Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Mar. 31, 2017 | Jun. 30, 2016 | |
Document And Entity Information | |||
Entity Registrant Name | SOCIAL REALITY, Inc. | ||
Entity Central Index Key | 1,538,217 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer | No | ||
Is Entity a Voluntary Filer | No | ||
Is Entity's Reporting Status Current | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 24,500,000 | ||
Entity Common Stock, Shares Outstanding | 8,018,507 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,016 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 1,048,762 | $ 1,091,186 |
Accounts receivable, net | 8,411,019 | 7,056,298 |
Prepaid expenses | 332,503 | 309,436 |
Other current assets | 6,488 | 36,090 |
Total current assets | 9,798,772 | 8,493,010 |
Property and equipment, net | 55,492 | 43,936 |
Goodwill | 15,644,957 | 16,314,957 |
Intangible assets, net | 1,365,241 | 1,611,744 |
Prepaid stock based compensation | 373,567 | |
Other assets | 34,659 | 34,659 |
Total assets | 26,899,121 | 26,871,873 |
Current liabilities: | ||
Accounts payable and accrued expenses | 13,156,083 | 5,138,807 |
Notes payable, net of unamortized costs | 3,418,788 | 1,378,367 |
Unearned revenue | 1,295 | |
Contingent consideration payable to related party | 7,585,435 | |
Put liability | 1,500,000 | 1,436,282 |
Total current liabilities | 18,074,871 | 15,540,186 |
Notes payable, net of current portion | 7,455,758 | |
Total liabilities | 18,074,871 | 22,995,944 |
Commitments and contingencies (Note 11) | ||
Stockholders' equity: | ||
Preferred stock, authorized 50,000,000 shares, $0.001 par value, no shares issued or outstanding at December 31, 2016 and 2015, respectively | ||
Common stock to be issued | 678,000 | |
Additional paid in capital | 22,529,303 | 14,012,078 |
Accumulated deficit | (14,390,004) | (10,141,771) |
Total stockholders' equity | 8,824,250 | 3,875,929 |
Total liabilities and stockholders' equity | 26,899,121 | 26,871,873 |
Common Class A [Member] | ||
Stockholders' equity: | ||
Common stock | 6,951 | 5,622 |
Common Class B [Member] | ||
Stockholders' equity: | ||
Common stock |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2016 | Dec. 31, 2015 |
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 Stock, shares authorized | 59,000,000 | |
Common Class A [Member] | ||
Common Stock, shares authorized | 50,000,000 | 50,000,000 |
Common Stock, par value per share | $ 0.001 | $ 0.001 |
Common Stock, shares issued | 6,951,077 | 5,622,046 |
Common Stock, shares outstanding | 6,951,077 | 5,622,046 |
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 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Statement [Abstract] | ||
Revenues | $ 35,763,047 | $ 30,294,165 |
Cost of revenue | 23,226,995 | 14,407,363 |
Gross profit | 12,536,052 | 15,886,802 |
Operating expense: | ||
General, selling and administrative expense | 16,648,705 | 14,834,766 |
Impairment of goodwill | 670,000 | |
Total operating expense | 17,318,705 | 14,834,766 |
(Loss) income from operations | (4,782,653) | 1,052,036 |
Other income (expense) | ||
Write off of contingent consideration | 3,744,496 | |
Interest expense | (3,210,076) | (3,775,945) |
Total other income (expense) | 534,420 | (3,775,945) |
Loss before provision for income taxes | (4,248,233) | (2,723,909) |
Provision for income taxes | ||
Net loss | $ (4,248,233) | $ (2,723,909) |
Net loss per share, basic and diluted | $ (0.69) | $ (0.50) |
Weighted average shares outstanding | 6,196,197 | 5,414,710 |
CONSOLIDATED STATEMENT OF STOCK
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Common stock to be issued [Member] | Additional Paid-in Capital [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2014 | $ 86 | $ 5,406 | $ 13,164,777 | $ (7,417,862) | $ 5,752,407 | |
Balance, shares at Dec. 31, 2014 | 86,000 | 5,405,950 | ||||
Proceeds from warrant offering | 6,921 | 6,921 | ||||
Stock based compensation | 739,146 | 739,146 | ||||
Vested stock awards issued | $ 26 | (26) | ||||
Vested stock awards issued, shares | 25,666 | |||||
Shares issued for services | $ 18 | 101,346 | 101,364 | |||
Shares issued for services, shares | 18,430 | |||||
Common stock issued upon conversion of preferred stock | $ (86) | $ 172 | (86) | |||
Common stock issued upon conversion of preferred stock, shares | (86,000) | 172,000 | ||||
Net loss | (2,723,909) | (2,723,909) | ||||
Balance at Dec. 31, 2015 | $ 5,622 | 14,012,078 | (10,141,771) | 3,875,929 | ||
Balance, shares at Dec. 31, 2015 | 5,622,046 | |||||
Proceeds from the sale of common stock units | $ 1,042 | 4,642,757 | 4,643,799 | |||
Proceeds from the sale of common stock units, shares | 1,042,392 | |||||
Stock based compensation | 1,062,621 | 1,062,621 | ||||
Vested stock awards issued | $ 10 | (10) | ||||
Vested stock awards issued, shares | 10,000 | |||||
Shares issued for services | $ 20 | 137,480 | 137,500 | |||
Shares issued for services, shares | 19,862 | |||||
Shares to be issued for services | $ 678,000 | 678,000 | ||||
Shares to be issued for services, shares | 100,000 | |||||
Common stock issued as Earn Out Consideration | $ 257 | 2,399,743 | 2,400,000 | |||
Common stock issued as Earn Out Consideration, shares | 256,754 | |||||
Rounding of shares for stock split | 23 | |||||
Warrant modification costs | 274,634 | 274,634 | ||||
Net loss | (4,248,233) | (4,248,233) | ||||
Balance at Dec. 31, 2016 | $ 6,951 | $ 678,000 | $ 22,529,303 | $ (14,390,004) | $ 8,824,250 | |
Balance, shares at Dec. 31, 2016 | 6,951,077 | 100,000 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Cash flows from operating activities | ||
Net loss | $ (4,248,233) | $ (2,723,909) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||
Amortization of stock based prepaid fees | 373,567 | 634,452 |
Stock to be issued for services | 678,000 | |
Stock based compensation | 1,200,121 | 840,512 |
Amortization of debt issuance costs | 1,076,695 | 1,252,963 |
Warrant modification costs | 274,634 | |
PIK interest expense accrued to principal | 511,261 | 390,462 |
Impairment of goodwill | 670,000 | |
Accretion of contingent consideration, net of write-off | (3,585,435) | 853,312 |
Accretion of put liability | 63,718 | 176,272 |
Provision for bad debts | 119,434 | 86,946 |
Depreciation expense | 21,304 | 17,282 |
Amortization of intangibles | 365,728 | 394,256 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (6,817,597) | (3,287,624) |
Prepaid expenses | (23,069) | (86,904) |
Other current assets | 29,602 | (28,738) |
Other assets | (10,855) | |
Accounts payable and accrued expenses | 8,020,903 | 2,254,639 |
Unearned revenue | (1,295) | (24,000) |
Net cash (used in) provided by operating activities | (1,270,662) | 739,066 |
Cash flows from investing activities | ||
Purchase of equipment | (32,862) | (33,616) |
Development of software | (119,225) | |
Net cash used in investing activities | (152,087) | (33,616) |
Cash flows from financing activities | ||
Proceeds from the issuance of common stock units | 4,643,799 | |
Proceeds from warrant offering | 6,921 | |
Proceeds from note payable | 2,100,000 | 2,900,000 |
Repayments of note payable | (3,763,474) | (4,364,578) |
Payment of contingent consideration | (1,600,000) | |
Net cash provided by (used in) financing activities | 1,380,325 | (1,457,657) |
Net decrease in cash and cash equivalents | (42,424) | (752,207) |
Cash and cash equivalents, beginning of year | 1,091,186 | 1,843,393 |
Cash and cash equivalents, end of year | 1,048,762 | 1,091,186 |
Supplemental schedule of cash flow information | ||
Cash paid for interest | 1,312,293 | 1,133,847 |
Supplemental schedule of noncash financing activities | ||
Common stock issued for the payment of contingent consideration | 2,400,000 | |
Proceeds paid by FastPay on behalf of the Company | 5,507,468 | |
Common stock issued for preferred stock conversion and vesting grants | $ 988 |
ORGANIZATION AND SUMMARY OF SIG
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 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", our or the "Company") is a Delaware corporation formed on August 2, 2011. Effective January 1, 2012 we acquired 100% 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 common stock. The former members of Social Reality, LLC owned 100% of our Class A 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 advertising 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 ( “ ” · sale and licensing of our SRAX Social · creation of custom platforms for buying media on SRAX The core elements of this business are: · Social Reality Ad Exchange or "SRAX" – Real Time Bidding sell side and buy side representation SRAX · SRAXmd · SRAX Social · SRAX app, SRAX We offer our customers a variety 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. Presentation of Financial Statements Going Concern The accompanying consolidated financial statements have been prepared on the basis that Social Reality, Inc. will continue to operate as a going concern. We reported net losses of $4,248,233 and $2,723,909 for the years ended December 31, 2016 and 2015, respectively. At December 31, 2016, we had an accumulated deficit of $14,390,004. Our future success depends upon our ability to continue to grow our revenues, contain our operating expenses and generate profits. We do not have any long-term agreements with our customers. There are no assurances that we will be able to increase our revenues and cash flow to a level which supports profitable operations. In addition, our operating expenses increased from $14,834,766 for the year ended December 31, 2015 to $17,318,705 for the year ended December 31, 2016. It is uncertain whether the Company can attain profitability and positive cash flows from operations. These uncertainties raise substantial doubt upon the Companys ability to continue as a going concern. We are in the process of finalizing plans that will reduce our operating expenses and focus our resources in areas of our operations which we believe have the greatest potential to increase our revenues. We believe these plans and actions will enable the Company to both address its pending obligations and improve future profitability and cash flow in its continuing operations. As a result, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Companys inability to continue as a going concern. The outcome of these plans cannot be predicted at this time. Effect of Reverse Stock Split on Presentation On September 20, 2016, the Company completed a 1 for 5 reverse stock split of our Class A common stock. 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. Refer to Note 4 regarding a further discussion of the reverse stock split. These consolidated financial statements give retroactive effect to the reverse stock split for all periods presented, unless otherwise specified. Principles of Consolidation The 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 consolidated financial statements include the accounts of the Company and its subsidiaries from the acquisition date of majority voting control of the subsidiary. Use of Estimates The consolidated financial statements have been prepared in conformity with generally accepted accounting principles accepted in the United States of America (GAAP) and requires management of the Company to make estimates and assumptions in the preparation of these 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. 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 consolidated statements of operations. 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 $254,875 and $135,442 at December 31, 2016 and 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 with financial institutions within the United States. The balances maintained at these financial institutions are generally more than the Federal Deposit Insurance Corporation insurance limits. The uninsured cash bank balances were $1,048,762 At December 31, 2016, two customers accounted for more than 10% of the accounts receivable balance, for a total of 43%. For the year ended December 31, 2016, two customers accounted for 48% of total revenue. At December 31, 2015, one customer accounted for more than 10% of the accounts receivable balance, for a total of 38%. For the year ended December 31, 2015, one customer accounted for 48% 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 December 31, 2016 and 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, a non-complete agreement, and internally developed software 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. During 2016, the Company began capitalizing the costs of developing internal-use computer software, including directly related payroll costs. The Company amortizes costs associated with its internally developed software over periods up to three years, beginning when the software is ready for its intended use. 