Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Nov. 11, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | SOCIAL REALITY, Inc. | |
Entity Central Index Key | 1,538,217 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 6,941,077 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,016 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 4,241,230 | $ 1,091,186 |
Accounts receivable, net | 4,387,878 | 7,056,298 |
Prepaid expenses | 227,878 | 309,436 |
Other current assets | 6,488 | 36,090 |
Total current assets | 8,863,474 | 8,493,010 |
Property and equipment, net of accumulated depreciation of $69,951 and $42,295 | 31,458 | 43,936 |
Goodwill | 15,644,958 | 16,314,957 |
Intangibles - net | 1,342,094 | 1,611,744 |
Prepaid stock based compensation | 373,567 | |
Other assets | 34,659 | 34,659 |
Total assets | 25,916,643 | 26,871,873 |
Current liabilities: | ||
Accounts payable and accrued expenses | 11,673,969 | 5,138,807 |
Note payable, net of unamortized costs of $838,069 and $1,076,633 | 5,095,736 | 1,378,367 |
Unearned revenue | 19,410 | 1,295 |
Contingent consideration payable to related party - current portion | 7,585,435 | |
Put liability | 1,500,000 | 1,436,282 |
Total current liabilities | 18,289,115 | 15,540,186 |
Notes payable, net of unamortized cost of $0 and $578,160 | 7,455,758 | |
Total liabilities | 18,289,115 | 22,995,944 |
Stockholders' equity | ||
Preferred stock, authorized 50,000,000 shares, $0.001 par value, no shares issued and outstanding | ||
Additional paid in capital | 20,666,933 | 14,012,078 |
Accumulated deficit | (13,046,069) | (10,141,771) |
Total stockholders' equity | 7,627,528 | 3,875,929 |
Total liabilities and stockholders' equity | 25,916,643 | 26,871,873 |
Common Class A [Member] | ||
Stockholders' equity | ||
Common stock | 6,664 | 5,622 |
Common Class B [Member] | ||
Stockholders' equity | ||
Common stock |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Property and equipment, accumulated depreciation | $ 69,951 | $ 42,295 |
Notes payable, unamortized cost, current | 838,069 | 1,076,633 |
Notes payable, unamortized cost, noncurrent potion | $ 0 | $ 578,160 |
Preferred Stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred Stock, par value per share | $ 0.001 | $ 0.001 |
Preferred Stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common Class A [Member] | ||
Common Stock, shares authorized | 250,000,000 | 250,000,000 |
Common Stock, par value per share | $ 0.001 | $ 0.001 |
Common Stock, shares issued | 6,663,662 | 28,110,229 |
Common Stock, shares outstanding | 5,622,052 | 28,110,229 |
Common Class B [Member] | ||
Common Stock, shares authorized | 9,000,000 | 9,000,000 |
Common Stock, par value per share | $ 0.001 | $ 0.001 |
Common Stock, shares issued | 0 | 0 |
Common Stock, shares outstanding | 0 | 0 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Income Statement [Abstract] | ||||
Revenues | $ 9,530,842 | $ 7,390,238 | $ 24,249,588 | $ 22,173,095 |
Cost of revenue | 6,986,834 | 3,296,144 | 16,430,204 | 10,697,062 |
Gross profit | 2,544,008 | 4,094,094 | 7,819,384 | 11,476,033 |
Operating expense | ||||
General, selling and administrative expense | 3,851,890 | 3,751,736 | 11,082,581 | 10,914,488 |
Impairment of goodwill | 670,000 | |||
Income (loss) from operations | (1,307,882) | 342,358 | (3,933,197) | 561,545 |
Other income (expense) | ||||
Write off of contingent consideration | 3,744,496 | |||
Interest income (expense) | (1,067,964) | (1,000,898) | (2,715,598) | (2,858,955) |
Other income (expense) | (1,067,964) | (1,000,898) | 1,028,898 | (2,858,955) |
Income (loss) before provision for income taxes | (2,375,846) | (658,540) | (2,904,299) | (2,297,410) |
Provision for income taxes | ||||
Net income (loss) | $ (2,375,846) | $ (658,540) | $ (2,904,299) | $ (2,297,410) |
Net loss per share, basic and diluted | $ (0.4) | $ (0.12) | $ (0.49) | $ (0.43) |
Weighted average shares outstanding, basic and diluted | 5,958,897 | 5,409,248 | 5,929,793 | 5,387,126 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Cash flows from operating activities: | ||
Net loss | $ (2,904,299) | $ (2,297,410) |
Adjustments to reconcile net loss to net cash provided (used) by operating activities: | ||
Amortization of stock based prepaid fees | 373,567 | 475,839 |
Stock based compensation | 610,397 | 626,539 |
Non-cash financing cost | 274,695 | |
Amortization of debt issue costs | 816,705 | 925,612 |
PIK interest expense accrued to principal | 447,738 | 279,216 |
Impairment of goodwill | 670,000 | |
Accretion of contingent consideration | (3,585,388) | 692,674 |
Accretion of put liability | 63,718 | 129,643 |
Depreciation and amortization | 286,944 | 203,585 |
Bad debt expense | 96,253 | 66,728 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (2,767,590) | (5,102,151) |
Prepaid expenses | 81,562 | 91,568 |
Other current assets | 29,602 | (15,132) |
Other assets | (10,855) | |
Accounts payable and accrued expenses | 6,355,103 | 2,833,564 |
Unearned revenue | 18,115 | (23,600) |
Cash provided (used) by operating activities | 867,122 | (1,124,180) |
Cash flows from investing activities: | ||
Purchase of equipment | (4,816) | (30,657) |
Cash used by investing activities | (4,816) | (30,657) |
Cash flows from financing activities: | ||
Sale of units | 3,550,815 | |
Sale of warrants | 6,921 | |
Proceeds from notes payable | 2,100,000 | 1,500,000 |
Repayments of note payable | (1,763,077) | (1,162,519) |
Payment of contingent consideration | (1,600,000) | |
Cash provided by financing activities | 2,287,738 | 344,402 |
Net increase in cash | 3,150,044 | (810,435) |
Cash, beginning of period | 1,091,186 | 1,843,393 |
Cash, end of period | 4,241,230 | 1,032,958 |
Supplemental Schedule of Cash Flow Information: | ||
Cash paid for interest | 1,224,525 | 718,119 |
Cash paid for taxes | ||
Non-cash financial activities: | ||
Proceeds paid by FastPay on behalf of the Company | 5,507,468 | |
Common stock issuance for payment of contingent consideration | $ 2,400,000 |
ORGANIZATION AND SUMMARY OF SIG
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Organization and Basis of Presentation Social Reality, Inc. ("Social Reality", "we", "us" or the "Company") is a Delaware corporation formed on August 2, 2011. Effective January 1, 2012 we acquired all of the member interests and operations of Social Reality, LLC, a California limited liability company formed on August 14, 2009, which began business in May of 2010, in exchange for 2,465,753 shares of our Class A and Class B common stock. The former members of Social Reality, LLC owned all of our common stock after the acquisition. At Social Reality, we sell digital advertising campaigns to advertising agencies and brands. We have developed technology that allows brands to launch and manage digital advertising campaigns, and we provide the platform that allows website publishers to sell their media inventory to many different digital adverting buyers. Our focus is to provide technology tools that enable both publishers and advertisers to maximize their digital advertising initiatives. We derive our revenues from: · sales of digital advertising campaigns to advertising agencies and brands; · sales of media inventory owned by our publishing partners 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. The core elements of this business are: · Social Reality Ad Exchange or "SRAX" – Real Time Bidding sell side and buy side representation · SRAX md · SRAX Social · SRAX APP, We offer our customers a number of pricing options including cost-per-thousand-impression, or "CPM", whereby our customers pay based on the number of times the target audience is exposed to the advertisement, and on a monthly service fee. Social Reality is also an approved Facebook advertising partner. We sell targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies across large Facebook apps and websites, generating qualified Facebook likes and quantifiable engagement for our clients, driving online sales and increased brand equity. We are headquartered in Los Angeles, California. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These interim financial statements as of and for the three and nine months ended September 30, 2016 and 2015 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any future period. All references to September 30, 2016 and 2015 in these footnotes are unaudited. 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, 2015, included in the Company's annual report on Form 10-K filed with the SEC on March 16, 2016. The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements at that date but do not include all disclosures required by GAAP. Certain items have been reclassified to conform to the current period presentation. Effect of Reverse Stock Split on Presentation On September 20, 2016, the Company completed a reverse stock split. The principal reason for the reverse stock split was to facilitate the up-listing of our Class A common stock to the NASDAQ Capital Market which has a minimum market (bid) price requirement for new applicants of $4.00 per share. As a result of the reverse stock split, each five shares of the Company's Class A common stock issued and outstanding, or held as treasury shares, immediately prior to the effective date of the reverse stock split became one share of its Class A common stock on the effective date of the reverse stock split. No fractional shares of Class A common stock were issued to any stockholder in connection with the reverse stock split and all fractional shares which might otherwise be issuable as a result of the reverse stock split were rounded up to the nearest whole share. On the effective date of the reverse stock split, all outstanding options and warrants to purchase shares of the Company's Class A common stock were proportionally adjusted based upon the split ratio and became exercisable into one-fifth of the number of shares of the Company's Class A common stock as it was prior to the reverse stock split at an exercise price which is five times the exercise price prior to the reverse stock split. After the effective date of the reverse stock split, each certificate representing shares of pre-reverse stock split Class A common stock was deemed to represent one-fifth of a share of the post-reverse stock split Class A common stock, subject to rounding for fractional shares, and the records of the Company's transfer agent, Transfer Online, Inc., were adjusted to give effect to the reverse stock split. Following the effective date of the reverse stock split, the share certificates representing the pre-reverse stock split Class A common stock continue to be valid for the appropriate number of shares of post-reverse stock split Class A common stock, adjusted for rounding. These condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented, unless otherwise specified. Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries from the acquisition date of majority voting control and through the date of disposition, if any. Use of Estimates GAAP requires management of the Company to make estimates and assumptions in the preparation of these condensed consolidated financial statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions. The most significant areas that require management judgment and which are susceptible to possible change in the near term include the Company's revenue recognition, allowance for doubtful accounts and sales credits, stock-based compensation, income taxes, purchase price for acquisition, goodwill, other intangible assets, put rights and valuation of liabilities. The accounting policies for these areas are discussed elsewhere in these unaudited condensed consolidated financial statements. Cash and Cash Equivalents The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. Revenue Recognition The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists; no significant Company obligations remain; collection of the related receivable is reasonably assured; and the fees are fixed or determinable. The Company acts as a principal in revenue transactions as the Company is the primary obligor in the transactions. As such, revenue is recognized on a gross basis, and media and publisher expenses that are directly related to a revenue-generating event are recorded as a component of cost of revenue. Cost of Revenue Cost of revenue consists of payments to media providers and website publishers that are directly related to a revenue-generating event and project and application design costs. The Company becomes obligated to make payments related to media providers and website publishers in the period the advertising impressions, click-throughs, actions or lead-based information are delivered or occur. