was to acquire 100% of the equity interests of MediaJel in exchange for an approximate
43% equity interest in the combined entity (i.e., an all-stock transaction). In December 2019, the Parties mutually entered into
discussions to terminate the Agreement, which discussions are on-going. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements
or financing activities with special purpose entities. Recent Accounting Pronouncements Recently Adopted Pronouncements Revenue Recognition In May 2014, the Financial Accounting Standards
Board ("FASB") released ASC 606 " Revenue from Contracts with Customers" Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date Summary of Significant Accounting Policies In April 2016, the FASB issued ASU 2016–10
" Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" Revenue from Contracts with Customers (Topic 606) The Company adopted ASC Topic 606 using
the modified retrospective approach. There were no material changes to the Company's Unaudited Consolidated Financial Statements
resulting from adoption of this standard. Leases In February 2016, the FASB issued ASU
2016-02 " Lease ASU 2018-11 "Leases: Targeted Improvements Adoption of ASC Topic
842 resulted in the Company recognizing a $311.7 thousand operating lease Right-of-Use ("ROU") asset and current and
non-current operating lease liabilities of $334.6 thousand on the Consolidated Balance Sheet at December 31, 2018, which resulted
in a $22.8 thousand increase to the accumulated deficit as of that date. Other than first-time recognition of operating leases
on its consolidated balance sheet, the implementation of ASC Topic 842 did not have a material impact on the Company's Unaudited
Consolidated Financial Statements. See the Leases Comprehensive Income In February 2018, the FASB issued ASU
2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income" Stock Compensation In June 2018, the FASB issued ASU 2018-07
" Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting". ASU 2018-07 specifies that Topic 718 applies
to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's
own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments
used to provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as
part of a contract accounted for under ASC Topic 606 "Revenue from Contracts with Customers" Pronouncements Not Yet Adopted Intangibles In January 2017, the FASB issued ASU 2017-04
" Intangibles - Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment" Intangible Assets - Goodwill In August of 2018, the FASB issued ASU
2018-15 " Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract Credit Losses on Financial Instruments In June 2016, the FASB issued ASU No. 2016-13,
" Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments. type,
term, geography, industry, effective interest rate), does not prescribe a specific
methodology for measuring the allowance for expected credit losses. For example, the Company may use a loss-rate methodology or
an aging schedule, or a combination thereof, which process is not significantly different from currently employed. ASU 2016-13
is effective The
Company is currently evaluating the impact, if any, that ASU 2016-13 will have on its Unaudited Consolidated Financial Statements
and related disclosures. |