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 100% 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 specifically identified 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. Although the Company operates within one business segment, it was determined that a portion of the goodwill originally assigned to the Steel Media, a California corporation (Steel Media), acquisition had become impaired as of June 30, 2016. Accordingly, we recorded a goodwill impairment charge of $670,000 during the year ended December 31, 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 that utilized a discounted cash flow model based on revenue and profit forecasts. The Company performed its annual impairment test as of December 31, 2016 and no further impairment was required. 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 regarding its identifiable intangible assets or other long-lived assets during the years ended December 31, 2016 or 2015, respectively. Loss Per Share We use ASC 260, " Earnings Per Share There were 3,818,080 common share equivalents at December 31, 2016 and 2,619,403 at December 31, 2015. For the years ended December 31, 2016 and 2015, respectively, 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 December 31, 2016 of $14,390,004. As of December 31, 2016, we had $1,048,762 in cash and cash equivalents and a deficit in working capital of $8,276,099 as compared to $1,091,186 in cash and cash equivalents and a deficit in working capital of $7,047,176 at December 31, 2015, respectively. While the Company believes it has established an ongoing source of revenue that is sufficient to cover its operating costs over the next twelve months, we are currently experiencing a period of limited liquidity resulting from recent activity related to the Financing Agreement. Between September 2016 and January 2017, we satisfied all outstanding obligations under the Financing Agreement utilizing proceeds from the factoring of our receivables and sales of our securities. While the satisfaction of the amounts owed under the Financing Agreement is expected to result in overall savings to us in 2017 through the elimination of both the associated interest expense as well as the internal costs related to the reporting obligations under its terms, the payment of these amounts has adversely impacted our current liquidity. To address the immediate impact of this decreased liquidity, we have recently made certain reductions in staffing, delayed certain previously budgeted expenditures, eliminated certain legacy operating expenses associated with the Steel Media acquisition, restructured sales management compensation structures, and have extended payments to certain vendors. If our revenues continue to increase throughout the next twelve months as anticipated, additional liquidity is also anticipated to be readily available under our accounts receivable factoring agreement with FastPay Partners. As of March 27, 2017, we had approximately $3,000,000 of factored accounts receivable outstanding on a total available line of $8,000,000. In addition to increasing sales, lowering costs, and more aggressive management of our accounts payable, managements plan to continue as a going concern also includes raising additional capital through borrowing and/or additional sales of equity or equity linked securities. We are currently exploring options to raise a minimum of $5,000,000 in additional capital to enhance current liquidity and to satisfy the warrant put obligations discussed later in this report. However, while we are engaged in discussions with several financing sources, we are not a party yet to any binding commitment. While we believe we will be successful in ultimately raising the necessary capital, there are no assurances that the terms of that capital will not be dilutive to our existing stockholders or will not result in significant interest expense in future periods. In addition, the longer it takes us to raise this new capital the more the current liquidity issues could adversely impact our sales and results of operations in future periods as it would adversely impact our ability to focus on the expansion of our revenue streams. If we are unable to raise the additional working capital, our ability to meet our revenue guidance for 2017 as well as to satisfy our obligations as they become due may be in jeopardy. If the Company is unable to raise the additional working capital through completion of the financing discussions currently underway, its plan to continue as a going concern may also then include sale of certain operating assets and product lines that it believes would be attractive acquisitions for strategic buyers. While the Company has previously received unsolicited offers from qualified buyers to acquire certain of its operating assets, it is not currently engaged in any active discussions of this type. 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 FASB issued 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 “ · 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 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 In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern. The amendments in this update apply to all reporting entities and require an entity’s management, in connection with preparing financial statements for each annual and interim reporting period, to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). This ASU is effective for annual periods ending after December 15, 2016. We adopted this standard for the year ended December 31, 2016. Based on the results of our analysis, no additional disclosures were required. 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 | 12 Months Ended |
Dec. 31, 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 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 $20,000,000, consisting of: (i) a cash payment at closing of $7,500,000; (ii) a cash payment of $2,000,000 which was 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 $2,500,000 (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 $8,000,000 (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 $4,000,000, of which $1,600,000 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 remaining Earn Out Consideration would not be achieved for the second earn out period ended October 31, 2016 and reversed the second portion of the earn out liability of $3,585,435 in September 2016. At December 31, 2015, we recorded $7,585,435 associated with the first and second portions of the earn out. 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 | 12 Months Ended |
Dec. 31, 2016 | |
Notes Payable [Abstract] | |
NOTES PAYABLE | NOTE 3 NOTES PAYABLE Financing Agreement with Victory Park Management, LLC On October 30, 2014 (the "Financing Agreement Closing Date"), the Company entered 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 $20,000,000 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 $9,000,000 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 the First Amendment to Financing Agreement with the Agent. 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 $1,500,000 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 $1,500,000. 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 for working capital. On October 26, 2015, we borrowed an additional $1,400,000 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 $1,400,000. 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 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 $1,600,000 pursuant to the Financing Agreement. 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 $1,600,000. 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 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. 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. We used the proceeds from this additional draw under the Financing Agreement as working capital. For the year ended December 31, 2016, we made principal payments of $3,763,474. Notes payable as of December 31, consists of the following: 2016 2015 Current portion of note payable $ 3,996,928 $ 2,455,000 Non-current portion of note payable 8,033,898 Total note payable including PIK interest 3,996,928 10,488,898 Less: deferred issuance costs (578,140 ) (1,654,773 ) Notes payable, net of unamortized cost $ 3,418,788 $ 8,834,125 During the year ended December 31, 2016 and 2015, $511,261 and $390,462, respectively, were recorded as PIK interest expense. We incurred a total of $3,164,352 of costs related to the Financing Agreement. These costs are being amortized to interest expense over the life of the debt. During the years ended December 31, 2016 and 2015, $1,076,633 and $1,252,963, respectively of debt issuance costs were amortized. At December 31, 2016 and 2015, the remaining balance of deferred debt issuance costs amounted to $578,140 and $1,654,773, respectively. The deferred debt issuance costs were previously reported as an asset as of December 31, 2015. During 2016, the Company determined that these costs should be reflected as a reduction of the note payable. As such, the Company has reclassified these costs and revised its previously issued financial statements to reflect this determination in accordance with ASU 2015-3. 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 specified number of shares of Class A common stock that would cause such holder to beneficially own shares of Class A common stock that exceeds 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) $1,500,000. We have recorded the put liability at its present value of $1,500,000 at December 31, 2016. As contemplated under the Financing Agreement, the Company also entered 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 for the years ended December 31, was: 2016 2015 Put liability, beginning of year $ 1,436,282 $ 1,260,010 Accretion in value 63,718 176,272 Put liability, end of year $ 1,500,000 $ 1,436,282 The In anticipation that the Company would not comply 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 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 annum to 7% per annum. Our monthly cash interest payments remain unchanged at 10% per annum. We were 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. On October 3, 2016, we made an additional principal repayment to the Agent in the amount of $2,000,000. At December 31, 2016, we had $3,996,928 outstanding under the Financing Agreement. On January 4, 2017, we used the proceeds from an equity sale to repay this balance in full. See Note 12. 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 $8,000,000 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 all obligations are paid and the payment of an early termination fee. The initial advance under the FastPay Agreement was $5,507,468 and the Company used substantially all of this amount to reduce the obligations outstanding under the Financing Agreement, as amended, with the Agent. 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 the Agent. As such, these transactions are presented as non-cash financing activities in the Supplemental schedule of noncash financing activities in the Companys consolidated statements of cash flows. |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 12 Months Ended |