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying income statement. Accounts Receivable Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company's accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. The Company usually does not require collateral. Allowance for doubtful accounts was $231,695 and $135,442 at September 30, 2016 and December 31, 2015, respectively. Concentration of Credit Risk, Significant Customers and Supplier Risk Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited in the United States. The balances in the United States held at any one financial institution are generally in excess of Federal Deposit Insurance Corporation ("FDIC") insurance limits. The uninsured cash bank balances were approximately $4.2 million At September 30, 2016, two customers accounted for more than 10% of the accounts receivable balance, for a total of 50%. For the nine months ended September 30, 2016 one customer accounted for 49% of total revenue. At September 30, 2015, two customers accounted for more than 10% of the accounts receivable balance, for a total of 61%. For the nine months ended September 30, 2015 one customer accounted for 50% of total revenue. Fair Value of Financial Instruments The Company's financial instruments, including cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses, are carried at historical cost. At September 30, 2016 and December 31, 2015, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments. Property and equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets of three to seven years. Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment. Intangible assets Intangible assets consist of intellectual property and a non-complete agreement and are stated at cost less accumulated amortization. Amortization is provided for on the straight-line basis over the estimated useful lives of the assets of five to six years. Business Combinations For all business combinations (whether partial, full or step acquisitions), the Company records 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration, if any, is recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value are recognized in earnings until settlement and acquisition-related transaction and restructuring costs are expensed rather than treated as part of the cost of the acquisition. Goodwill and change to annual impairment testing period Our goodwill consists of the excess purchase price paid in business combinations over the fair value of assets acquired. Goodwill is considered to have an indefinite life. The Company has historically performed its annual goodwill and impairment assessment on September 30 th st The Company employs the non-amortization approach to account for goodwill. Under the non-amortization approach, goodwill is not amortized into the results of operations, but instead is reviewed annually or more frequently if events or changes in circumstances indicate that the asset might be impaired, to assess whether the fair value exceeds the carrying value. When evaluating the potential impairment of goodwill, we first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company's products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company's reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to a two-step impairment testing methodology using the income approach (discounted cash flow method). In the first step of the two-step testing methodology, we compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, we then complete the second step of the impairment test to determine the amount of impairment to be recognized. In the second step, we estimate an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference in that period. When required, we arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by particular assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results. During the nine months ended September 30, 2016, we determined that a portion of the goodwill assigned to Steel Media acquisition has become impaired. Accordingly, we recorded a goodwill impairment charge of $670,000 for the nine months ended September 30, 2016. The impairment charge represents the excess of the carrying amount of the goodwill recorded in the acquisition over the implied fair value of the goodwill. The implied fair value of the goodwill is the residual fair value based on an income approach using discounted cash flow model using revenue and profit forecasts. No additional impairment of goodwill has been recorded in the three months ended September 30, 2016. Long-lived Assets Management evaluates the recoverability of the Company's identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in the Company's stock price for a sustained period of time; and changes in the Company's business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets' carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairments have been recorded in either the nine months ended September 30, 2016 or 2015. Loss Per Share We use ASC 260, " Earnings Per Share There were 2,912,069 common share equivalents at September 30, 2016 and 2,796,803 at September 30, 2015. For the nine months ended September 30, 2016 and 2015 these potential shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share. Income Taxes We utilize ASC 740 Income Taxes The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Stock-Based Compensation We account for our stock based compensation under ASC 718 " Compensation Stock Compensation We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. Business Segments The Company uses the "management approach" to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company's reportable segments. Using the management approach, the Company determined that it has one operating segment due to business similarities and similar economic characteristics. Liquidity The Company had an accumulated deficit at September 30, 2016 of $(13.0) million. As of September 30, 2016, we had approximately $4.2 million in cash and cash equivalents and a deficit in working capital of $(9.4) million as compared to $(1.1) million in cash and cash equivalents and a deficit in working capital of $7.0 million at December 31, 2015. The Company believes it has established an ongoing source of revenue that is sufficient to cover its operating costs over the next twelve months. In addition, management plans to continue as a going concern could also include raising additional capital through borrowing and/or additional sales of equity or equity linked securities. Recently Issued Accounting Standards In October 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 will require the tax effects of intercompany transactions, other than sales of inventory, to be recognized currently, eliminating an exception under current GAAP in which the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the first interim period of our 2019 fiscal year, with early adoption permitted. In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 provides guidance regarding the classification of certain items within the statements of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 with early adoption permitted. In connection with its financial instruments project, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments in June 2016 and ASU 2016-01 - Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities in January 2016. · ASU 2016-13 introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking expected loss model that will replace the current incurred loss model and generally will result in earlier recognition of allowances for losses. The guidance will be effective for the first interim period of our 2021 fiscal year, with early adoption in fiscal year 2020 permitted. · ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other provisions, the new guidance requires the fair value measurement of investments in certain equity securities. For investments without readily determinable fair values, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable prices minus impairment. All changes in measurement will be recognized in net income. The guidance will be effective for the first interim period of our 2019 fiscal year. Early adoption is not permitted, except for certain provisions relating to financial liabilities. In April 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-10, Identifying Performance Obligations and Licensing (Topic 606) Revenue from Contracts with Customer (Topic 606) (Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date) In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718 In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customer (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) In April 2015, the FASB issued ASU No. 2015-3, Simplifying the Presentation of Debt Issuance Costs Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements. |
ACQUISITIONS
ACQUISITIONS | 9 Months Ended |
Sep. 30, 2016 | |
Business Combinations [Abstract] | |
ACQUISITIONS | NOTE 2 ACQUISITIONS. Acquisition of Steel Media On October 30, 2014, we acquired 100% of the capital stock of Steel Media, a California corporation ("Steel Media"), from Richard Steel pursuant to the terms and conditions of a stock purchase agreement, dated October 30, 2014, by and among the Company, Steel Media and Mr. Steel (the "Stock Purchase Agreement"). As consideration for the purchase of Steel Media, we agreed to pay Mr. Steel up to $20.0 million, consisting of: (i) a cash payment at closing of $7.5 million; (ii) a cash payment of $2.0 million which is being held in escrow to satisfy certain indemnification obligations to the extent such arise under the Stock Purchase Agreement; (iii) a one year secured subordinated promissory note in the principal amount of $2.5 million (the "Note") which was secured by 477,373 shares of our Class A common stock (the "Escrow Shares"); and (iv) earn out payments of up to $8 million (the "Earn Out Consideration"). The Earn Out Consideration target was achieved for the first earn out period ended October 31, 2015 and on January 29, 2016 we paid Mr. Steel $4.0 million, of which $1.6 million was paid in cash and the balance was paid through the issuance of 256,754 shares of our Class A common stock in accordance with the terms of the Stock Purchase Agreement. The Company determined the Earn Out Consideration would not be achieved for the second earn out period ended October 31, 2016. As a result, the Company reversed the second earn out liability of $3.5 million during nine months ended September 30, 2016. At September 30, 2016, we did not record a liability for the Earn Out Consideration. At December 31, 2015, we recorded $7.6 million associated with the first and second earn out periods. Acquisition of Five Delta, Inc. On December 19, 2014, we acquired 100% of the outstanding capital stock of Five Delta, Inc., a Delaware corporation ("Five Delta"), in exchange for 120,000 shares of our Class A common stock pursuant to the terms and conditions of the Share Acquisition and Exchange Agreement dated December 19, 2014 (the "Five Delta Agreement") by and among Social Reality, Five Delta and the stockholders of Five Delta. The acquisition price was $756,000. |
NOTES PAYABLE
NOTES PAYABLE | 9 Months Ended |
Sep. 30, 2016 | |
Notes Payable [Abstract] | |