Dec. 31, 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. No shares of Series 1 Preferred Stock were outstanding at December 31, 2015. Common Stock We are authorized to issue an aggregate of 59,000,000 shares of common stock. Our certificate of incorporation provides that we will have two classes of common stock: Class A common stock (authorized 50,000,000 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 at December 31, 2016 or 2015, respectively. On February 23, 2016, our Board of Directors approved the adoption of our 2016 Equity Compensation Plan (the 2016 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 $2,400,000, to Richard Steel as partial payment of the first year Earn Out Consideration. Refer to Note 2 regarding a further description of the 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. We also issued 10,000 shares of Class A common stock, valued at $70,000, to an employee as compensation which were previously awarded and expensed over the vesting period in 2014 and 2015. 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 23 shares of our Class A common stock which resulted from rounding up to whole shares related to the reverse stock split. On September 30, 2016, we sold an aggregate of 665,000 units of our securities to fourteen 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 $3,325,000. Each unit consisted of one share of our Class A common stock and one three year Class A Common Stock Purchase Warrant (Purchase Warrants) 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 Purchase Warrants included in the units sold in this offering, together with the shares of our Class A common stock underlying the Purchase Warrants. If 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 Purchase Warrants for a period of at least 60 days following the delivery by us of a suspension notice, then the Purchase Warrants are exercisable on a cashless basis. T.R. Winston & Company, LLC, a broker-dealer, acted as placement agent for us in this offering. We paid the placement agent commissions totaling $266,000 and agreed to issue it Purchase Warrants to purchase 53,200 shares of our Class A common stock at an exercise price of $7.50 per share. We also paid compensation for services provided by Noble Financial Capital Markets in the amount of $180,000 regarding their assistance in this transaction. T.R. Winston & Company, LLC has reallocated a portion of the commissions and Purchase Warrants to a selected dealer member of the selling group. We also agreed to pay T.R. Winston & Company, LLC a fee of 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 $1,275,000. 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. If 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, acted as placement agent for us in this offering and received 22,392 units in lieu of a cash placement agent commission totaling $109,956 and reimbursement of certain expenses. 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. Stock Awards On September 22, 2015, we granted an aggregate of 44,000 common stock awards to nine employees. The shares will vest ratably over three years on each grant date anniversary. Compensation expense will be recognized over the vesting period. In April 2016, we granted a total of 20,000 shares of our Class A common stock awards to an employee. The shares vest over a two-year period. The fair value of this grant amounted to $166,000 and will be expensed over the vesting period as additional compensation. In October 2016, we granted a total of 100,000 shares of our Class A common stock awards to an employee. The shares vest over a two-year period. The fair value of this grant amounted to $673,500 and will be expensed over the vesting period as additional compensation. On November 14, 2016, the Company entered 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, (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 valued at $678,000 of its Class A common stock on January 2, 2017 and reimburse kiWW for incurred expenses. Although the shares to be issued are for future services over the term of the agreement, we have recognized the value of these services as an expense during the year ended December 31, 2016. The agreement contains customary confidentiality and indemnification provisions. Awards in the amount of 35,500 and 17,092 common shares were forfeited during the years ended December 31, 2016 and 2015, respectively. Stock Options and Warrants In February 2015, we granted 2,400 common stock options to a director. The options vest quarterly over one year. The options have an exercise price of $6.00 per s hare and a term of five years. These options had a grant date fair value of $3.10 per option, determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.50%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 99%; and (4) an expected life of the options of 2 years. In August 2015, we granted 40,000 common stock options to an employee. The options vest ratably over three years on each grant date anniversary. Compensation expense will be recognized over the vesting period. The options have an exercise price of $8.25 per s hare and expire three years following the vesting date. These options had a grant date fair value of $3.70 per option, determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.625%; (2) dividend yield of 0 %; (3) volatility factor of the expected market price of our common stock of 85%; and (4) an expected life of the options of 2 years. In September 2015, we granted 77,000 common stock options to employees. The options will vest ratably over three years on each grant date anniversary. Compensation expense will be recognized over the vesting period. The options have an exercise price of $8.65 per s hare and expire three years following the vesting date. These options had a grant date fair value of $3.95 per option, determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.625 %; (2) dividend yield of 0 %; (3) volatility factor of the expected market price of our common stock of 85%; and (4) an expected life of the options of 2 years. In October 2016, we granted an aggregate of 146,000 stock options to three employees. The options will vest over three years. The options have an exercise price of $7.50 per share and a term of five years. These options had a grant date fair value of $4.98 per option, determined using the Black Scholes method based on the following assumptions: (1) risk free interest rate of 1.125%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 112%; and (4) an expected life of the options of 5 years. During the years ended December 31, 2016 and 2015, we recorded compensation expense of $1,200,121 and $840,512, respectively, related to stock based compensation. During the years ended December 31, 2016 and 2015, 47,000 options and 111,600 options were forfeited, respectively. 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 $274,634 is recognized as an expense in the consolidated statements of operations to the extent the modified instrument has a higher fair value. On November 16, 2016, the Company entered an Investor Relations and Consulting Agreement (Consulting Agreement) with Market Street Investor Relations, LLC (Consultant). The Company engaged the Consultant to provide certain investor relations and public relations services on behalf of the Company as are more fully described in the Consulting Agreement. The term of the Consulting Agreement is for a period of six-months from the effective date and may be extended for an additional six-month term. In lieu of cash payments for the services rendered by the Consultant, the Company issued the Consultant a three year Class A common stock purchase warrant to purchase 400,000 shares of the Companys Class A common stock at an exercise price of $7.50 per share. The warrants vest based on specific milestones described within the Consulting Agreement. The value of the warrants at the date of grant was $1,390,264. At the direction of the Consultant, a warrant to purchase 200,000 shares was issued to the Consultant and a warrant to purchase 200,000 shares was issued to Steve Antebi (a principal stockholder in the Company). The Company also advanced the Consultant $100,000 on the effective date to cover anticipated expenses regarding the services to be performed by the Consultant. The Company is recognizing the value of the services rendered over the term of the Consulting Agreement. 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. After giving effect to 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 and all fractional shares which might otherwise be issuable because 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 consolidated financial statements give retroactive effect to the reverse stock split for all periods presented, unless otherwise specified. On October 13, 2016, the Company's Class A common stock began trading on The NASDAQ Stock Market LLC under the symbol "SRAX." |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2016 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 5 PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31: 2016 2015 Office equipment $ 119,091 $ 86,231 Accumulated depreciation (63,599 ) (42,295 ) Property and equipment, net $ 55,492 $ 43,936 Depreciation expense for the years ended December 31, 2016 and 2015 was $21,304 and $17,282, respectively. |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 12 Months Ended |
Dec. 31, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS | NOTE 6 INTANGIBLE ASSETS Intangible assets consist of the following at December 31: 2016 2015 Non-compete agreement $ 1,250,000 $ 1,250,000 Intellectual property 756,000 756,000 Internally developed software 119,225 Total cost 2,125,225 2,006,000 Accumulated amortization 759,984 394,256 Intangible assets, net $ 1,365,241 $ 1,611,744 Amortization expense was $151,200 for intellectual property, $208,333 for the non-compete agreement and $6,195 for internally developed software for the year ended December 31, 2016. Amortization expense was $151,200 for intellectual property and $243,056 for the non-compete agreement for the year ended December 31, 2015. The estimated future amortization expense for the years ended December 31, are as follows: 2017 $ 399,275 2018 399,275 2019 393,079 2020 173,612 $ 1,365,241 |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2016 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 7 RELATED PARTY TRANSACTIONS We were obligated to Mr. Steel for contingent Earn Out Consideration of up to $8,000,000 that occurred through the acquisition of Steel Media, as described in Note 2 upon Steel Media meeting certain predefined measurements. The Company had initially recorded the liability at its present value of $6,584,042. Additional changes in the value were recorded in the consolidated 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 $4,000,000, of which $1,600,000 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 year ended December 31, 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 December 31, 2016 and recognized the write-off of the remaining Earn Out Consideration in the consolidated statement of operations. Activity for the contingent consideration payable at December 31, was: 2016 2015 Contingent consideration payable to related party, beginning of year $ 7,585,435 $ 6,732,123 Accretion in value 159,061 853,312 Payment of Earn Out Consideration (4,000,000 ) Forfeiture of Earn Out Consideration (3,744,496 ) Contingent consideration payable to related party, end of year $ $ 7,585,435 Malcolm Casselle, a member of our board of directors, is the Chief Technology Officer and President of New Ventures of Tronc, Inc., one of our major advertisers. Revenue from New Ventures of Tronc, Inc. amounted to $4,395,124 and $0 for the years ended December 31, 2016 and 2015, respectively. At December 31, 2016, New Ventures of Tronc, Inc. owed us $1,042,000, net of liabilities owed New Ventures of Tronc, Inc. Steve Antebi, a principal stockholder in the Company, serves as a consultant to the Company. We paid him $467,230 and $634,452 for services provided to us during the years ended December 31, 2016 and 2015, respectively. Additionally, the Company entered a Consulting Agreement with a Consultant that is controlled by Mr. Antebi. For further details regarding this arrangement, refer to Note 4. |
ACCOUNTS PAYABLE AND ACCRUED EX
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 12 Months Ended |
Dec. 31, 2016 | |
Accounts Payable and Accrued Liabilities [Abstract] | |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | NOTE 8 ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31, are comprised of the following: 2016 2015 Accounts payable, trade $ 11,745,026 $ 3,003,642 Accrued expenses 260,818 45,450 Accrued compensation 319,246 659,262 Accrued commissions 830,993 1,430,453 Accounts payable and accrued expenses $ 13,156,083 $ 5,138,807 |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 9 INCOME TAXES Income tax (benefit) expense from continuing operations for the year ended December 31, 2016 consisted of the following: Current Deferred Total Federal $ $ (1,785,238 ) $ (1,785,238 ) State (257,877 ) (257,877 ) Subtotal (2,043,115 ) (2,043,115 ) Valuation allowance 2,043,115 2,043,115 Total $ $ $ Income tax (benefit) expense from continuing operations for the year ended December 31, 2015 consisted of the following: Current Deferred Total Federal $ $ (398,117 ) $ (398,117 ) State (114,535 ) (114,535 ) Subtotal (512,652 ) (512,652 ) Valuation allowance 512,652 512,652 Total $ $ $ A reconciliation of the federal statutory income tax rate to the Companys effective income tax rate is as follows: 2016 2015 Federal statutory income tax rate -34.0 % -34.0 % State income taxes, net of federal tax benefit -4.1 % -3.0 % Stock based compensation 0.0 % 0.2 % Goodwill impairment 5.5 % 0.0 % Permanent differences 0.0 % 8.0 % Earn out accretion -26.6 % 8.5 % Other 1.1 % 1.5 % Provision to return 6.6 % 0.0 % Warrant modification cost 2.3 % 0.0 % Change in valuation allowance 49.2 % 18.8 % Provision for income taxes 0.0 % 0.0 % The tax effects, rounded to thousands, of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2016 and 2015 are presented below: 2016 2015 Deferred tax assets Net operating loss carryforwards $ 2,602,000 $ 1,785,000 Fixed assets 15,000 3,000 Accrued interest 190,000 Intangibles 299,000 Stock based compensation 1,383,000 Other accruals 62,000 Total deferred tax assets 4,551,000 1,788,000 Deferred tax liabilities Stock based compensation (128,000 ) Other accruals (32,000 ) Total deferred tax liabilities (160,000 ) Net deferred tax assets 4,551,000 1,628,000 Valuation allowance (4,551,000 ) (1,628,000 ) Net deferred tax liability $ $ Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry-forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse. During the year ended December 31, 2016, the valuation allowance increased by $2,923,000 to $4,551,000. $2,000,000 of this increase was recorded to deferred tax expense with the remainder as an offset to deferred tax asset not previously recorded. The total valuation allowance results from the Companys estimate of its inability to recover its net deferred tax assets. At December 31, 2016, the Company has federal and state net operating loss carry forwards, which are available to offset future taxable income, of approximately $6,600,000 and $11,600,000, respectively, both of which begin to expire in 2032. These carry forwards may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experienced one or more ownership changes which would limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has not completed an IRC Section 382/383 analysis. If a change in ownership were to have occurred, NOL and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Companys effective tax rate. The Company files income tax returns in the United States and various state jurisdictions. Due to the Companys state net operating loss posture all tax years are open and subject to income tax examination by tax authorities. The Companys policy is to recognize interest expense and penalties related to income tax matters as tax expense. At December 31, 2016, there are no unrecognized tax benefits, and there are no significant accruals for interest related to unrecognized tax benefits or tax penalties. |
STOCK OPTIONS, AWARDS AND WARRA
STOCK OPTIONS, AWARDS AND WARRANTS | 12 Months Ended |
Dec. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK OPTIONS, AWARDS AND WARRANTS | NOTE 10 STOCK OPTIONS, AWARDS AND WARRANTS 2012, 2014 and 2016 Equity Compensation Plans In January 2012, our board of directors and stockholders authorized the 2012 Equity Compensation Plan, which we refer to as the 2012 Plan, covering 600,000 shares of our Class A common stock. On November 5, 2014, our board of directors approved the adoption of our 2014 Equity Compensation Plan (the " 2014 Plan ") and reserved 600,000 shares of our Class A common stock for grants under this plan. On February 23, 2016, our board of directors approved the adoption of our 2016 Equity Compensation Plan (the 2016 Plan) and reserved 600,000 shares of our Class A common stock for grants under this plan. The purpose of the 2012, 2014 and 2016 Plans is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our employees, directors and consultants and to promote the success of our company's business. The 2012, 2014 and 2016 Plans are administered by our board of directors. Plan options may either be: · incentive stock options (ISOs), · non-qualified options (NSOs), · awards of our common stock, · stock appreciation rights (SARs), · restricted stock units (RSUs), · performance units, · performance shares, and · other stock-based awards. Any option granted under the 2012, 2014 and 2016 Plans must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any ISO granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant. The plans further provide that with respect to ISOs the aggregate fair market value of the common stock underlying the options which are exercisable by any option holder during any calendar year cannot exceed $100,000. The exercise price of any NSO granted under the 2012, 2014 or 2016 Plans is determined by the Board at the time of grant, but must be at least equal to fair market value on the date of grant. The term of each plan option and the manner in which it may be exercised is determined by the board of directors or the compensation committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. The terms of grants of any other type of award under the 2012, 2014 or 2016 Plans is determined by the Board at the time of grant. Subject to the limitation on the aggregate number of shares issuable under the plans, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Transactions involving our stock options for the years ended December 31, 2016 and 2015, respectively, are summarized as follows: 2016 2015 Weighted Weighted Average Average Exercise Exercise Number Price Number Price Outstanding, beginning of the period 476,800 $ 7.00 469,000 $ 6.30 Granted during the period 146,000 7.50 119,400 8.45 Exercised during the period Forfeited during the period (47,000 ) 8.21 (111,600 ) 5.65 Outstanding, end of the period 575,800 $ 7.03 476,800 $ 7.00 Exercisable at the end of the period 189,960 $ 6.23 98,833 $ 6.00 At December 31, 2016 options outstanding totaled 575,800 with a weighted average exercise price of $7.03. At December 31, 2016, these options had an intrinsic value of $156,500 and a weighted average remaining contractual term of 4.8 years. Of these options, 189,960 are exercisable at December 31, 2016, with an intrinsic value of $123,436 and a remaining weighted average contractual term of 2.7 years. Compensation cost related to the unvested options not yet recognized is approximately $925,000 at December 31, 2016. We have estimated that approximately $412,000 will be recognized during 2017. The weighted average remaining life of the options is 4.8 years. Transactions involving our common stock awards for the years ended December 31, 2016 and 2015, respectively, are summarized as follows: 2016 2015 Number Number Outstanding, beginning of the period 103,167 167,759 Granted during the period 120,000 44,000 Vested during the period (71,001 ) (91,500 ) Forfeited during the period (35,500 ) (17,092 ) Unvested at the end of the period 116,666 103,167 Unrecognized compensation cost related to our common stock awards is approximately $691,000 and $532,597 at December 31, 2016 and 2015, respectively. We have estimated that we will recognize future compensation expense approximating $411,000 during the year ended December 31, 2017 and $280,000 during the year ended December 31, 2018. Transactions involving our stock warrants for the years ended December 31, 2016 and 2015, respectively, are summarized as follows: 2016 2015 Weighted Weighted Average Average Exercise Exercise Number Price Number Price Outstanding, beginning of the period 2,030,276 $ 5.95 1,853,875 $ 5.80 Granted during the period 946,587 7.50 176,401 7.50 Exercised during the period Forfeited during the period Outstanding, end of the period 2,976,863 $ 6.45 2,030,276 $ 5.95 Exercisable at the end of the period 2,976,863 $ 6.45 2,030,276 $ 5.95 The weighted average remaining life of the warrants is 1.7 years. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 11 COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases offices under operating leases with lease terms which expire through December 31, 2017. Future minimum lease payments required under the operating leases amount to $37,200 for the year ended December 31, 2017. Rent expense for office space amounted to $155,184 and $198,733 for the years ended December 31, 2016 and 2015, respectively. The Company has given 60 notice to cancel the lease of its New York facility and will vacate that property in June 2017. 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 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 due to 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 agreement. Such indemnification agreements may not be subject to maximum loss clauses. Employment agreements We have entered employment agreements with key 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 | 12 Months Ended |
Dec. 31, 2016 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 12 SUBSEQUENT EVENTS On January 4, 2017, the Company entered into a definitive securities purchase agreement (the Agreement) with two fundamental institutional investors (the Purchasers) for the purchase and sale of an aggregate of: (i) 761,905 shares of the Companys Class A common stock; and (ii) five year Series B Warrants (the Series B Warrants) representing the right to acquire up an additional 380,953 shares of our Class A common stock at an exercise price of $7.00 per share. The shares of our Class A common stock and the Series B Warrants were sold in a registered direct offering and we received gross proceeds of $4,000,000. Simultaneously we conducted a private placement with the same purchasers for no additional consideration of Series A Warrants (the Series A Warrants) representing the right to acquire up to an additional 380,953 shares of our Class A common stock at an exercise price of $6.70 per share. The Series A Warrants are exercisable for five years commencing 6 months from the date of closing of the private sale of the Series A Warrants to the purchasers. We intend to file a registration statement on Form S-1 registering the resale of the shares underlying the Series A Warrants during the second quarter of 2017. The exercise price of the Series A Warrants and Series B Warrants is subject to full ratchet adjustment in certain circumstances, subject to a floor price of $1.20 per share. The adjustment provisions under the terms of the Series A Warrant will be extinguished at such time as our Class A common stock trades at or above $10.00 per share for 20 consecutive trading days, subject to the satisfaction of certain equity conditions. In addition, if there is no effective registration statement covering the shares issuable upon the exercise of the Series A Warrants, the warrants are exercisable on a cashless basis. If we fail to timely deliver the shares underlying the warrants, we will be subject to certain buy-in provisions. Beginning 100 days after the issuance date of the Series B Warrants, at any time the market price of our Class A common stock is less than $5.25 per share, the holders have the right to cashlessly exercise the Series B Warrants for a number of shares of our Class A common stock calculated pursuant to a formula set forth in the Series B Warrants. We have the right, in lieu of delivery of such shares of our Class A common stock, to pay the holder of the Series B Warrants being cashlessly exercised, a specified amount in cash, with a maximum cash payment of $2,500,000. The ability to exercise the Series B Warrants cashlessly will be extinguished at such time as our Class A common stock trades at or above $10.00 per share for 20 consecutive trading days, subject to the satisfaction of certain equity conditions. Pursuant to the terms of the warrants, a holder of a warrant will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of Class A common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants; provided that at the election of a holder and notice to us such percentage ownership limitation may be increased or decreased to any other percentage, not to exceed 9.99%; provided that any increase will not be effective until the 61 st In the event of any extraordinary transaction, as described in the warrants and generally including any merger with or into another entity, sale of all or substantially all of our assets, tender offer or exchange offer, or reclassification of our common stock, the holder will have the right to have the warrants and all obligations and rights thereunder assumed by the successor or acquiring corporation. Also, at the election of the holder of each warrant, in the event of an extraordinary transaction, we or any successor entity may be required to repurchase such warrant for an amount of cash equal to the value of the warrant as determined in accordance with the Black Scholes option pricing model and the terms of the warrants. Pursuant to an engagement letter dated December 29, 2016 (the Placement Agent Agreement) by and between the Company and Chardan Capital Markets, LLC (Chardan Capital), Chardan Capital agreed to act as the Companys placement agent in connection with both the registered direct offering and the concurrent private placement. Pursuant to the Placement Agent Agreement, the Company paid Chardan Capital a cash fee equal to $160,000 (4% of the gross proceeds), as well as reimbursing Chardan Capital for its expenses in connection with the offering in the amount of $15,000. In addition, the Company granted Chardan Capital a warrant to purchase 76,190 shares of Class A common stock (the Placement Agent Warrants). The Placement Agent Warrants has an exercise price of $6.50 per