NOTES PAYABLE | NOTE 3 NOTES PAYABLE. Financing Agreement with Victory Park Management, LLC as agent for the lenders On October 30, 2014 (the "Financing Agreement Closing Date"), the Company entered into a financing agreement (the "Financing Agreement") with Victory Park Management, LLC, as administrative agent and collateral agent for the lenders and holders of notes and warrants issued thereunder (the "Agent"). The Financing Agreement provides for borrowings of up to $20.0 million to be evidenced by notes issued thereunder, which are secured by a first priority, perfected security interest in substantially all of the assets of the Company and its subsidiaries (including Steel Media) and a pledge of 100% of the equity interests of each domestic subsidiary of the Company pursuant to the terms of a pledge and security agreement (the "Pledge and Security Agreement") entered into by the Company on the Financing Agreement Closing Date (which was joined by Steel Media immediately after the Company's acquisition of Steel Media). The Financing Agreement contains covenants limiting, among other things, indebtedness, liens, transfers or sales of assets, distributions or dividends, and merger or consolidation activity. The notes (the "Financing Notes") issued pursuant to the Financing Agreement, including the note issued to the lender thereunder in the original aggregate principal amount of $9.0 million on the Financing Agreement Closing Date (the "Initial Financing Note") and the subsequent notes described below, bear interest at a rate per annum equal to the sum of (1) cash interest at a rate of 10% per annum and (2) payment-in-kind (PIK) interest at a rate of 4% per annum for the period commencing on the Financing Agreement Closing Date and extending through the last day of the calendar month during which the Company's financial statements for December 31, 2014 are delivered, and which PIK interest rate thereafter from time to time may be adjusted based on the ratio of the Company's consolidated indebtedness to its earnings before interest, taxes, depreciation and amortization. If the Company achieves a reduction in the leverage ratio as described in the Financing Agreement, the PIK interest rate declines on a sliding scale from 4% to 2%. The Financing Notes issued under the Financing Agreement are scheduled to mature on October 30, 2017, with scheduled quarterly payment dates commencing December 31, 2014. Proceeds from the Initial Financing Note issued on the Financing Agreement Closing Date were used to finance, in part, the Company's acquisition of Steel Media as described in Note 2. The Financing Agreement provides for subsidiaries of the Company to join the Financing Agreement from time to time as borrowers and cross guarantors thereunder. Immediately after the Company's acquisition of Steel Media on October 30, 2014, Steel Media executed a joinder agreement under which it became a borrower under the Financing Agreement. The Company and its subsidiary, Steel Media, are cross guarantors of each other's obligations under the Financing Agreement, all of which guaranties and obligations are secured pursuant to the terms of the Pledge and Security Agreement. On May 14, 2015, we entered into the First Amendment to Financing Agreement with Victory Park Management, LLC, as administrative agent and collateral agent for the lenders. Under the terms of the amendment, the leverage ratio, senior leverage ratio, fixed charge coverage ratio and interest coverage ratio under the Financing Agreement were all modified, and the minimum current ratio was reduced. The amendment also modified our obligations with respect to the delivery of certain reports, certain representations by us as well as clarifying other additional terms by which the loan is administered. On July 6, 2015, we borrowed an additional $1.5 million pursuant to the Financing Agreement. The loan funded on July 8, 2015. In connection therewith, we issued a Senior Secured Term Note to the lender in the principal amount of $1.5 million. The Senior Secured Term Note has terms identical to the Initial Financing Note described above. The Senior Secured Term Note will mature on October 30, 2017. We used the proceeds from this additional draw under the Financing Agreement for working capital. On October 26, 2015, we borrowed an additional $1.4 million pursuant to the Financing Agreement. The loan funded on October 26, 2015. In connection therewith, we issued a Senior Secured Term Note to the lender in the principal amount of $1.4 million. The Senior Secured Term Note has terms identical to the Initial Financing Note described above. The Senior Secured Term Note will mature on October 30, 2017. We used the proceeds from this additional draw under the Financing Agreement towards the payment of the Note due Richard Steel described in Note 2, and for working capital. On January 26, 2016, we borrowed an additional $1.6 million pursuant to the financing agreement with Victory Park Management, LLC. The loan funded on January 28, 2016. In connection therewith, we issued a Senior Secured Term Note to the lender in the principal amount of $1.6 million. The Senior Secured Term Note has terms identical to the Initial Financing Note described above. The Senior Secured Term Note will mature on October 30, 2017. We used the proceeds from this additional draw under the Financing Agreement as a portion of the payment to Mr. Richard Steel of the first year Earn Out Consideration described in Notes 2 and 6. On February 16, 2016, we borrowed an additional $500,000 pursuant to the Financing Agreement with Victory Park Management, LLC. The loan funded on February 16, 2016. In connection therewith, we issued a Senior Secured Term Note to the lender in the principal amount of $500,000. The Senior Secured Term Note has terms identical to the Initial Financing Note described above. The Senior Secured Term Note will mature on October 30, 2017. We used the proceeds from this additional draw under the Financing Agreement as working capital. For the nine months ended September 30, 2016, we made principal payments of approximate $6.7 million. Notes payable consists of the following: September 30, 2016 December 31, 2015 Current portion of note payable $ 5,933,805 $ 2,455,000 Non-current portion of note payable - 8,033,898 Total note payable including PIK interest 5,933,805 10,488,898 Less deferred financing costs (838,069 ) (1,654,773 ) Notes payable and PIK interest accrued, net of deferred costs $ 5,095,736 $ 8,834,125 During the three months ended September 30, 2016 and 2015, $206,287 and $102,250, respectively, were recorded as PIK interest expense. During the nine months ended September 30, 2016 and 2015, $447,737 and $279,216, respectively, were recorded as PIK interest expense. Pursuant to the Financing Agreement dated October 31, 2014, the Company also issued to the lender thereunder, on the Financing Agreement Closing Date, a five-year warrant to purchase 580,000 shares of its Class A common stock at an exercise price of $5.00 per share (the "Financing Warrant"). The warrant holder may not, however, exercise the Financing Warrant for a number of shares of Class A common stock that would cause such holder to beneficially own shares of Class A common stock in excess of 4.99% of the Company's outstanding shares of Class A common stock following such exercise. The number of shares issuable upon exercise of the Financing Warrant and the exercise price therefor are subject to adjustment in the event of stock splits, stock dividends, recapitalizations and similar corporate events. Pursuant to the Financing Warrant, the warrant holder has the right, at any time after the earlier of April 30, 2016 and the maturity date of the Financing Notes issued pursuant to the Financing Agreement, but prior to the date that is five years after the Financing Agreement Closing Date, to exercise its put right under the terms of the Financing Warrant, pursuant to which the warrant holder may sell to the Company, and the Company will purchase from the warrant holder, all or any portion of the Financing Warrant that has not been previously exercised. In connection with any exercise of this put right, the purchase price will be equal to an amount based upon the percentage of the Financing Warrant for which the put right is being exercised, multiplied by the lesser of (A) 50% of the total revenue for the Company and its subsidiaries, on a consolidated basis, for the trailing 12-month period ending with the Company's then-most recently completed fiscal quarter, and (B) $1.5 million. We have recorded the put liability at its present value of $1.5 million at September 30, 2016. As contemplated under the Financing Agreement, the Company also entered into a registration rights agreement on the Financing Agreement Closing Date (the "Financing Registration Rights Agreement") with the holder of the Financing Warrant, pursuant to which the Company granted to such holder certain "piggyback" rights to register the shares of the Company's Class A common stock issuable upon exercise of the Financing Warrant. Specifically, the holder of the Financing Warrant has the right, subject to certain allocation provisions set forth in the Financing Registration Rights Agreement, to include the shares underlying the Financing Warrant in registration statements for offerings by the Company of its Class A common stock, as well as offerings of the Company's Class A common stock held by third parties. The shares underlying the Financing Warrant were included in a registration statement on Form S-1 that was declared effective by the Securities and Exchange Commission in October 2015. As part of the arrangements under the Financing Agreement, the Agent, Mr. Steel, and the Company and Steel Media (as borrowers under the Financing Agreement) have also entered into a subordination agreement (the "Subordination Agreement") under which Mr. Steel agreed, subject to the terms and conditions of the Subordination Agreement, to subordinate to the lenders and holders of Financing Notes and the Financing Warrant issued under the Financing Agreement (i) certain obligations, liabilities, and indebtedness, including, without limitation, payments under the Note and payments of Earn Out Consideration, which may be owed to him by the Company; and (ii) during the time the Note was outstanding a put right we granted him if in the event of a default under the Note. As set forth above, the Note was paid in full in October 2015 and the put right was terminated upon such payment. Activity for the put liability during the nine months ended September 30, 2016 was: December 31, 2015 Activity During the Period Accretion in Value September 30, 2016 Put liability $ 1,436,282 $ $ 63,718 $ 1,500,000 Total $ 1,436,282 $ $ 63,718 $ 1,500,000 We incurred a total of $3.1 million of costs related to the Financing Agreement. These costs will be amortized to interest expense over the life of the debt. During the three months ended September 30, 2016 and 2015, $250,100 and $297,242, respectively of debt issuance costs were amortized. During the nine months ended September 30, 2016 and 2015, $816,705 and $(925,612), respectively of debt issuance costs were amortized. As of September 30, 2016 and December 31, 2015, capitalized debt costs had a balance of $838,069 and $1.6 million, respectively. The In anticipation that the Company would not be in compliance with one or more of these financial covenants under terms of the Financing Agreement by the second or third quarter of 2016, we advised the Agent. On August 22, 2016, we entered into a Forbearance Agreement with the Agent (the Forbearance Agreement). Under the terms of the Forbearance Agreement, until the earlier of either the expiration of the Forbearance Period, which is defined to mean the date when all conditions of the agreement have been satisfied, or the Forbearance Termination Date of January 1, 2017, the lenders have agreed not to take any actions, including declaring an event of default or otherwise accelerating the obligations owed under the Financing Agreement, related to our failure solely to comply with the financial covenants for the periods ended June 30, 2016 and September 30, 2016. During the Forbearance Period, beginning on July 1, 2016 the PIK interest rate of the outstanding amounts due under the Financing Agreement increased by 3% per annun to 7% per annum. Our monthly cash interest payments remain unchanged at 10% per annum. We are also required to pay all amounts due under the Financing Agreement on or before December 31, 2016. We agreed to pay a forbearance fee