share and is exercisable for 5.5 years commencing six months from the issuance date. The Company plans to file a registration statement registering the shares underlying the Placement Agent Warrants. The net proceeds to the Company from the offering, after deducting placement agent fees and estimated offering expenses, was approximately $3,830,000. The proceeds of the offering were used to satisfy the outstanding notes issued under the terms of the Financing Agreement dated October 30, 2014 with the Agent. In connection with the January 2017 capital raise, Victory Park Management, LLC agreed not to exercise the put right under the Financing Warrant prior to May 20, 2017 (135 days after the closing of the January 2017 capital raise), and following any exercise of the put right after the expiration of the put standstill period, we will have 45 days to satisfy this obligation. The Class A shares of common stock and Series B Warrants were sold, and will be issued, pursuant to the Prospectus Supplement, dated January 4, 2017, to the Prospectus included in the Companys Registration Statement on Form S-3 (Registration No. 333-214644) filed with the Securities and Exchange Commission on November 16, 2016 and declared effective on November 28, 2016. On January 25, 2017, the Company entered a Separation Agreement and Release with Mr. Richard Steel pursuant to which he voluntarily resigned as an executive officer and member of our board of directors. Mr. Steel served as our President and a member of our board of directors since our acquisition of Steel Media in October 2014. Mr. Christopher Miglino, our Chief Executive Officer, was appointed President following Mr. Steel's resignation from that office. Under the terms of the Separation Agreement and Release, Mr. Steel terminated his employment agreement with us through a voluntarily resignation. We agreed to reduce the remaining period of the non-competition and non-solicitation provisions of the stock purchase agreement entered at the time of the acquisition to 18 months from the date of his separation from our company and all unvested stock options have terminated. We are obligated to pay him approximately $156,000 representing his base salary through the separation date, 2016 bonus and unused paid time off. In addition, we agreed to pay for 12 months of COBRA healthcare benefits for Mr. Steel and his family and consented to the early release from escrow of $2,000,000 of the portion of the purchase price paid to him for the acquisition of Steel Media which had been placed in escrow with a third party in 2014 pending potential future claims, none of which have been made as of the date of separation. The Separation Agreement and Release contains mutual releases and waivers. In January 2017, we issued 3,858 shares of our Class A common stock valued at $12,500 to Mr. Ferguson upon his appointment to our board of directors and the audit committee of the board. The recipient is an accredited investor and the issuance was exempt from registration under the Securities Act pursuant to an exemption provided by Section 4(a)(2) of that act. In February 2017, the Company issued an individual 150,000 shares of our Class A common stock valued at $420,000 as compensation for services under the terms of a consulting agreement. The recipient, Mr. Steven Antebi, is a principal stockholder of the Company. On March 22, 2017, Chad Holsinger, an executive officer, provided his termination notice with the Company to pursue other opportunities. Also, on March 22, 2017, two board members and members of the audit committee, Rodney Dillman and Derek Ferguson, tendered their resignations as board members effective immediately. On March 27, 2017, Robert Jordan was appointed to the board as an independent director to fill a vacancy on the board. In March 2017, we issued 51,667 shares of Class A common stock for vested stock awards. |
ORGANIZATION AND SUMMARY OF S19
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 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", our or the "Company") is a Delaware corporation formed on August 2, 2011. Effective January 1, 2012 we acquired 100% 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 common stock. The former members of Social Reality, LLC owned 100% of our Class A 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 advertising 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 ( “ ” · sale and licensing of our SRAX Social · 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 variety 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. Presentation of Financial Statements Going Concern The accompanying consolidated financial statements have been prepared on the basis that Social Reality, Inc. will continue to operate as a going concern. We reported net losses of $4,248,233 and $2,723,909 for the years ended December 31, 2016 and 2015, respectively. At December 31, 2016, we had an accumulated deficit of $14,390,004. Our future success depends upon our ability to continue to grow our revenues, contain our operating expenses and generate profits. We do not have any long-term agreements with our customers. There are no assurances that we will be able to increase our revenues and cash flow to a level which supports profitable operations. In addition, our operating expenses increased from $14,834,766 for the year ended December 31, 2015 to $17,318,705 for the year ended December 31, 2016. It is uncertain whether the Company can attain profitability and positive cash flows from operations. These uncertainties raise substantial doubt upon the Companys ability to continue as a going concern. We are in the process of finalizing plans that will reduce our operating expenses and focus our resources in areas of our operations which we believe have the greatest potential to increase our revenues. We believe these plans and actions will enable the Company to both address its pending obligations and improve future profitability and cash flow in its continuing operations. As a result, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Companys inability to continue as a going concern. The outcome of these plans cannot be predicted at this time. |
Effect of Reverse Stock Split | Effect of Reverse Stock Split on Presentation On September 20, 2016, the Company completed a 1 for 5 reverse stock split of our Class A common stock. 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. Refer to Note 4 regarding a further discussion of the reverse stock split. These 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 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 consolidated financial statements include the accounts of the Company and its subsidiaries from the acquisition date of majority voting control of the subsidiary. |
Use of Estimates | Use of Estimates The consolidated financial statements have been prepared in conformity with generally accepted accounting principles accepted in the United States of America (GAAP) and requires management of the Company to make estimates and assumptions in the preparation of these 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. |
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 consolidated statements of operations. |
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 $254,875 and $135,442 at December 31, 2016 and 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 with financial institutions within the United States. The balances maintained at these financial institutions are generally more than the Federal Deposit Insurance Corporation insurance limits. The uninsured cash bank balances were $1,048,762 At December 31, 2016, two customers accounted for more than 10% of the accounts receivable balance, for a total of 43%. For the year ended December 31, 2016, two customers accounted for 48% of total revenue. At December 31, 2015, one customer accounted for more than 10% of the accounts receivable balance, for a total of 38%. For the year ended December 31, 2015, one customer accounted for 48% 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 December 31, 2016 and 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, a non-complete agreement, and internally developed software 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. During 2016, the Company began capitalizing the costs of developing internal-use computer software, including directly related payroll costs. The Company amortizes costs associated with its internally developed software over periods up to three years, beginning when the software is ready for its intended use. |
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 100% 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 specifically identified 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. Although the Company operates within one business segment, it was determined that a portion of the goodwill originally assigned to the Steel Media, a California corporation (Steel Media), acquisition had become impaired as of June 30, 2016. Accordingly, we recorded a goodwill impairment charge of $670,000 during the year ended December 31, 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 that utilized a discounted cash flow model based on revenue and profit forecasts. The Company performed its annual impairment test as of December 31, 2016 and no further impairment was required. |
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 regarding its identifiable intangible assets or other long-lived assets during the years ended December 31, 2016 or 2015, respectively. |
Loss Per Share | Loss Per Share We use ASC 260, " Earnings Per Share There were 3,818,080 common share equivalents at December 31, 2016 and 2,619,403 at December 31, 2015. For the years ended December 31, 2016 and 2015, respectively, 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 December 31, 2016 of $14,390,004. As of December 31, 2016, we had $1,048,762 in cash and cash equivalents and a deficit in working capital of $8,276,099 as compared to $1,091,186 in cash and cash equivalents and a deficit in working capital of $7,047,176 at December 31, 2015, respectively. While the Company believes it has established an ongoing source of revenue that is sufficient to cover its operating costs over the next twelve months, we are currently experiencing a period of limited liquidity resulting from recent activity related to the Financing Agreement. Between September 2016 and January 2017, we satisfied all outstanding obligations under the Financing Agreement utilizing proceeds from the factoring of our receivables and sales of our securities. While the satisfaction of the amounts owed under the Financing Agreement is expected to result in overall savings to us in 2017 through the elimination of both the associated interest expense as well as the internal costs related to the reporting obligations under its terms, the payment of these amounts has adversely impacted our current liquidity. To address the immediate impact of this decreased liquidity, we have recently made certain reductions in staffing, delayed certain previously budgeted expenditures, eliminated certain legacy operating expenses associated with the Steel Media acquisition, restructured sales management compensation structures, and have extended payments to certain vendors. If our revenues continue to increase throughout the next twelve months as anticipated, additional liquidity is also anticipated to be readily available under our accounts receivable factoring agreement with FastPay Partners. As of March 27, 2017, we had approximately $3,000,000 of factored accounts receivable outstanding on a total available line of $8,000,000. In addition to increasing sales, lowering costs, and more aggressive management of our accounts payable, managements plan to continue as a going concern also includes raising additional capital through borrowing and/or additional sales of equity or equity linked securities. We are currently exploring options to raise a minimum of $5,000,000 in additional capital to enhance current liquidity and to satisfy the warrant put obligations discussed later in this report. However, while we are engaged in discussions with several financing sources, we are not a party yet to any binding commitment. While we believe we will be successful in ultimately raising the necessary capital, there are no assurances that the terms of that capital will not be dilutive to our existing stockholders or will not result in significant interest expense in future periods. In addition, the longer it takes us to raise this new capital the more the current liquidity issues could adversely impact our sales and results of operations in future periods as it would adversely impact our ability to focus on the expansion of our revenue streams. If we are unable to raise the additional working capital, our ability to meet our revenue guidance for 2017 as well as to satisfy our obligations as they become due may be in jeopardy. If the Company is unable to raise the additional working capital through completion of the financing discussions currently underway, its plan to continue as a going concern may also then include sale of certain operating assets and product lines that it believes would be attractive acquisitions for strategic buyers. While the Company has previously received unsolicited offers from qualified buyers to acquire certain of its operating assets, it is not currently engaged in any active discussions of this type. |
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 FASB issued 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 “ · 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 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 In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern. The amendments in this update apply to all reporting entities and require an entity’s management, in connection with preparing financial statements for each annual and interim reporting period, to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). This ASU is effective for annual periods ending after December 15, 2016. We adopted this standard for the year ended December 31, 2016. Based on the results of our analysis, no additional disclosures were required. 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) | 12 Months Ended |
Dec. 31, 2016 | |
Notes Payable [Abstract] | |
Schedule of notes payable | 2016 2015 Current portion of note payable $ 3,996,928 $ 2,455,000 Non-current portion of note payable 8,033,898 Total note payable including PIK interest 3,996,928 10,488,898 Less: deferred issuance costs (578,140 ) (1,654,773 ) Notes payable, net of unamortized cost $ 3,418,788 $ 8,834,125 |
Schedule of put liability | 2016 2015 Put liability, beginning of year $ 1,436,282 $ 1,260,010 Accretion in value 63,718 176,272 Put liability, end of year $ 1,500,000 $ 1,436,282 |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | 2016 2015 Office equipment $ 119,091 $ 86,231 Accumulated depreciation (63,599 ) (42,295 ) Property and equipment, net $ 55,492 $ 43,936 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible assets | 2016 2015 Non-compete agreement $ 1,250,000 $ 1,250,000 Intellectual property 756,000 756,000 Internally developed software 119,225 Total cost 2,125,225 2,006,000 Accumulated amortization 759,984 394,256 Intangible assets, net $ 1,365,241 $ 1,611,744 |
Schedule of estimated future amortization expense | 2017 $ 399,275 2018 399,275 2019 393,079 2020 173,612 $ 1,365,241 |
RELATED PARTY TRANSACTIONS (Tab
RELATED PARTY TRANSACTIONS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Related Party Transactions [Abstract] | |
Schedule of contingent consideration payable | 2016 2015 Contingent consideration payable to related party, beginning of year $ 7,585,435 $ 6,732,123 Accretion in value 159,061 853,312 Payment of Earn Out Consideration (4,000,000 ) Forfeiture of Earn Out Consideration (3,744,496 ) Contingent consideration payable to related party, end of year $ $ 7,585,435 |
ACCOUNTS PAYABLE AND ACCRUED 24
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Accounts Payable and Accrued Liabilities [Abstract] | |
Schedule of Accounts payable and accrued expenses | 2016 2015 Accounts payable, trade $ 11,745,026 $ 3,003,642 Accrued expenses 260,818 45,450 Accrued compensation 319,246 659,262 Accrued commissions 830,993 1,430,453 Accounts payable and accrued expenses $ 13,156,083 $ 5,138,807 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
Schedule of Income Tax (Benefit) Expense | Income tax (benefit) expense from continuing operations for the year ended December 31, 2016 consisted of the following: Current Deferred Total Federal $ $ (1,785,238 ) $ (1,785,238 ) State (257,877 ) (257,877 ) Subtotal (2,043,115 ) (2,043,115 ) Valuation allowance 2,043,115 2,043,115 Total $ $ $ Income tax (benefit) expense from continuing operations for the year ended December 31, 2015 consisted of the following: Current Deferred Total Federal $ $ (398,117 ) $ (398,117 ) State (114,535 ) (114,535 ) Subtotal (512,652 ) (512,652 ) Valuation allowance 512,652 512,652 Total $ $ $ |
Schedule of Effective tax rate | 2016 2015 Federal statutory income tax rate -34.0 % -34.0 % State income taxes, net of federal tax benefit -4.1 % -3.0 % Stock based compensation 0.0 % 0.2 % Goodwill impairment 5.5 % 0.0 % Permanent differences 0.0 % 8.0 % Earn out accretion -26.6 % 8.5 % Other 1.1 % 1.5 % Provision to return 6.6 % 0.0 % Warrant modification cost 2.3 % 0.0 % Change in valuation allowance 49.2 % 18.8 % Provision for income taxes 0.0 % 0.0 % |
Schedule of Deferred Tax Assets and Liabilities | 2016 2015 Deferred tax assets Net operating loss carryforwards $ 2,602,000 $ 1,785,000 Fixed assets 15,000 3,000 Accrued interest 190,000 Intangibles 299,000 Stock based compensation 1,383,000 Other accruals 62,000 Total deferred tax assets 4,551,000 1,788,000 Deferred tax liabilities Stock based compensation (128,000 ) Other accruals (32,000 ) Total deferred tax liabilities (160,000 ) Net deferred tax assets 4,551,000 1,628,000 Valuation allowance (4,551,000 ) (1,628,000 ) Net deferred tax liability $ $ |
STOCK OPTIONS, AWARDS AND WAR26
STOCK OPTIONS, AWARDS AND WARRANTS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Employee Stock Option [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Schedule of stock options, common stock awards and stock warrants | 2016 2015 Weighted Weighted Average Average Exercise Exercise Number Price Number Price Outstanding, beginning of the period 476,800 $ 7.00 469,000 $ 6.30 Granted during the period 146,000 7.50 119,400 8.45 Exercised during the period Forfeited during the period (47,000 ) 8.21 (111,600 ) 5.65 Outstanding, end of the period 575,800 $ 7.03 476,800 $ 7.00 Exercisable at the end of the period 189,960 $ 6.23 98,833 $ 6.00 |
Warrant [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Schedule of stock options, common stock awards and stock warrants | 2016 2015 Weighted Weighted Average Average Exercise Exercise Number Price Number Price Outstanding, beginning of the period 2,030,276 $ 5.95 1,853,875 $ 5.80 Granted during the period 946,587 7.50 176,401 7.50 Exercised during the period Forfeited during the period Outstanding, end of the period 2,976,863 $ 6.45 2,030,276 $ 5.95 Exercisable at the end of the period 2,976,863 $ 6.45 2,030,276 $ 5.95 |
Common Stock [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Schedule of stock options, common stock awards and stock warrants | 2016 2015 Number Number Outstanding, beginning of the period 103,167 167,759 Granted during the period 120,000 44,000 Vested during the period (71,001 ) (91,500 ) Forfeited during the period (35,500 ) (17,092 ) Unvested at the end of the period 116,666 103,167 |
ORGANIZATION AND SUMMARY OF S27
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | Sep. 20, 2016 | Jan. 31, 2012shares | Dec. 31, 2016USD ($)Itemshares | Dec. 31, 2015USD ($)shares | Mar. 27, 2017USD ($) | Sep. 18, 2016USD ($) | Dec. 31, 2014USD ($) |
Net losses | $ 4,248,233 | $ 2,723,909 | |||||
Accumulated deficit | 14,390,004 | 10,141,771 | |||||
Operating expenses | 17,318,705 | 14,834,766 | |||||
Stock split ratio | 5 | ||||||
Allowance for doubtful accounts | 254,875 | 135,442 | |||||
Uninsured cash bank balance | $ 1,048,762 | ||||||
Number of operating segments | Item | 1 | ||||||
Impairment of goodwill | $ 670,000 | ||||||
Antidilutive common share equivalents | shares | 3,818,080 | 2,619,403 | |||||
Cash and cash equivalents | $ 1,048,762 | $ 1,091,186 | $ 1,843,393 | ||||
Working capital deficit | 8,276,099 | $ 7,047,176 | |||||
Capital needed | $ 5,000,000 | ||||||
Internally Developed Software [Member] | |||||||
Intangible assets estimated useful life | 3 years | ||||||
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 | ||||||
Accounts Receivable [Member] | Customer Concentration Risk [Member] | |||||||
Concentration risk percentage | 43.00% | 38.00% | |||||
Sales Revenue, Net [Member] | Credit Concentration Risk [Member] | |||||||
Concentration risk percentage | 48.00% | 48.00% | |||||
Social Reality Llc [Member] | |||||||
Effective date of business acquisition | Jan. 1, 2012 | ||||||
Social Reality Llc [Member] | Class A and Class B Common Stock [Member] | |||||||
Percentage ownership | 100.00% | ||||||
Shares issued in business acquisition | shares | 2,465,753 | ||||||
Financing Agreement [Member] | Fast Pay Partners, LLC [Member] | |||||||
Notes issued | $ 5,507,468 | ||||||
Maximum amount of advances pledged | $ 8,000,000 | ||||||
Financing Agreement [Member] | Fast Pay Partners, LLC [Member] | Subsequent Event [Member] | |||||||
Notes issued | $ 3,000,000 | ||||||
Maximum amount of advances pledged | $ 8,000,000 |
ACQUISITIONS (Acquisition of St
ACQUISITIONS (Acquisition of Steel Media) (Details) - USD ($) | Jan. 29, 2016 | Oct. 30, 2014 | Sep. 30, 2016 | Jan. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Business Acquisition [Line Items] | |||||||
Earnout consideration | $ 7,585,435 | $ 6,732,123 | |||||
Common Class A [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Stock issued for acquisition, shares | 256,754 | ||||||
Steel Media [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Ownership acquired (as a percent) | 100.00% | ||||||
Purchase consideration | $ 4,000,000 | ||||||
Cash payment | $ 1,600,000 | $ 7,500,000 | |||||
Cash payment held in escrow | $ 2,000,000 | ||||||
Earnout consideration | $ 0 | $ 7,585,435 | |||||
Decrease in earnout consideration liability | $ 3,585,435 | ||||||
Steel Media [Member] | Senior Subordinated Notes [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Notes term | 1 year | ||||||
Notes issued | $ 2,500,000 | ||||||
Steel Media [Member] | Maximum [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Purchase consideration | 20,000,000 | ||||||
Earnout consideration | $ 8,000,000 | ||||||
Steel Media [Member] | Common Class A [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Stock issued for acquisition, shares | 256,754 | ||||||
Steel Media [Member] | Common Class A [Member] | Senior Subordinated Notes [Member] | |||||||
Business Acquisition [Line Items] | |||||||
Escrow shares | 477,373 |
ACQUISITIONS (Acquisition of Fi
ACQUISITIONS (Acquisition of Five Delta, Inc.) (Details) - Five Delta Inc [Member] | Dec. 19, 2014USD ($)shares |
Business Acquisition [Line Items] | |
Ownership acquired (as a percent) | 100.00% |
Purchase consideration | $ | $ 756,000 |
Common Class A [Member] | |
Business Acquisition [Line Items] | |
Number of common stock issued | shares | 120,000 |
NOTES PAYABLE (Financing Agreem
NOTES PAYABLE (Financing Agreement with Victory Park Management, LLC) (Details) - USD ($) | Oct. 03, 2016 | Sep. 30, 2016 | Feb. 16, 2016 | Jan. 26, 2016 | Oct. 26, 2015 | Jul. 06, 2015 | Oct. 30, 2014 | Sep. 30, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | Oct. 31, 2016 |
Debt Instrument [Line Items] | |||||||||||
Proceeds from note payable | $ 2,100,000 | $ 2,900,000 | |||||||||
Present value of put liability | 1,500,000 | ||||||||||
Amortization of debt issue costs | 1,076,633 | 1,252,963 | |||||||||
Deferred debt issue costs | 3,164,352 | ||||||||||
Repayments of note payable | 3,763,474 | 4,364,578 | |||||||||
PIK interest expense | $ 511,261 | $ 390,462 | |||||||||
Common Class A [Member] | |||||||||||
Debt Instrument [Line Items] | |||||||||||
Number of shares to be issued | 53,200 | 53,200 | |||||||||
Exercise price of warrants | $ 7.50 | $ 7.50 | $ 7.50 | ||||||||
Repayments of note payable | $ 2,000,000 | ||||||||||
Financing Agreement [Member] | Financing Agreement With 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% | 10.00% | ||||||||
Increase in paid-in-kind interest rate | 3.00% | ||||||||||
Paid-in-kind interest rate (as a percent) | 4.00% | 7.00% | |||||||||
Forbearance fee | $ 115,322 | $ 115,322 | |||||||||
Maturity date | Oct. 30, 2017 | Oct. 30, 2017 | Oct. 30, 2017 | Oct. 30, 2017 | |||||||
Proceeds from note payable | $ 500,000 | $ 1,600,000 | $ 1,400,000 | $ 1,500,000 | |||||||
Exercise period of warrants | 5 years | ||||||||||
Percentage of revenue used as base to calculate purchase price | 50.00% | ||||||||||
Amount used as base to calculate purchase price | $ 1,500,000 | ||||||||||
Repayments of note payable | $ 2,000,000 | ||||||||||
Financing Agreement [Member] | Financing Agreement With Victory Park Management LLC [Member] | Common Class A [Member] | |||||||||||
Debt Instrument [Line Items] | |||||||||||
Number of shares to be issued | 580,000 | ||||||||||
Exercise price of warrants | $ 5 | ||||||||||