of $115,322 together with legal fees of the lenders counsel not to exceed $25,000. At September 30, 2016, we had $5.93 million outstanding under the Financing Agreement. Financing and Security Agreement with Fast Pay Partners, LLC On September 19, 2016, the Company executed a Financing and Security Agreement dated September 14, 2016, as amended by Amendment No. 1 also dated September 14, 2016 (collectively, the "FastPay Agreement"), with FastPay Partners LLC (FastPay) creating an accounts receivable-based credit facility. Under the terms of the FastPay Agreement, FastPay may, at its sole discretion, purchase the Company's eligible accounts receivables. Upon any acquisition of accounts receivable, FastPay will advance the Company up to 80% of the gross value of the purchased accounts, up to a maximum of $8.0 million in advances. Each account receivable purchased by FastPay will be subject to a factoring fee rate specified in the FastPay Agreement calculated as a percentage of the gross value of the account outstanding and additional fees for accounts outstanding over 30 days. The Company is subject to a concentration limitation on the percentage of debt from any single customer of 25% to the total amount outstanding on its purchased accounts, subject to increase to 50% for its larger customer. The Company will be obligated to repurchase accounts remaining uncollected after a specified deadline, and FastPay will generally have full recourse against the Company in the event of nonpayment of any purchased accounts. The Company's obligations under the FastPay Agreement are secured by a first position security interest in its accounts receivable, deposit accounts and all proceeds therefrom. The FastPay Agreement contains covenants that are customary for agreements of this type and are primarily related to accounts receivable and audit rights. The Company is also required to provide FastPay with 30 day notice of any transaction that results, or would result in, a change of control as defined in the FastPay Agreement. The failure to satisfy covenants under the FastPay Agreement or the occurrence of other specified events that constitute an event of default could result in the termination of the FastPay Agreement and/or the acceleration of the Company's obligations. The FastPay Agreement contains provisions relating to events of default that are customary for agreements of this type. The FastPay Agreement has an initial one-year term and automatically renews for successive one-year terms thereafter, subject to earlier termination by written notice by the Company, provided that all obligations are paid and the payment of an early termination fee. The initial advance under the FastPay Agreement was approximately $5.5 million and the Company used substantially all of this amount to reduce the obligations outstanding under the Financing Agreement, as amended, with Victory Park Management, LLC, as administrative agent and collateral agent for the lenders. Additional proceeds available to the Company under the FastPay Agreement will be used for working capital. The proceeds from the initial advance under the FastPay Agreement were paid directly to Victory Park Management. As such, these transactions are presented as non-cash financing activities in the Supplemental Schedule of Cash Flow Information in the Company’s consolidated financial statements. |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 9 Months Ended |
Sep. 30, 2016 | |
Stockholders' Equity Note [Abstract] | |
STOCKHOLDERS' EQUITY | NOTE 4 STOCKHOLDERS' EQUITY. Preferred Stock We are authorized to issue 50,000,000 of preferred stock, par value $0.001, of which 200,000 shares were designated as Series 1 Preferred Stock. Our board of directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. Our board of directors may authorize the issuance of preferred stock, which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our board of directors can fix limitations and restrictions, if any, upon the payment of dividends on both classes of our common stock to be effective while any shares of preferred stock are outstanding. On August 16, 2013, our Board of Directors approved a Certificate of Designations, Rights and Preferences pursuant to which it designated a series consisting of 200,000 shares of its blank check preferred stock as Series 1 Preferred Stock. The designations, rights and preferences of the Series 1 Preferred Stock are as follows: · each share has a stated and liquidation value of $0.001 per share, · the shares do not pay any dividends, except as may be declared by our Board of Directors, and are not redeemable, · the shares do not have any voting rights, except as may be provided under Delaware law, · each share is convertible into 10 shares of our Class A common stock, subject to customary anti-dilution provisions in the event of stock splits, recapitalizations and similar corporate events, and · the number of shares of Series 1 Preferred Stock, as well as the number of shares of Class A common stock issued upon a conversion of shares of Series 1 Preferred Stock, that a holder may sell, transfer, assign, hypothecate or otherwise dispose of (collectively or severally, a "Disposition") at any one time shall be limited to an amount which is pari passu to any Disposition of Class A common stock by either Christopher Miglino and/or Erin DeRuggiero, executive officers and directors of our company. Notwithstanding anything contained in the designations, the holder of Series 1 Preferred Stock is not obligated to make any Dispositions of Series 1 Preferred Stock or Class A common stock issued upon the conversion of Series 1 Preferred Stock. Following the conversion of the remaining shares of our Series 1 Preferred Stock during 2015 into shares of our Class A common stock, in February 2016 we filed a Certificate of Elimination with the Secretary of State of Delaware returning all shares of previously designated Series 1 Preferred Stock to our blank check preferred stock. Common Stock We are authorized to issue an aggregate of 259,000,000 shares of common stock. Our certificate of incorporation provides that we will have two classes of common stock: Class A common stock (authorized 250,000,000 shares, par value $0.001), which has one vote per share, and Class B common stock (authorized 9,000,000 shares, par value $0.001), which has ten votes per share. Any holder of Class B common stock may convert his or her shares at any time into shares of Class A common stock on a share-for-share basis. Otherwise the rights of the two classes of common stock are identical. There were no shares of Class B common stock outstanding during either the 2015 or 2016 periods. On February 23, 2016, our Board of Directors approved the adoption of our 2016 Equity Compensation Plan (the 2016 Common Stock During January 2016 and February 2016, we received aggregate proceeds of $500,000 from the sale of 100,000 shares of our Class A common stock. During January 2016, we issued 256,754 shares of Class A common stock, valued at $2.4 million, to Richard Steel as partial payment of the first year Earn Out Consideration. During February 2016, we issued 6,786 shares of Class A common stock, valued at $47,500, to members of our board of directors for services. On February 23, 2016, we issued an aggregate of 10,000 shares of our Class A common stock valued at $70,000 as partial compensation for services under the terms of a consulting agreement. On August 16, 2016, we issued 3,077 shares of our Class A common stock valued at $20,000 to a new member of our board of directors for services. On September 22, 2016, we issued 6 shares of our Class A common stock as a result of rounding in connection with the reverse stock split. On September 30, 2016, we sold an aggregate of 665,000 units of its securities to 14 accredited investors in a private placement exempt from registration under the Securities Act of 1933, as amended, in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D. The units were sold at a purchase price of $5.00 per unit resulting in gross proceeds to us of $3.3 million. Each unit consisted of one share of our Class A common stock and one three year Class A Common Stock Purchase Warrant to purchase 0.5 shares of our Class A common stock at an exercise price of $7.50 per share. We agreed to file a registration statement with the Securities and Exchange Commission within 90 days after the final closing in this offering registering for resale the shares of our Class A common stock issuable upon the exercise of the warrants included in the units sold in this offering, together with the shares of our Class A common stock underlying the Placement Agent Warrants. In the event we fail to timely file this resale registration, or at any time thereafter that the prospectus contained in the effective resale registration is not available for the issuance of the shares to the holder upon the exercise of the warrant for a period of at least 60 days following the delivery by us of a suspension notice, then the warrants are exercisable on a cashless basis. T.R. Winston & Company, LLC, a broker-dealer and member of FINRA, acted as placement agent for us in this offering. We paid the placement agent commissions totaling $266,000 and agreed to issue it three year warrants Placement Agent Warrants to purchase 53,200 shares of our Class A common stock at an exercise price of $7.50 per share. T.R. Winston & Company, LLC has reallocated a portion of the commissions and Placement Agent Warrants to a selected dealer member of the selling group. We also agreed to pay T.R. Winston & Company, LLC a fee of 4% of the proceeds we may receive upon the exercise of the warrants included in the units. We used $2.0 million of the net proceeds received by us in this offering to further reduce our obligations which are outstanding under the Financing Agreement, as amended, with Victory Park Management, LLC, as administrative agent and collateral agent for the lenders. We will use the balance of the proceeds for general working capital. Stock Awards In February 2016, we granted an aggregate of 6,786 shares of our Class A common stock awards to four directors. The shares were vested upon grant. We recorded $47,500 of compensation expense related to these awards. In April 2016, we granted a total of 20,000 shares of our Class A common stock awards to an employee. During the three and nine months ended September 30, 2016, we have recorded a total of $20,750 and $38,042; respectively, as compensation expense related to these awards. During the nine months ended September 30, 2016, we recorded expense of $250,088 related to stock awards granted in prior years. During the nine months ended September 30, 2015, we recorded expense of $364,800 related to stock awards granted in prior years. During the three months ended September 30, 2016 and 2015, we recorded expense relating to stock awards granted in prior years of $40,834 and $60,458, respectively. Awards in the amount of 6,000 common shares were forfeited during 2016. Stock Options and Warrants During nine months ended September 30, 2016, we granted an aggregate of 30,000 stock options to one employee. The options will vest over three years. The options have an exercise price of $1.33 per share and a term of five years. These options have a grant date fair value of $1.07 per option, determined using the Black Scholes method based on the following assumptions: (1) risk free interest rate of 0.35%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 115%; and (4) an expected life of the options of 5 years. We have recorded an expense for the options of $2,671 and $3,116 for the three and nine months ended September 30, 2016, respectively. During the three months ended September 30, 2016 and 2015, we recorded expense of $66,588 and $2,726 respectively, related to stock options granted in the prior years but vested in current period. During nine months ended September 30, 2016 and 2015, we recorded expense of $181,650 and $142,456, respectively, relating to stock options granted in the prior years but vested in current period. There were no new grants of stock options made in the third quarter of 