Financing Agreement [Member] | Financing Agreement With Victory Park Management LLC [Member] | Maximum [Member] | |||||||||||
Debt Instrument [Line Items] | |||||||||||
Notes issued | $ 20,000,000 | ||||||||||
Legal fees | $ 25,000 | ||||||||||
Financing Agreement [Member] | Financing Agreement With 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 ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Notes Payable [Abstract] | ||
Current portion of note payable | $ 3,996,928 | $ 2,455,000 |
Non-current portion of note payable | 8,033,898 | |
Total note payable including PIK interest | 3,996,928 | 10,488,898 |
Less deferred financing costs | (578,140) | (1,654,773) |
Notes payable and PIK interest accrued, net of deferred costs | $ 3,418,788 | $ 8,834,125 |
NOTES PAYABLE (Schedule of Put
NOTES PAYABLE (Schedule of Put Liability) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Activity for the put liability- notes payable [Roll Forward] | ||
Put liability, end of year | $ 1,500,000 | |
Put Liability Notes Payable [Member] | ||
Activity for the put liability- notes payable [Roll Forward] | ||
Put liability, beginning of year | 1,436,282 | $ 1,260,010 |
Accretion in value | 63,718 | 176,272 |
Put liability, end of year | $ 1,500,000 | $ 1,436,282 |
NOTES PAYABLE (Financing Agre33
NOTES PAYABLE (Financing Agreement with Fast Pay Partners, LLC) (Details) - Financing Agreement [Member] - Fast Pay Partners, LLC [Member] | Sep. 18, 2016USD ($) |
Debt Instrument [Line Items] | |
Notes issued | $ 5,507,468 |
Percentage of accounts receivable pledged | 80.00% |
Maximum amount of advances pledged | $ 8,000,000 |
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 (Details)
STOCKHOLDERS' EQUITY (Details) | Oct. 31, 2016USD ($)Item$ / sharesshares | Sep. 30, 2016USD ($)Item$ / sharesshares | Sep. 22, 2016shares | Sep. 20, 2016 | Sep. 19, 2016USD ($)$ / sharesshares | Aug. 16, 2016USD ($)shares | Feb. 23, 2016USD ($)shares | Sep. 22, 2015$ / sharesshares | Aug. 05, 2015$ / sharesshares | Oct. 31, 2016USD ($)$ / sharesshares | Apr. 30, 2016USD ($)shares | Feb. 29, 2016USD ($)shares | Jan. 31, 2016USD ($)shares | Feb. 28, 2015$ / sharesshares | Feb. 29, 2016USD ($)shares | Dec. 31, 2016USD ($)Item$ / sharesshares | Dec. 31, 2015USD ($)$ / sharesshares | Nov. 16, 2016USD ($)$ / sharesshares | Nov. 14, 2016USD ($)shares | Oct. 16, 2015$ / sharesshares | Aug. 16, 2013$ / sharesshares |
Preferred Stock, shares authorized | 50,000,000 | 50,000,000 | |||||||||||||||||||
Preferred Stock, par value per share | $ / shares | $ 0.001 | $ 0.001 | |||||||||||||||||||
Common Stock, shares authorized | 59,000,000 | ||||||||||||||||||||
Proceeds from the sale of stock | $ | $ 4,643,799 | ||||||||||||||||||||
Common stock issued as Earn Out Consideration | $ | 2,400,000 | ||||||||||||||||||||
Amortization of fair value of stock options | $ | 0 | $ 191,612 | |||||||||||||||||||
Common stock issued for services | $ | $ 137,500 | $ 101,364 | |||||||||||||||||||
Awards forfeited | 35,500 | 17,092 | |||||||||||||||||||
Common stock to be issued | $ | $ 678,000 | ||||||||||||||||||||
Repayments of note payable | $ | $ 3,763,474 | $ 4,364,578 | |||||||||||||||||||
Stock split ratio | 5 | ||||||||||||||||||||
Kathy Ireland Worldwide LLC [Member] | |||||||||||||||||||||
Shares issuable for advisory services | 100,000 | ||||||||||||||||||||
Common stock to be issued | $ | $ 678,000 | ||||||||||||||||||||
T.R. Winston and Company, LLC [Member] | |||||||||||||||||||||
Warrants to purchase shares of common stock, number of shares total | 400 | 400 | |||||||||||||||||||
Common stock issued for services | $ | $ 109,956 | ||||||||||||||||||||
Common stock issued for services, shares | 22,392 | ||||||||||||||||||||
Fees paid to placement agents and selling agent, including commissions | $ | $ 2,000 | ||||||||||||||||||||
Placement fee percentage | 4.00% | ||||||||||||||||||||
Noble Financial Capital Markets [Member] | |||||||||||||||||||||
Fees paid to placement agents and selling agent, including commissions | $ | $ 180,000 | ||||||||||||||||||||
Common Class A [Member] | |||||||||||||||||||||
Common Stock, shares authorized | 50,000,000 | 50,000,000 | |||||||||||||||||||
Common Stock, par value per share | $ / shares | $ 0.001 | $ 0.001 | |||||||||||||||||||
Voting rights per share | Item | 1 | ||||||||||||||||||||
Proceeds from the sale of stock | $ | $ 1,275,000 | $ 3,325,000 | $ 500,000 | ||||||||||||||||||
Proceeds from the sale of stock, shares | 255,000 | 665,000 | 23 | 100,000 | |||||||||||||||||
Common stock issued as Earn Out Consideration | $ | $ 2,400,000 | ||||||||||||||||||||
Common stock issued as Earn Out Consideration, shares | 256,754 | ||||||||||||||||||||
Warrants to purchase shares of common stock, number of shares total | 53,200 | ||||||||||||||||||||
Warrants to purchase shares of common stock, number of shares per warrant | 0.5 | 0.5 | 0.5 | ||||||||||||||||||
Exercise price of warrant | $ / shares | $ 7.50 | $ 7.50 | $ 7.50 | ||||||||||||||||||
Puchase price, per unit | $ / shares | $ 5 | $ 5 | |||||||||||||||||||
Number Of Accredited Investors In Private Placement | Item | 9 | 14 | |||||||||||||||||||
Fees paid to placement agents and selling agent, including commissions | $ | $ 266,000 | ||||||||||||||||||||
Common stock issued for acquisition, shares | 256,754 | ||||||||||||||||||||
Repayments of note payable | $ | $ 2,000,000 | ||||||||||||||||||||
Common Class A [Member] | Equity Compensation 2016 Plan [Member] | |||||||||||||||||||||
Number of shares authorized | 600,000 | 600,000 | |||||||||||||||||||
Common Class A [Member] | Consulting Agreement [Member] | |||||||||||||||||||||
Common stock issued for services | $ | $ 70,000 | ||||||||||||||||||||
Common stock issued for services, shares | 10,000 | ||||||||||||||||||||
Common Class A [Member] | T.R. Winston and Company, LLC [Member] | |||||||||||||||||||||
Warrants to purchase shares of common stock, number of shares total | 15,200 | 15,200 | |||||||||||||||||||
Exercise price of warrant | $ / shares | $ 7.50 | $ 7.50 | |||||||||||||||||||
Common Class A [Member] | Employee [Member] | |||||||||||||||||||||
Granted during the period | 44,000 | ||||||||||||||||||||
Share-based compensation, vesting period | 3 years | ||||||||||||||||||||
Common stock issued for services | $ | $ 70,000 | ||||||||||||||||||||
Common stock issued for services, shares | 10,000 | ||||||||||||||||||||
Common Class A [Member] | Director [Member] | |||||||||||||||||||||
Common stock issued for services | $ | $ 20,000 | $ 47,500 | |||||||||||||||||||
Common stock issued for services, shares | 3,077 | 6,786 | |||||||||||||||||||
Series 1 Preferred Stock [Member] | |||||||||||||||||||||
Preferred Stock, shares authorized | 200,000 | 200,000 | 200,000 | ||||||||||||||||||
Preferred Stock, par value per share | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | ||||||||||||||||||
Preferred Stock, liquidation value per share | $ / shares | $ 0.001 | ||||||||||||||||||||
Common shares issued per preferred share converted | 10 | ||||||||||||||||||||
Common Class B [Member] | |||||||||||||||||||||
Common Stock, shares authorized | 9,000,000 | 9,000,000 | |||||||||||||||||||
Common Stock, par value per share | $ / shares | $ 0.001 | $ 0.001 | |||||||||||||||||||
Voting rights per share | Item | 10 | ||||||||||||||||||||
Warrant [Member] | Common Class A [Member] | |||||||||||||||||||||
Value of warrants at date of grant | $ | $ 1,390,264 | ||||||||||||||||||||
Warrants to purchase shares of common stock, number of shares total | 642,000 | 400,000 | |||||||||||||||||||
Exercise price of warrant | $ / shares | $ 5 | $ 7.50 | |||||||||||||||||||
Stock-based compensation expense | $ | $ 274,634 | ||||||||||||||||||||
Warrant [Member] | Common Class A [Member] | Steve Antebi [Member] | |||||||||||||||||||||
Warrants to purchase shares of common stock, number of shares total | 200,000 | ||||||||||||||||||||
Warrant [Member] | Common Class A [Member] | Consultant [Member] | |||||||||||||||||||||
Warrants to purchase shares of common stock, number of shares total | 200,000 | ||||||||||||||||||||
Advances to consultants | $ | $ 100,000 | ||||||||||||||||||||
Employee Stock Option [Member] | |||||||||||||||||||||
Awards forfeited | 47,000 | 111,600 | |||||||||||||||||||
Stock-based compensation expense | $ | $ 1,200,121 | $ 840,512 | |||||||||||||||||||
Employee Stock Option [Member] | Employee [Member] | |||||||||||||||||||||
Granted during the period | 100,000 | 20,000 | |||||||||||||||||||
Share-based compensation, vesting period | 2 years | 2 years | |||||||||||||||||||
Amortization of fair value of stock options | $ | $ 673,500 | $ 166,000 | |||||||||||||||||||
Employee Stock Option [Member] | Director [Member] | |||||||||||||||||||||
Granted during the period | 2,400 | ||||||||||||||||||||
Share-based compensation, vesting period | 1 year | ||||||||||||||||||||
Granted during the period, exercise price | $ / shares | $ 6 | ||||||||||||||||||||
Award term | 5 years | ||||||||||||||||||||
Stock options granted, grant date fair value per option | $ / shares | $ 3.10 | ||||||||||||||||||||
Share-based compensation, risk free interest rate | 0.50% | ||||||||||||||||||||
Share-based compensation, expected dividend yield | 0.00% | ||||||||||||||||||||
Share-based compensation, expected volatility rate | 99.00% | ||||||||||||||||||||
Share-based compensation, expected life in years | 2 years | ||||||||||||||||||||
Employee Stock Option [Member] | Employee One [Member] | |||||||||||||||||||||
Granted during the period | 40,000 | ||||||||||||||||||||
Share-based compensation, vesting period | 3 years | ||||||||||||||||||||
Granted during the period, exercise price | $ / shares | $ 8.25 | ||||||||||||||||||||
Award term | 3 years | ||||||||||||||||||||
Stock options granted, grant date fair value per option | $ / shares | $ 3.70 | ||||||||||||||||||||
Share-based compensation, risk free interest rate | 0.625% | ||||||||||||||||||||
Share-based compensation, expected dividend yield | 0.00% | ||||||||||||||||||||
Share-based compensation, expected volatility rate | 85.00% | ||||||||||||||||||||
Share-based compensation, expected life in years | 2 years | ||||||||||||||||||||
Employee Stock Option [Member] | Employee Two [Member] | |||||||||||||||||||||
Granted during the period | 77,000 | ||||||||||||||||||||
Share-based compensation, vesting period | 3 years | ||||||||||||||||||||
Granted during the period, exercise price | $ / shares | $ 8.65 | ||||||||||||||||||||
Award term | 3 years | ||||||||||||||||||||
Stock options granted, grant date fair value per option | $ / shares | $ 3.95 | ||||||||||||||||||||
Share-based compensation, risk free interest rate | 0.625% | ||||||||||||||||||||
Share-based compensation, expected dividend yield | 0.00% | ||||||||||||||||||||
Share-based compensation, expected volatility rate | 85.00% | ||||||||||||||||||||
Share-based compensation, expected life in years | 2 years | ||||||||||||||||||||
Employee Stock Option [Member] | Three Employees [Member] | |||||||||||||||||||||
Granted during the period | 146,000 | ||||||||||||||||||||
Share-based compensation, vesting period | 3 years | ||||||||||||||||||||
Granted during the period, exercise price | $ / shares | $ 7.50 | ||||||||||||||||||||
Award term | 5 years | ||||||||||||||||||||
Stock options granted, grant date fair value per option | $ / shares | $ 4.98 | ||||||||||||||||||||
Share-based compensation, risk free interest rate | 1.125% | ||||||||||||||||||||
Share-based compensation, expected dividend yield | 0.00% | ||||||||||||||||||||
Share-based compensation, expected volatility rate | 112.00% | ||||||||||||||||||||
Share-based compensation, expected life in years | 5 years |
PROPERTY AND EQUIPMENT (Schedul
PROPERTY AND EQUIPMENT (Schedule of Property and equipment) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Property, Plant and Equipment [Line Items] | ||
Accumulated depreciation and amortization | $ (63,599) | $ (42,295) |
Carrying value | 55,492 | 43,936 |
Depreciation expense | 21,304 | 17,282 |
Office Equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property and Equipment | $ 119,091 | $ 86,231 |
INTANGIBLE ASSETS (Details)
INTANGIBLE ASSETS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Amortization expense | $ 365,728 | $ 394,256 |
2,017 | 399,275 | |
2,018 | 399,275 | |
2,019 | 393,079 | |
2,020 | 173,612 | |
Total | 1,365,241 | |
Intellectual Property [Member] | ||
Amortization expense | 151,200 | 151,200 |
Non-compete agreement [Member] | ||
Amortization expense | 208,333 | $ 243,056 |
Internally Developed Software [Member] | ||
Amortization expense | $ 6,195 |
INTANGIBLE ASSETS (Schedule of
INTANGIBLE ASSETS (Schedule of Intangible assets) (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Intangible assets | $ 2,125,225 | $ 2,006,000 |