2016. Awards in the amount of 42,000 options were forfeited during 2016. On September 19, 2016, the Company extended the expiration date of common stock purchase warrants issued and sold in 2013 to purchase an aggregate of 642,000 shares of its Class A common stock at an exercise price of $5.00 per share from between October 8, 2016 and November 6, 2016 to March 31, 2017, for which, the Company applied ASC 718-20-35-3 modification of equity-classified contracts and therefore the incremental fair value from the modification (the change in the fair value of the instrument before and after the modification) of $274,695 is recognized as an expense in the income statement to the extent the modified instrument has a higher fair value. Reverse Stock Split On September 20, 2016, the Company completed a reverse stock split. The principal reason for the reverse stock split was to facilitate the up-listing of our Class A common stock to the NASDAQ Capital Market which has a minimum market (bid) price requirement for new applicants of $4.00 per share. As a result of the reverse stock split, each five shares of the Company's Class A common stock issued and outstanding, or held as treasury shares, immediately prior to the effective date of the reverse stock split became one share of its Class A common stock on the effective date of the reverse stock split. No fractional shares of Class A common stock were issued to any stockholder in connection with the reverse stock split and all fractional shares which might otherwise be issuable as a result of the reverse stock split were rounded up to the nearest whole share. On the effective date of the reverse stock split, all outstanding options and warrants to purchase shares of the Company's Class A common stock were proportionally adjusted based upon the split ratio and became exercisable into one-fifth of the number of shares of the Company's Class A common stock as it was prior to the reverse stock split at an exercise price which is five times the exercise price prior to the reverse stock split. After the effective date of the reverse stock split, each certificate representing shares of pre-reverse stock split Class A common stock was deemed to represent one-fifth of a share of the post-reverse stock split Class A common stock, subject to rounding for fractional shares, and the records of the Company's transfer agent, Transfer Online, Inc., were adjusted to give effect to the reverse stock split. Following the effective date of the reverse stock split, the share certificates representing the pre-reverse stock split Class A common stock continue to be valid for the appropriate number of shares of post-reverse stock split Class A common stock, adjusted for rounding. These condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented, unless otherwise specified. |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 9 Months Ended |
Sep. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS | NOTE 5 INTANGIBLE ASSETS. Intangible assets consist of the following: September 30, 2016 December 31, 2015 Non-compete agreement $ 1,250,000 $ 1,250,000 Intellectual property 756,000 756,000 2,006,000 2,006,000 Accumulated amortization (663,906 ) (394,256 ) Carrying value $ 1,342,094 $ 1,611,744 Amortization expense was $37,800 for intellectual property and $52,083 for the non-compete agreement for the three months ended September 30, 2016. Amortization expense was $113,400 for intellectual property and $156,250 for the non-compete agreement for the nine months ended September 30, 2016. No amortization expense for intellectual property was recorded for the three and nine months ended September 30, 2015. Amortization expense was $190,972 for the non-compete agreement for the three and nine months ended September 30, 2015. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2016 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 6 RELATED PARTY TRANSACTIONS. We are obligated to Mr. Steel for contingent Earn Out Consideration of up to $8.0 million incurred in connection with the acquisition of Steel Media, as described in Note 2 upon Steel Media meeting certain EBITDA measurements. The Company had initially recorded the liability at its present value of $6.6 million. Changes in the value will be recorded through the statement of operations. The Earn Out Consideration target was achieved for the first earn out period ended October 31, 2015 and on January 29, 2016 we paid Mr. Steel $4 million, of which $1.6 million was paid in cash and the balance was paid through the issuance of 256,754 shares of our Class A common stock in accordance with the terms of the Stock Purchase Agreement. As discussed in Note 2, during the nine months ended September 30, 2016 the Company determined the Earn Out Consideration would not be achieved for the second earn out period ended October 31, 2016. The Company determined the fair value of the second Earn Out Consideration to be zero as of September 30, 2016. Activity for the contingent consideration payable was: September 30, December 31, 2016 2015 Balance, beginning of year $ 7,585,435 $ 6,732,123 Accretion in value 159,061 853,312 Payment made (4,000,000 ) Reversal of second year Earn Out Consideration (3,744,496 ) Balance, September 30 2016 $ $ 7,585,435 |
ACCOUNTS PAYABLE AND ACCRUED EX
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 9 Months Ended |
Sep. 30, 2016 | |
Accounts Payable and Accrued Liabilities [Abstract] | |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | NOTE 7 ACCOUNTS PAYABLE AND ACCRUED EXPENSES. Accounts payable and accrued expenses are comprised of the following: September 30, 2016 December 31, 2015 Accounts payable, trade $ 9,757,195 $ 3,003,642 Accrued expenses 1,178,919 45,450 Accrued compensation 182,896 659,262 Accrued commissions 554,959 1,430,453 Total $ 11,673,969 $ 5,138,807 The increase in accounts payable for the period ending September 30, 2016 was primarily due an increase in cost of goods sold due on higher revenue for the period. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 8 COMMITMENTS AND CONTINGENCIES. Operating Leases The Company leases offices under operating leases with lease terms which expire through September 30, 2021. Rent expense for office space amounted to $200,584 and $118,343 for the nine months ended September 30, 2016 and 2015, respectively. Rent expense for office space amounted to $73,385 and $42,322 for the three months ended September 30, 2016 and 2015, respectively. Other Commitments In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company's breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. The Company has also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors and employees of acquired companies, in certain circumstances. It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Employment agreements We have entered into employment agreements with a number of our employees. These agreements may include provisions for base salary, guaranteed and discretionary bonuses and option grants. The agreements may contain severance provisions if the employees are terminated without cause, as defined in the agreements. Litigation From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company's business, operating results, cash flows or financial condition should such litigation be resolved unfavorably. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 9 SUBSEQUENT EVENTS. On October 13, 2016, the Company's Class A common stock began trading on The NASDAQ Stock Market LLC under the symbol "SRAX." On October 14, 2016 Mr. Rahul Thumati resigned as the Chief Financial Officer of the Company and we appointed Mr. Joseph P. ("JP") Hannan as our Chief Financial Officer. Mr. Hannan entered an Employment Agreement with the Company, the term of which extends until such time as either party chooses to terminate his employment with the Company. Under the terms of the Employment Agreement, Mr. Hannan's compensation includes: · an annual base salary of $200,000; · an annual bonus of $100,000, payable in equal quarterly installments beginning on April 1, and subject to the timely filings of our periodic reports; · an annual bonus of a restricted stock grant of $100,000 in value of shares of the Company's Class A common stock on each annual anniversary date of the Employment Agreement, also subject to the timely filings of our periodic reports, subject to continued employment; · a one time restricted stock award of 100,000 shares of the Company's Class A common stock, vesting 50,000 shares on October 14, 2017 and 50,000 shares on October 14, 2018, subject to continued employment; and · annual paid time off of 30 days per year. Mr. Hannan is entitled to participate in all benefit programs it offers its other executive officers and expense reimbursement. Upon termination of the agreement by either party, regardless of the reason, he is not entitled to any additional compensation. The Employment Agreement with Mr. Hannan contains customary confidentiality, non-disclosure and noninterference provisions. In connection with Mr. Thumati's resignation, on October 14, 2016 the Company entered into Separation and Release Agreement with Mr. Thumati pursuant to which it agreed to pay him a severance amount of $180,000 and he forfeited all rights to vested and unvested stock awards. The agreement contained customary cross general releases, confidentiality and trade secret clauses. On October 31, 2016, the Company sold an aggregate of 255,000 units of its securities to nine accredited investors in a private placement exempt from registration under the Securities Act of 1933, as amended, in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D. The units were sold at a purchase price of $5.00 per unit resulting in gross proceeds to us of $1.3 million. This was the final closing of a private placement commenced in September 2016. Each unit consisted of one share of our Class A common stock and one three year Class A Common Stock Purchase Warrant to purchase 0.5 shares of our Class A common stock at an exercise price of $7.50 per share. We agreed to file a registration statement with the Securities and Exchange Commission within 90 days after the final closing in this offering registering for resale the shares of our Class A common stock issuable upon the exercise of the warrants included in the units sold in this offering, together with the shares of our Class A common stock underlying the Placement Agent Warrants. In the event we fail to timely file this resale registration, or at any time thereafter that the prospectus contained in the effective resale registration is not available for the issuance of the shares to the holder upon the exercise of the warrant for a period of at least 60 days following the delivery by us of a suspension notice, then the warrants are exercisable on a cashless basis. On October 3, 2016, we made an additional principal repayment to Victory Park in the amount of $2.0 million, bringing our current note payable balance to date to approximately $3.9 million. T.R. Winston & Company, LLC, a broker-dealer and member of FINRA, acted as placement agent for us in this offering and received, in lieu of a cash placement agent commission totaling $109,956, and in reimbursement of certain expenses, 22,392 units in the offering. We also agreed to issue it three year warrants Placement Agent Warrants to purchase 15,200 shares of our Class A common stock at an exercise price of $7.50 per share. T.R. Winston & Company, LLC also reallocated a portion of the gross placement agent commissions and Placement Agent Warrants to a selected dealer member of the selling group resulting in the payment by us of a cash commission of $2,000 and the issuance of an additional 400 Placement Agent Warrants. We also agreed to pay T.R. Winston & Company, LLC a fee of 4% of the proceeds we may receive upon the exercise of the warrants included in the units. We are using the net proceeds for general working capital. On November 14, 2016 the Company entered into an Advisory Agreement with kathy ireland Worldwide LLC ("kiWW"). Under the terms of this agreement, which expires on December 31, 2018, the Company engaged kiWW to provide a variety of advisory and consulting services to the Company, including (i) if the Company forms an Advisory Committee of independent, third party brand, marketing and/or consumer product C-level executives, to serve on such committee on terms no less favorable than the highest compensated person on such committee, (ii) as an advisor, hold the non-executive designation of Chief Branding Advisor, and (iii) provide reasonable input to the Company on various aspects of corporate branding, and (iv) use good faith efforts to introduce the Company to potential business customers. As compensation for such services, the Company will issue kiWW 100,000 shares of its Class A common stock on January 2, 2017 and reimburse kiWW for expenses incurred in connection with the services to be provided to the Company. The agreement contains customary confidentiality and indemnification provisions. |
ORGANIZATION AND SUMMARY OF S15
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Basis of Presentation | Organization and Basis of Presentation Social Reality, Inc. ("Social Reality", "we", "us" or the "Company") is a Delaware corporation formed on August 2, 2011. Effective January 1, 2012 we acquired all of the member interests and operations of Social Reality, LLC, a California limited liability company formed on August 14, 2009, which began business in May of 2010, in exchange for 2,465,753 shares of our Class A and Class B common stock. The former members of Social Reality, LLC owned all of our common stock after the acquisition. At Social Reality, we sell digital advertising campaigns to advertising agencies and brands. We have developed technology that allows brands to launch and manage digital advertising campaigns, and we provide the platform that allows website publishers to sell their media inventory to many different digital adverting buyers. Our focus is to provide technology tools that enable both publishers and advertisers to maximize their digital advertising initiatives. We derive our revenues from: · sales of digital advertising campaigns to advertising agencies and brands; · sales of media inventory owned by our publishing partners 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. The core elements of this business are: · Social Reality Ad Exchange or "SRAX" – Real Time Bidding sell side and buy side representation · SRAXmd · SRAX Social · SRAX APP, We offer our customers a number of pricing options including cost-per-thousand-impression, or "CPM", whereby our customers pay based on the number of times the target audience is exposed to the advertisement, and on a monthly service fee. Social Reality is also an approved Facebook advertising partner. We sell targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies across large Facebook apps and websites, generating qualified Facebook likes and quantifiable engagement for our clients, driving online sales and increased brand equity. We are headquartered in Los Angeles, California. |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These interim financial statements as of and for the three and nine months ended September 30, 2016 and 2015 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any future period. All references to September 30, 2016 and 2015 in these footnotes are unaudited. 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, 2015, included in the Company's annual report on Form 10-K filed with the SEC on March 16, 2016. The condensed consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements at that date but do not include all disclosures required by GAAP. Certain items have been reclassified to conform to the current period presentation. |
Reverse Stock Split | Effect of Reverse Stock Split on Presentation On September 20, 2016, the Company completed a reverse stock split. The principal reason for the reverse stock split was to facilitate the up-listing of our Class A common stock to the NASDAQ Capital Market which has a minimum market (bid) price requirement for new applicants of $4.00 per share. As a result of the reverse stock split, each five shares of the Company's Class A common stock issued and outstanding, or held as treasury shares, immediately prior to the effective date of the reverse stock split became one share of its Class A common stock on the effective date of the reverse stock split. No fractional shares of Class A common stock were issued to any stockholder in connection with the reverse stock split and all fractional shares which might otherwise be issuable as a result of the reverse stock split were rounded up to the nearest whole share. On the effective date of the reverse stock split, all outstanding options and warrants to purchase shares of the Company's Class A common stock were proportionally adjusted based upon the split ratio and became exercisable into one-fifth of the number of shares of the Company's Class A common stock as it was prior to the reverse stock split at an exercise price which is five times the exercise price prior to the reverse stock split. After the effective date of the reverse stock split, each certificate representing shares of pre-reverse stock split Class A common stock was deemed to represent one-fifth of a share of the post-reverse stock split Class A common stock, subject to rounding for fractional shares, and the records of the Company's transfer agent, Transfer Online, Inc., were adjusted to give effect to the reverse stock split. Following the effective date of the reverse stock split, the share certificates representing the pre-reverse stock split Class A common stock continue to be valid for the appropriate number of shares of post-reverse stock split Class A common stock, adjusted for rounding. These condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented, unless otherwise specified. |
Principles of Consolidation | Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries from the acquisition date of majority voting control and through the date of disposition, if any. |
Use of Estimates | Use of Estimates GAAP requires management of the Company to make estimates and assumptions in the preparation of these condensed consolidated financial statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions. The most significant areas that require management judgment and which are susceptible to possible change in the near term include the Company's revenue recognition, allowance for doubtful accounts and sales credits, stock-based compensation, income taxes, purchase price for acquisition, goodwill, other intangible assets, put rights and valuation of liabilities. The accounting policies for these areas are discussed elsewhere in these unaudited condensed consolidated financial statements. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. |
Revenue Recognition | Revenue Recognition The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists; no significant Company obligations remain; collection of the related receivable is reasonably assured; and the fees are fixed or determinable. The Company acts as a principal in revenue transactions as the Company is the primary obligor in the transactions. As such, revenue is recognized on a gross basis, and media and publisher expenses that are directly related to a revenue-generating event are recorded as a component of cost of revenue. |
Cost of Revenue | Cost of Revenue Cost of revenue consists of payments to media providers and website publishers that are directly related to a revenue-generating event and project and application design costs. The Company becomes obligated to make payments related to media providers and website publishers in the period the advertising impressions, click-throughs, actions or lead-based information are delivered or occur. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying income statement. |
Accounts Receivable | Accounts Receivable Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company's accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. The Company usually does not require collateral. Allowance for doubtful accounts was $231,695 and $135,442 at September 30, 2016 and December 31, 2015, respectively. |
Concentration of Credit Risk, Significant Customers and Supplier Risk | Concentration of Credit Risk, Significant Customers and Supplier Risk Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited in the United States. The balances in the United States held at any one financial institution are generally in excess of Federal Deposit Insurance Corporation ("FDIC") insurance limits. The uninsured cash bank balances were approximately $4.2 million At September 30, 2016, two customers accounted for more than 10% of the accounts receivable balance, for a total of 50%. For the nine months ended September 30, 2016 one customer accounted for 49% of total revenue. At September 30, 2015, two customers accounted for more than 10% of the accounts receivable balance, for a total of 61%. For the nine months ended September 30, 2015 one customer accounted for 50% of total revenue. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company's financial instruments, including cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses, are carried at historical cost. At September 30, 2016 and December 31, 2015, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments. |
Property and equipment | Property and equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets of three to seven years. Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment. |
Intangible assets | Intangible assets Intangible assets consist of intellectual property and a non-complete agreement and are stated at cost less accumulated amortization. Amortization is provided for on the straight-line basis over the estimated useful lives of the assets of five to six years. |
Business Combinations | Business Combinations For all business combinations (whether partial, full or step acquisitions), the Company records 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration, if any, is recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value are recognized in earnings until settlement and acquisition-related transaction and restructuring costs are expensed rather than treated as part of the cost of the acquisition. |
Goodwill and change to annual impairment testing period | Goodwill and change to annual impairment testing period Our goodwill consists of the excess purchase price paid in business combinations over the fair value of assets acquired. Goodwill is considered to have an indefinite life. The Company has historically performed its annual goodwill and impairment assessment on September 30 th st The Company employs the non-amortization approach to account for goodwill. Under the non-amortization approach, goodwill is not amortized into the results of operations, but instead is reviewed annually or more frequently if events or changes in circumstances indicate that the asset might be impaired, to assess whether the fair value exceeds the carrying value. When evaluating the potential impairment of goodwill, we first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company's products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company's reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to a two-step impairment testing methodology using the income approach (discounted cash flow method). In the first step of the two-step testing methodology, we compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, we then complete the second step of the impairment test to determine the amount of impairment to be recognized. In the second step, we estimate an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference in that period. When required, we arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by particular assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results. During the nine months ended September 30, 2016, we determined that a portion of the goodwill assigned to Steel Media acquisition has become impaired. Accordingly, we recorded a goodwill impairment charge of $670,000 for the nine months ended September 30, 2016. The impairment charge represents the excess of the carrying amount of the goodwill recorded in the acquisition over the implied fair value of the goodwill. The implied fair value of the goodwill is the residual fair value based on an income approach using discounted cash flow model using revenue and profit forecasts. No additional impairment of goodwill has been recorded in the three months ended September 30, 2016. |