Accumulated amortization | 759,984 | 394,256 |
Carrying value | 1,365,241 | 1,611,744 |
Non-compete agreement [Member] | ||
Intangible assets | 1,250,000 | 1,250,000 |
Intellectual Property [Member] | ||
Intangible assets | 756,000 | 756,000 |
Internally Developed Software [Member] | ||
Intangible assets | $ 119,225 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details) - USD ($) | 12 Months Ended | |||||
Dec. 31, 2016 | Dec. 31, 2015 | Jan. 29, 2016 | Oct. 30, 2015 | Dec. 31, 2014 | Oct. 30, 2014 | |
Related Party Transaction [Line Items] | ||||||
Contingent Earnout Consideration | $ 7,585,435 | $ 6,732,123 | ||||
Steel Media [Member] | ||||||
Related Party Transaction [Line Items] | ||||||
Contingent Earnout Consideration | 0 | 7,585,435 | ||||
Value of earnout consideration paid in cash | $ 1,600,000 | |||||
Present value of consideration | $ 6,584,042 | |||||
Contingent Earnout Consideration paid | $ 4,000,000 | |||||
Steel Media [Member] | Common Class A [Member] | ||||||
Related Party Transaction [Line Items] | ||||||
Earnout consideration paid in shares | 256,754 | |||||
Steel Media [Member] | Maximum [Member] | ||||||
Related Party Transaction [Line Items] | ||||||
Contingent Earnout Consideration | $ 8,000,000 | |||||
Tronc, Inc. [Member] | ||||||
Related Party Transaction [Line Items] | ||||||
Related party revenue | 4,395,124 | 0 | ||||
Due from related parties | 1,042,000 | |||||
Steve Antebi, a Principal Stockholder [Member] | ||||||
Related Party Transaction [Line Items] | ||||||
Related party costs and expenses | $ 467,230 | $ 634,452 |
RELATED PARTY TRANSACTIONS (Sch
RELATED PARTY TRANSACTIONS (Schedule of contingent consideration payable) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Activity for the contingent consideration payable [Roll Forward] | ||
Contingent consideration payable to related party, beginning of year | $ 7,585,435 | $ 6,732,123 |
Accretion in value | 159,061 | 853,312 |
Payment of Earn Out Consideration | (4,000,000) | |
Forfeiture of Earn Out Consideration | (3,744,496) | |
Contingent consideration payable to related party, end of year | $ 7,585,435 |
ACCOUNTS PAYABLE AND ACCRUED 40
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Accounts Payable and Accrued Liabilities [Abstract] | ||
Accounts payable, trade | $ 11,745,026 | $ 3,003,642 |
Accrued expenses | 260,818 | 45,450 |
Accrued compensation | 319,246 | 659,262 |
Accrued commissions | 830,993 | 1,430,453 |
Accounts payable and accrued expenses | $ 13,156,083 | $ 5,138,807 |
INCOME TAXES (Narrative) (Detai
INCOME TAXES (Narrative) (Details) | 12 Months Ended |
Dec. 31, 2016USD ($) | |
Income Tax Disclosure [Abstract] | |
Increase (decrease) in valuation allowance | $ 2,923,000 |
Federal net operating losses carryforwards | 6,600,000 |
State net operating losses carryforwards | $ 11,600,000 |
Operating loss carry-forward expiration dates | Dec. 31, 2032 |
Unrecognized tax benefits | $ 0 |
Accruals for interest and penalties related to unrecognized tax benefits | $ 0 |
INCOME TAXES (Schedule of Incom
INCOME TAXES (Schedule of Income Tax Expense (Benefit)) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Current | ||
Federal | ||
State | ||
Subtotal | ||
Valuation allowance | ||
Total | ||
Deferred | ||
Federal | (1,785,237) | (398,117) |
State | (257,877) | (114,535) |
Subtotal | (2,043,115) | (512,652) |
Valuation allowance | 2,043,115 | 512,652 |
Total | ||
Total | ||
Federal | (1,785,237) | (398,117) |
State | (257,877) | (114,535) |
Subtotal | (2,043,115) | (512,652) |
Valuation allowance | 2,043,115 | 512,652 |
Total |
INCOME TAXES (Schedule of Effec
INCOME TAXES (Schedule of Effective tax rate) (Details) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Tax Disclosure [Abstract] | ||
Federal statutory income tax rate | (34.00%) | (34.00%) |
State income taxes, net of federal tax benefit | (4.10%) | (3.00%) |
Stock based compensation | (0.00%) | 0.20% |
Goodwill impairment | 5.50% | (0.00%) |
Permanent differences | (0.00%) | 8.00% |
Earn out accretion | (26.60%) | 8.50% |
Other | 1.10% | 1.50% |
Provision to return | 6.60% | (0.00%) |
Warrant modification cost | 2.30% | (0.00%) |
Change in valuation allowance | 49.20% | 18.80% |
Provision for income taxes | 0.00% | 0.00% |
INCOME TAXES (Schedule of Defer
INCOME TAXES (Schedule of Deferred Tax Assets and Liabilities) (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 3,189,000 | $ 1,785,000 |
Fixed assets | 15,000 | 3,000 |
Accrued interest | 190,000 | |
Intangibles | 355,000 | |
Stock based compensation | 1,383,000 | |
Other accruals | 36,000 | |
Total deferred tax assets | 5,168,000 | 1,788,000 |
Deferred tax liabilities | ||
Stock based compensation | (128,000) | |
Other accruals | (32,000) | |
Total deferred tax liabilities | (160,000) | |
Net deferred tax assets | ||
Net deferred tax assets | 5,168,000 | 1,628,000 |
Valuation allowance | (5,168,000) | (1,628,000) |
Net deferred tax liability |
STOCK OPTIONS, AWARDS AND WAR45
STOCK OPTIONS, AWARDS AND WARRANTS (Narrative) (Details) - USD ($) | Feb. 23, 2016 | Dec. 31, 2016 | Nov. 05, 2014 | Jan. 31, 2012 |
Warrant [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Weighted average remaining life, outstanding | 1 year 8 months 12 days | |||
Employee Stock Option [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Intrinsic value, outstanding | $ 156,500 | |||
Intrinsic value, exercisable | $ 123,436 | |||
Average remaining contractual life outstanding | 4 years 9 months 18 days | |||
Average remaining contractual life exercisable | 2 years 8 months 12 days | |||
Compensation cost related to unvested employee options not yet recognized | $ 925,000 | |||
Estimated compensation cost to be recognized in 2018 | 280,000 | |||
Options expected to recognize | $ 412,000 | |||
Equity Compensation 2012 Plan [Member] | Common Class A [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of shares authorized | 600,000 | |||
Equity Compensation 2014 Plan [Member] | Common Class A [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of shares authorized | 600,000 | |||
Equity Compensation 2016 Plan [Member] | Common Class A [Member] | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of shares authorized | 600,000 | 600,000 | ||
Minimum percentage of fair market value | 100.00% | |||
Threshhold of employee ownership for increase in fair market value and decrease in maximum life | 10.00% | |||
Minimum percentage of fair market value for eligible employee | 110.00% | |||
Maximum fair market value underlying options exercisable by any option holder during any calendar year | $ 100,000 | |||
Maximum option life | 10 years | |||
Maximum option life for 10% holder | 5 years |
STOCK OPTIONS, AWARDS AND WAR46
STOCK OPTIONS, AWARDS AND WARRANTS (Summary of Stock Options Activity) (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Options | ||
Forfeited during the period | (35,500) | (17,092) |
Employee Stock Option [Member] | ||
Options | ||
Outstanding at beginning of the period | 476,800 | 469,000 |
Granted during the period | 146,000 | 119,400 |
Exercised during the period | ||
Forfeited during the period | (47,000) | (111,600) |
Outstanding at end of the period | 575,800 | 476,800 |
Exercisable at end of the period | 189,960 | 98,833 |
Weighted Average Exercise Price | ||
Outstanding at beginning of the period | $ 7 | $ 6.30 |
Granted during the period | 7.50 | 8.45 |
Exercised during the period | ||
Forfeited during the period | 8.21 | 5.65 |
Outstanding at end of the period | 7.03 | 7 |
Exercisable at end of the period | $ 6.23 | $ 6 |
STOCK OPTIONS, AWARDS AND WAR47
STOCK OPTIONS, AWARDS AND WARRANTS (Summary of Common Stock Award Activity) (Details) - Common Stock Awards [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Activity, number of shares: | ||
Outstanding, beginning of the period | 103,167 | 167,759 |
Granted during the period | 120,000 | 44,000 |
Vested during the period | (71,001) | (91,500) |
Forfeited during the period | (35,500) | (17,092) |
Unvested at the end of the period | 116,666 | 103,167 |
Unrecognized compensation cost | $ 691,000 | $ 532,597 |
2,017 | 411,000 | |
2,018 | $ 280,000 |
STOCK OPTIONS, AWARDS AND WAR48
STOCK OPTIONS, AWARDS AND WARRANTS (Summary of Stock Warrants Activity) (Details) - Warrant [Member] - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Warrant activity, number of shares: | ||
Outstanding at beginning of the period | 2,030,276 | 1,853,875 |
Granted during the period | 946,587 | 176,401 |
Exercised during the period | ||
Forfeited during the period | ||
Outstanding at the end of period | 2,976,863 | 2,030,276 |
Exercisable at end of the period | 2,976,863 | 2,030,276 |
Warrant activity, weighted average exercise price: | ||
Outstanding at beginning of the period | $ 5.95 | $ 5.80 |
Granted during the period | 7.50 | 7.50 |
Exercised during the period | ||
Forfeited during the period | ||
Outstanding at end of the period | 6.45 | 5.95 |
Exercisable at end of the period | $ 6.45 | $ 5.95 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Future minimum lease payments for 2017 | $ 37,200 | |
Lease expiration period | Dec. 31, 2017 | |
Rent expense | $ 155,184 | $ 198,733 |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) - USD ($) | Jan. 04, 2017 | Dec. 29, 2016 | Oct. 31, 2016 | Sep. 30, 2016 | Sep. 22, 2016 | Mar. 31, 2017 | Feb. 28, 2017 | Jan. 31, 2017 | Feb. 29, 2016 | Dec. 31, 2016 | Dec. 31, 2015 |
Subsequent Event [Line Items] | |||||||||||
Proceeds from the sale of stock | $ 4,643,799 | ||||||||||
Proceeds from the issuance of common stock units | 4,643,799 | ||||||||||
Shares issued for services | $ 137,500 | $ 101,364 | |||||||||
Chardan Capital Markets, LLC [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Cash fee amount | $ 160,000 | ||||||||||
Fee percentage of proceeds | 4.00% | ||||||||||
Reimbursement amount | $ 15,000 | ||||||||||
Common Class A [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Proceeds from the sale of stock | $ 1,275,000 | $ 3,325,000 | $ 500,000 | ||||||||
Proceeds from the sale of stock, shares | 255,000 | 665,000 | 23 | 100,000 | |||||||
Warrants to purchase shares of common stock, number of shares total | 53,200 | ||||||||||
Exercise price of warrant | $ 7.50 | $ 7.50 | |||||||||
Common Class A [Member] | Chardan Capital Markets, LLC [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Warrants to purchase shares of common stock, number of shares total | 76,190 | ||||||||||
Exercise price of warrant | $ 6.50 | ||||||||||
Award term | 5 years 6 months | ||||||||||
Subsequent Event [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Proceeds from the issuance of common stock units | $ 3,830,000 | ||||||||||
Subsequent Event [Member] | Richard Steel [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Base salary, bonus, and unused paid time off | 156,000 | ||||||||||
Cash payment held in escrow released | 2,000,000 | ||||||||||
Subsequent Event [Member] | Common Class A [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Proceeds from the sale of stock | $ 4,000,000 | ||||||||||
Proceeds from the sale of stock, shares | 761,905 | ||||||||||
Threshhold of ownership | 9.99% | ||||||||||
Shares issued for services | $ 420,000 | ||||||||||
Shares issued for services, shares | 150,000 | ||||||||||
Stock options exercised | 51,667 | ||||||||||
Subsequent Event [Member] | Common Class A [Member] | Minimum [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Exercise price of warrant | $ 1.20 | ||||||||||
Share price | $ 10 | ||||||||||
Subsequent Event [Member] | Common Class A [Member] | Series B Warrants [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Warrants to purchase shares of common stock, number of shares total | 380,953 | ||||||||||
Exercise price of warrant | $ 7 | ||||||||||
Award term | 5 years | ||||||||||
Subsequent Event [Member] | Common Class A [Member] | Series B Warrants [Member] | Minimum [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Share price | $ 5.25 | ||||||||||
Subsequent Event [Member] | Common Class A [Member] | Series B Warrants [Member] | Maximum [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Cashless payment amount | $ 2,500,000 | ||||||||||
Subsequent Event [Member] | Common Class A [Member] | Series A Warrants [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Warrants to purchase shares of common stock, number of shares total | 380,953 | ||||||||||
Exercise price of warrant | $ 6.70 | ||||||||||
Award term | 5 years | ||||||||||
Subsequent Event [Member] | Common Class A [Member] | Derek Ferguson [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Shares issued for services | $ 12,500 | ||||||||||
Shares issued for services, shares | 2,858 |