Long-lived Assets | Long-lived Assets Management evaluates the recoverability of the Company's identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in the Company's stock price for a sustained period of time; and changes in the Company's business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets' carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairments have been recorded in either the nine months ended September 30, 2016 or 2015. |
Loss Per Share | Loss Per Share We use ASC 260, " Earnings Per Share There were 2,912,069 common share equivalents at September 30, 2016 and 2,796,803 at September 30, 2015. For the nine months ended September 30, 2016 and 2015 these potential shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share. |
Income Taxes | Income Taxes We utilize ASC 740 Income Taxes The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. |
Stock-Based Compensation | Stock-Based Compensation We account for our stock based compensation under ASC 718 " Compensation Stock Compensation We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. |
Business Segments | Business Segments The Company uses the "management approach" to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company's reportable segments. Using the management approach, the Company determined that it has one operating segment due to business similarities and similar economic characteristics. |
Liquidity | Liquidity The Company had an accumulated deficit at September 30, 2016 of $(13.0) million. As of September 30, 2016, we had approximately $4.2 million in cash and cash equivalents and a deficit in working capital of $(9.4) million as compared to $(1.1) million in cash and cash equivalents and a deficit in working capital of $(7.0) million at December 31, 2015. The Company believes it has established an ongoing source of revenue that is sufficient to cover its operating costs over the next twelve months. In addition, management plans to continue as a going concern could also include raising additional capital through borrowing and/or additional sales of equity or equity linked securities. |
Recently Issued Accounting Standards | Recently Issued Accounting Standards In October 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 will require the tax effects of intercompany transactions, other than sales of inventory, to be recognized currently, eliminating an exception under current GAAP in which the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the first interim period of our 2019 fiscal year, with early adoption permitted. In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 provides guidance regarding the classification of certain items within the statements of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 with early adoption permitted. In connection with its financial instruments project, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments in June 2016 and ASU 2016-01 - Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities in January 2016. · ASU 2016-13 introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking expected loss model that will replace the current incurred loss model and generally will result in earlier recognition of allowances for losses. The guidance will be effective for the first interim period of our 2021 fiscal year, with early adoption in fiscal year 2020 permitted. · ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other provisions, the new guidance requires the fair value measurement of investments in certain equity securities. For investments without readily determinable fair values, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable prices minus impairment. All changes in measurement will be recognized in net income. The guidance will be effective for the first interim period of our 2019 fiscal year. Early adoption is not permitted, except for certain provisions relating to financial liabilities. In April 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-10, Identifying Performance Obligations and Licensing (Topic 606) Revenue from Contracts with Customer (Topic 606) (Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date) In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718 In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customer (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) In April 2015, the FASB issued ASU No. 2015-3, Simplifying the Presentation of Debt Issuance Costs Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements. |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes Payable [Abstract] | |
Schedule of notes payable | September 30, 2016 December 31, 2015 Current portion of note payable $ 5,933,805 $ 2,455,000 Non-current portion of note payable - 8,033,898 Total note payable including PIK interest 5,933,805 10,488,898 Less deferred financing costs (838,069 ) (1,654,773 ) Notes payable and PIK interest accrued, net of deferred costs $ 5,095,736 $ 8,834,125 |
Schedule of put liability | December 31, 2015 Activity During the Period Accretion in Value September 30, 2016 Put liability $ 1,436,282 $ $ 63,718 $ 1,500,000 Total $ 1,436,282 $ $ 63,718 $ 1,500,000 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible assets | September 30, 2016 December 31, 2015 Non-compete agreement $ 1,250,000 $ 1,250,000 Intellectual property 756,000 756,000 2,006,000 2,006,000 Accumulated amortization (663,906 ) (394,256 ) Carrying value $ 1,342,094 $ 1,611,744 |
RELATED PARTY TRANSACTIONS (Tab
RELATED PARTY TRANSACTIONS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Related Party Transactions [Abstract] | |
Schedule of contingent consideration payable | September 30, December 31, 2016 2015 Balance, beginning of year $ 7,585,435 $ 6,732,123 Accretion in value 159,061 853,312 Payment made (4,000,000 ) Reversal of second year Earn Out Consideration (3,744,496 ) Balance, September 30 2016 $ $ 7,585,435 |
ACCOUNTS PAYABLE AND ACCRUED 19
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Accounts Payable and Accrued Liabilities [Abstract] | |
Schedule of Accounts payable and accrued expenses | September 30, 2016 December 31, 2015 Accounts payable, trade $ 9,608,508 $ 3,003,642 Accrued expenses 1,178,919 45,450 Accrued compensation 182,896 659,262 Accrued commissions 554,959 1,430,453 Total $ 11,525,282 $ 5,138,807 |
ORGANIZATION AND SUMMARY OF S20
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||||
Jan. 31, 2012shares | Sep. 30, 2016USD ($)shares | Sep. 30, 2015USD ($)shares | Sep. 30, 2016USD ($)Item$ / sharesshares | Sep. 30, 2015USD ($)shares | Dec. 31, 2015USD ($) | Dec. 31, 2014USD ($) | |
Minimum NASDAQ bid price requirement | $ / shares | $ 4 | ||||||
Reverse stock split ratio | 5 | ||||||
Allowance for doubtful accounts | $ 231,695 | $ 231,695 | $ 135,442 | ||||
Uninsured cash bank balance | $ 4,200,000 | $ 4,200,000 | |||||
Number of operating segments | Item | 1 | ||||||
Antidilutive common share equivalents | shares | 2,912,069 | 2,796,803 | 2,912,069 | 2,796,803 | |||
Goodwill impairment | $ 670,000 | ||||||
Impairment of long-lived assets | |||||||
Accumulated deficit | (13,046,069) | (13,046,069) | (10,141,771) | ||||
Cash and cash equivalents | 4,241,230 | $ 1,032,958 | 4,241,230 | $ 1,032,958 | 1,091,186 | $ 1,843,393 | |
Working capital deficit | $ 9,400,000 | $ 9,400,000 | $ 7,000,000 | ||||
Minimum [Member] | |||||||
Property and equipment estimated useful life | 3 years | ||||||
Intangible assets estimated useful life | 5 years | ||||||
Maximum [Member] | |||||||
Property and equipment estimated useful life | 7 years | ||||||
Intangible assets estimated useful life | 6 years | ||||||
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | |||||||
Concentration risk percentage | 49.00% | 61.00% | |||||
Accounts Receivable [Member] | Customer Concentration Risk [Member] | |||||||
Concentration risk percentage | 50.00% | 50.00% | |||||
Social Reality Llc [Member] | |||||||
Effective date of business acquisition | Jan. 1, 2012 | ||||||
Social Reality Llc [Member] | Class A and Class B Common Stock [Member] | |||||||
Shares issued in business acquisition | shares | 2,465,753 |
ACQUISITIONS (Acquisition of St
ACQUISITIONS (Acquisition of Steel Media) (Details) - USD ($) | Dec. 19, 2014 | Oct. 30, 2014 | Sep. 30, 2016 | Sep. 30, 2016 | Dec. 31, 2015 | Jan. 29, 2016 | Dec. 31, 2014 |
Business Acquisition [Line Items] | |||||||
Earnout consideration | $ 7,600,000 | $ 6,732,123 | |||||
Reversal of second earnout liability | $ 3,744,496 | $ (3,744,496) | |||||
Steel Media [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Ownership acquired (as a percent) | 100.00% | ||||||
Cash payment | $ 7,500,000 | ||||||
Cash payment held in escrow | 2,000,000 | ||||||
Contingent Earnout Consideration paid | $ 4,000,000 | ||||||
Earnout consideration paid in cash | $ 1,600,000 | ||||||
Earnout consideration paid in shares | 256,754 | ||||||
Steel Media [Member] | Maximum [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Purchase consideration | 20,000,000 | ||||||
Earnout consideration | $ 8,000,000 | ||||||
Steel Media [Member] | Senior Subordinated Notes [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Notes term | 1 year | ||||||
Notes issued | $ 2,500,000 | ||||||
Steel Media [Member] | Senior Subordinated Notes [Member] | Common Class A [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Escrow shares | 477,373 | ||||||
Five Delta Inc [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Ownership acquired (as a percent) | 100.00% | ||||||
Purchase consideration | $ 756,000 | ||||||
Five Delta Inc [Member] | Common Class A [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Number of common stock issued | 120,000 |
NOTES PAYABLE (Financing Agreem
NOTES PAYABLE (Financing Agreement with Victory Park Management, LLC) (Details) - USD ($) | Aug. 22, 2016 | Feb. 16, 2016 | Jan. 26, 2016 | Oct. 26, 2015 | Jul. 06, 2015 | Oct. 30, 2014 | Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 |
Debt Instrument [Line Items] | |||||||||||
Present value of put liability | $ 1,500,000 | $ 1,389,653 | $ 1,500,000 | $ 1,389,653 | $ 1,436,282 | ||||||
Amortization of debt issue costs | 250,100 | $ 297,242 | 816,705 | 925,612 | |||||||
Costs related to agreement | 1,982,124 | ||||||||||
Repayments of note payable | 1,763,077 | 1,162,519 | |||||||||
PIK interest expense accrued to principal | 447,738 | $ 279,216 | |||||||||
Capitalized debt costs | 838,069 | 838,069 | 1,600,000 | ||||||||
Note payable | 5,095,736 | 5,095,736 | $ 1,378,367 | ||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | |||||||||||
Debt Instrument [Line Items] | |||||||||||
Notes issued | $ 500,000 | $ 1,600,000 | $ 1,400,000 | $ 1,500,000 | $ 9,000,000 | ||||||
Percentage of equity interest pledged | 100.00% | ||||||||||
Interest rate (as a percent) | 10.00% | 10.00% | |||||||||
Increase in interest rate | 3.00% | ||||||||||
Paid-in-kind interest rate (as a percent) | 7.00% | 4.00% | |||||||||
Exercise period of warrants | 5 years | ||||||||||
Exercise price of warrants | $ 1 | ||||||||||
Percentage of revenue used as base to calculate purchase price | 50.00% | ||||||||||
Amount used as base to calculate purchase price | $ 1,500,000 | ||||||||||
Costs related to agreement | $ 3,100,000 | ||||||||||
Maturity date | Dec. 31, 2016 | Oct. 30, 2017 | Oct. 30, 2017 | Oct. 30, 2017 | Oct. 30, 2017 | ||||||
Amount of forbearance fee | $ 115,322 | ||||||||||
Note payable | $ 5,930,000 | $ 5,930,000 | |||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | Common Class A [Member] | |||||||||||
Debt Instrument [Line Items] | |||||||||||
Number of shares to be issued | 29,000,000 | ||||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | Maximum [Member] | |||||||||||
Debt Instrument [Line Items] | |||||||||||
Notes issued | $ 20,000,000 | ||||||||||
Paid-in-kind interest rate (as a percent) | 4.00% | ||||||||||
Legal fees | $ 25,000 | ||||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | Minimum [Member] | |||||||||||
Debt Instrument [Line Items] | |||||||||||
Paid-in-kind interest rate (as a percent) | 2.00% |
NOTES PAYABLE (Schedule of Note
NOTES PAYABLE (Schedule of Notes Payable) (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Notes Payable [Abstract] | ||
Current portion of note payable | $ 5,933,805 | $ 2,455,000 |
Non-current portion of note payable | 8,033,898 | |
Total note payable including PIK interest | 5,933,805 | 10,488,898 |
Less deferred financing costs | (838,069) | (1,654,773) |
Notes payable and PIK interest accrued, net of deferred costs | $ 5,095,736 | $ 8,834,125 |
NOTES PAYABLE (Schedule of Acti
NOTES PAYABLE (Schedule of Activity for the put liability) (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Put liability December 31, 2015 | $ 1,436,282 | |
Activity During the Period | ||
Accretion in Value | 63,718 | $ 129,643 |
Put liability June 30, 2016 | 1,500,000 | $ 1,389,653 |
Put Liability Notes Payable [Member] | ||
Put liability December 31, 2015 | 1,436,282 | |
Activity During the Period | ||
Accretion in Value | 63,718 | |
Put liability June 30, 2016 | $ 1,500,000 |
NOTES PAYABLE (Financing Agre25
NOTES PAYABLE (Financing Agreement with Fast Pay Partners, LLC) (Details) - Financing Agreement [Member] - Fast Pay Partners, LLC [Member] $ in Millions | Sep. 19, 2016USD ($) |
Debt Instrument [Line Items] | |
Notes issued | $ 5.5 |
Percentage of accounts receivable pledged | 80.00% |
Maximum amount of advances pledged | $ 8 |
Concentration limitation on percentage of debt from any single customer | 25.00% |
Concentration limitation on percentage of debt from larger customer | 50.00% |
Initial term | 1 year |
STOCKHOLDERS' EQUITY (Preferred
STOCKHOLDERS' EQUITY (Preferred and Common Stock) (Details) - $ / shares | Sep. 30, 2016 | Dec. 31, 2015 | Aug. 16, 2013 |
Class of Stock [Line Items] | |||
Preferred Stock, shares authorized | 50,000,000 | 50,000,000 | |
Preferred Stock, par value per share | $ 0.001 | $ 0.001 | |
Common Class A [Member] | |||
Class of Stock [Line Items] | |||
Common Stock, shares authorized | 250,000,000 | 250,000,000 | |
Common Stock, par value per share | $ 0.001 | $ 0.001 | |
Common Stock, shares outstanding | 5,622,052 | 28,110,229 | |
Common Class B [Member] | |||
Class of Stock [Line Items] | |||
Common Stock, shares authorized | 9,000,000 | 9,000,000 | |
Common Stock, par value per share | $ 0.001 | $ 0.001 | |
Common Stock, shares outstanding | 0 | 0 | |
Series 1 Preferred Stock [Member] | |||
Class of Stock [Line Items] | |||
Preferred Stock, shares authorized | 200,000 | ||
Liquidation preference per share | $ 0.001 |
STOCKHOLDERS' EQUITY (2016 Tran
STOCKHOLDERS' EQUITY (2016 Transactions) (Details) | Sep. 30, 2016USD ($)$ / sharesshares | Sep. 22, 2016shares | Sep. 16, 2016$ / sharesshares | Aug. 16, 2016USD ($)shares | Feb. 29, 2016USD ($)shares | Feb. 29, 2016USD ($)shares | Sep. 30, 2016USD ($)$ / sharesshares | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($)$ / sharesshares | Sep. 30, 2015USD ($) | Jan. 29, 2016USD ($)shares |
Sale of common stock | $ 3,550,815 | ||||||||||
Expense related to stock awards | $ 2,671 | 3,116 | |||||||||
Stock option compensation expense | $ 66,588 | $ 2,726 | $ 181,713 | 142,456 | |||||||
Stock options forfeited during period | shares | 42,000 | ||||||||||
Proceeds from warrant offering | 6,921 | ||||||||||
Granted during period | shares | 30,000 | ||||||||||
Share-based compensation, vesting period | 3 years | ||||||||||
Granted during period, exercise price | $ / shares | $ 1.33 | ||||||||||
Stock options granted, grant date fair value | $ / shares | $ 1.07 | ||||||||||
Award term | 5 years | ||||||||||
Share-based compensation, risk free interest rate | 0.35% | ||||||||||
Share-based compensation, expected dividend yield | 0.00% | ||||||||||
Share-based compensation, expected volatility rate | 115.00% | ||||||||||
Share-based compensation, expected life | 5 years | ||||||||||
Repayments of note payable | $ 1,763,077 | 1,162,519 | |||||||||
Minimum NASDAQ bid price requirement | $ / shares | $ 4 | ||||||||||
Reverse stock split ratio | 5 | ||||||||||
Steel Media [Member] | |||||||||||
Earnout consideration paid in shares | shares | 256,754 | ||||||||||
Earnout consideration paid in shares, Amount | $ 2,400,000 | ||||||||||
Common Class A [Member] | |||||||||||
Number of shares reserved under 2016 Plan | shares | 600,000 | 600,000 | 600,000 | ||||||||
Sale of common stock | $ 500,000 | ||||||||||
Stock issued | shares | 6 | 100,000 | |||||||||
Common Class A [Member] | Director [Member] | |||||||||||
Common stock issued for services, shares | shares | 3,077 | 10,000 | |||||||||
Common stock issued for services | $ 20,000 | $ 70,000 | |||||||||
Common Class A [Member] | Employee [Member] | |||||||||||
Stock option compensation expense | $ 20,750 | $ 38,042 | |||||||||
Granted during period | shares | |||||||||||
Private Placement [Member] | |||||||||||
Sale of common stock | $ 3,300,000 | ||||||||||
Stock issued | shares | 665,000 | ||||||||||
Warrants to purchase shares of common stock, number of shares of common stock | shares | 53,200 | 53,200 | 53,200 | ||||||||
Exercise price of warrant | $ / shares | $ 7.50 | $ 7.50 | $ 7.50 | ||||||||
Purchase price per share | $ / shares | $ 5 | $ 5 | $ 5 | ||||||||
Repayments of note payable | $ 2,000,000 | ||||||||||
Warrant fee percentage | 4.00% | ||||||||||
Placement agent commissions | $ 266,000 | ||||||||||
Common Stock Awards [Member] | |||||||||||
Expense related to stock awards | $ 40,834 | $ 60,458 | $ 250,088 | $ 364,800 | |||||||
Stock options forfeited during period | shares | 42,000 | ||||||||||
Warrants to purchase shares of common stock, number of shares of common stock | shares | 642,000 | ||||||||||
Exercise price of warrant | $ / shares | $ 5 | ||||||||||
Exercise period of warrants | 3 years | ||||||||||
Common Stock Awards [Member] | Four Directors [Member] | |||||||||||
Shares issued for stock awards that have vested | shares | 6,786 | ||||||||||
Stock option compensation expense | $ 47,500 | ||||||||||
Employee Stock Option [Member] | Employee [Member] | |||||||||||
Stock option compensation expense | $ 38,042 |
INTANGIBLE ASSETS (Schedule of
INTANGIBLE ASSETS (Schedule of Intangible assets) (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Intangible assets | $ 2,006,000 | $ 2,006,000 |
Accumulated amortization | (663,906) | (394,256) |
Carrying value | 1,342,094 | 1,611,744 |
Non-compete agreement [Member] | ||
Intangible assets | 1,250,000 | 1,250,000 |
Intellectual Property [Member] | ||
Intangible assets | $ 756,000 | $ 756,000 |
INTANGIBLE ASSETS (Narrative) (
INTANGIBLE ASSETS (Narrative) (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Intellectual Property [Member] | ||||
Amortization expense | $ 37,800 | $ 0 | $ 113,400 | $ 0 |
Non-compete agreement [Member] | ||||
Amortization expense | $ 52,083 | $ 190,972 | $ 156,250 | $ 190,972 |
RELATED PARTY TRANSACTIONS (Nar
RELATED PARTY TRANSACTIONS (Narrative) (Details) - USD ($) | Sep. 30, 2016 | Jan. 29, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | Oct. 30, 2014 |
Related Party Transaction [Line Items] | |||||
Contingent Earnout Consideration | $ 7,600,000 | $ 6,732,123 | |||
Steel Media [Member] | |||||
Related Party Transaction [Line Items] | |||||
Earnout consideration paid in cash | $ 1,600,000 | ||||
Present value of consideration | 0 | ||||
Contingent Earnout Consideration paid | $ 4,000,000 | ||||
Earnout consideration paid in shares | 256,754 | ||||
Steel Media [Member] | Maximum [Member] | |||||
Related Party Transaction [Line Items] | |||||
Contingent Earnout Consideration | $ 8,000,000 | ||||
Steel Media [Member] | Maximum [Member] | Richard Steel [Member] | |||||
Related Party Transaction [Line Items] | |||||
Contingent Earnout Consideration | $ 0 |
RELATED PARTY TRANSACTIONS (Sch
RELATED PARTY TRANSACTIONS (Schedule of contingent consideration payable) (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Activity for the contingent consideration payable [Roll Forward] | ||||
Beginning of period | $ 7,600,000 | $ 6,732,123 | $ 6,732,123 | |
Accretion in value | (3,585,388) | $ 692,674 | 853,312 | |
Payment made | (4,000,000) | |||
Reversal of second year Earn Out Consideration | $ 3,744,496 | (3,744,496) | ||
End of period | $ 7,600,000 |
ACCOUNTS PAYABLE AND ACCRUED 32
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Accounts Payable and Accrued Liabilities [Abstract] | ||
Accounts payable, trade | $ 9,608,508 | $ 3,003,642 |
Accrued expenses | 1,178,919 | 45,450 |
Accrued compensation | 182,896 | 659,262 |
Accrued commissions | 554,959 | 1,430,453 |
Total | $ 11,525,282 | $ 5,138,807 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Lease expiration period | Sep. 30, 2021 | |||
Rent expense | $ 73,385 | $ 42,322 | $ 200,584 | $ 118,343 |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) - USD ($) | Oct. 31, 2016 | Oct. 14, 2016 | Oct. 03, 2016 | Sep. 30, 2016 | Sep. 22, 2016 | Oct. 30, 2014 | Feb. 29, 2016 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 |
Sale of common stock | $ 3,550,815 | |||||||||
Repayments of note payable | 1,763,077 | $ 1,162,519 | ||||||||
Note payable | $ 5,095,736 | 5,095,736 | $ 1,378,367 | |||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | ||||||||||
Exercise price of warrant | $ 1 | |||||||||
Exercise period of warrants | 5 years | |||||||||
Note payable | 5,930,000 | $ 5,930,000 | ||||||||
Common Class A [Member] | ||||||||||
Sale of common stock | $ 500,000 | |||||||||
Stock issued, shares | 6 | 100,000 | ||||||||
Common Class A [Member] | Financing Agreement [Member] | Victory Park Management, LLC [Member] | ||||||||||
Warrants to purchase shares of common stock, number of shares of common stock | 29,000,000 | |||||||||
Private Placement [Member] | ||||||||||
Sale of common stock | $ 3,300,000 | |||||||||
Stock issued, shares | 665,000 | |||||||||
Purchase price per share | $ 5 | $ 5 | ||||||||
Exercise price of warrant | $ 7.50 | $ 7.50 | ||||||||
Warrants to purchase shares of common stock, number of shares of common stock | 53,200 | 53,200 | ||||||||
Placement agent commissions | $ 266,000 | |||||||||
Warrant fee percentage | 4.00% | |||||||||
Repayments of note payable | $ 2,000,000 | |||||||||
Subsequent Event [Member] | Financing Agreement [Member] | Victory Park Management, LLC [Member] | ||||||||||
Repayments of note payable | $ 2,000,000 | |||||||||
Note payable | $ 3,900,000 | |||||||||
Subsequent Event [Member] | Chief Financial Officer [Member] | ||||||||||
Officer salary | $ 200,000 | |||||||||
Severance costs | 180,000 | |||||||||
Subsequent Event [Member] | Chief Financial Officer [Member] | Bonus [Member] | ||||||||||
Officer salary | 100,000 | |||||||||
Subsequent Event [Member] | Common Class A [Member] | Chief Financial Officer [Member] | Bonus [Member] | ||||||||||
Restricted stock grant | $ 100,000 | |||||||||
Restricted shock grant, shares | 100,000 | |||||||||
Subsequent Event [Member] | Common Class A [Member] | Chief Financial Officer [Member] | Bonus [Member] | Vesting on October 14, 2017 [Member] | ||||||||||
Restricted shock grant, shares | 50,000 | |||||||||
Subsequent Event [Member] | Common Class A [Member] | Chief Financial Officer [Member] | Bonus [Member] | Vesting on October 14, 2018 [Member] | ||||||||||
Restricted shock grant, shares | 50,000 | |||||||||
Subsequent Event [Member] | Private Placement [Member] | ||||||||||
Stock issued for reimbursement of expenses, shares | 22,392 | |||||||||
Placement agent commissions | $ 109,957 | |||||||||
Placement agent commissions - cash | $ 2,000 | |||||||||
Warrant fee percentage | 4.00% | |||||||||
Subsequent Event [Member] | Private Placement [Member] | Common Class A [Member] | ||||||||||
Sale of common stock | $ 1,300,000 | |||||||||
Stock issued, shares | 225,000 | |||||||||
Purchase price per share | $ 5 | |||||||||
Exercise price of warrant | $ 7.50 | |||||||||
Warrants to purchase shares of common stock, number of shares of common stock | 15,200 | |||||||||
Warrants to purchase shares of common stock, number of shares of common stock - additional | 400 | |||||||||
Exercise period of warrants | 3 years |