Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2017 | May 12, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | SOCIAL REALITY, Inc. | |
Entity Central Index Key | 1,538,217 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 8,025,017 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,017 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 119,331 | $ 1,048,762 |
Accounts receivable, net | 6,578,747 | 8,411,019 |
Prepaid expenses | 330,432 | 332,503 |
Other current assets | 6,488 | 6,488 |
Total current assets | 7,034,998 | 9,798,772 |
Property and equipment, net | 58,079 | 55,492 |
Goodwill | 15,644,957 | 15,644,957 |
Intangible assets, net | 924,011 | 1,365,241 |
Other assets | 34,659 | 34,659 |
Total assets | 23,696,704 | 26,899,121 |
Current liabilities: | ||
Accounts payable and accrued expenses | 12,960,933 | 13,156,083 |
Note payable, net of unamortized costs | 3,418,788 | |
Put warrant liability | 1,143,781 | |
Put liability | 1,500,000 | 1,500,000 |
Total current liabilities | 15,604,714 | 18,074,871 |
Commitments and contingencies (Note 11) | ||
Stockholders' equity | ||
Preferred stock, authorized 50,000,000 shares, $0.001 par value, no shares issued or outstanding at March 31, 2017 and December 31, 2016, respectively | ||
Common stock | 8,025 | 6,951 |
Common stock to be issued | 678,000 | |
Additional paid in capital | 24,500,328 | 22,529,303 |
Accumulated deficit | (16,416,363) | (14,390,004) |
Total stockholders' equity | 8,091,990 | 8,824,250 |
Total liabilities and stockholders' equity | 23,696,704 | 26,899,121 |
Common Class A [Member] | ||
Stockholders' equity | ||
Common stock | 8,025 | 6,951 |
Common Class B [Member] | ||
Stockholders' equity | ||
Common stock |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2017 | Dec. 31, 2016 |
Preferred Stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred Stock, par value per share | $ 0.001 | $ 0.001 |
Preferred Stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common Class A [Member] | ||
Common Stock, shares authorized | 250,000,000 | 250,000,000 |
Common Stock, par value per share | $ 0.001 | $ 0.001 |
Common Stock, shares issued | 8,025,017 | 6,951,077 |
Common Stock, shares outstanding | 8,025,017 | 6,951,077 |
Common Class B [Member] | ||
Common Stock, shares authorized | 9,000,000 | 9,000,000 |
Common Stock, par value per share | $ 0.001 | $ 0.001 |
Common Stock, shares issued | 0 | 0 |
Common Stock, shares outstanding | 0 | 0 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Income Statement [Abstract] | ||
Revenues | $ 5,326,163 | $ 5,469,335 |
Cost of revenue | 3,279,120 | 3,180,562 |
Gross profit | 2,047,043 | 2,288,773 |
Operating expense | ||
General, selling and administrative expense | 4,409,807 | 3,805,101 |
Write-off of non-compete agreement | 468,751 | |
Restructuring costs | 377,961 | |
Total operating expense, net | 5,256,519 | 3,805,101 |
Loss from operations | (3,209,476) | (1,516,328) |
Interest expense | ||
Interest expense | 133,306 | 590,470 |
Amortization of debt issuance costs | (578,140) | (294,857) |
Total interest expense | (711,446) | (885,327) |
Accretion of put warrants | 1,894,563 | |
Total other income (expense) | 1,183,117 | (885,327) |
Loss before provision for income taxes | (2,026,359) | (2,401,655) |
Provision for income taxes | ||
Net loss | $ (2,026,359) | $ (2,401,655) |
Net loss per share, basic and diluted | $ (0.26) | $ (0.41) |
Weighted average shares outstanding, basic and diluted | 7,844,127 | 5,907,229 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash flows from operating activities | ||
Net loss | $ (2,026,359) | $ (2,401,655) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Amortization of stock based prepaid fees | 158,613 | |
Stock based compensation | 512,442 | 277,849 |
Amortization of debt issue costs | 578,140 | 294,857 |
Accretion of put warrants | (1,894,563) | |
PIK interest expense accrued to principal | 120,284 | |
Write-off of non-compete agreement | 468,751 | |
Accretion of contingent consideration | 118,978 | |
Accretion of put liability | 47,661 | |
Provision for bad debts | (8,277) | 5,330 |
Depreciation expense | 3,234 | 9,477 |
Amortization of intangibles | 107,720 | 89,883 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 1,840,549 | 2,051,072 |
Prepaid expenses | 2,071 | 5,758 |
Other current assets | 25,413 | |
Accounts payable and accrued expenses | (195,150) | (930,265) |
Unearned revenue | 1,970 | |
Net cash used in operating activities | (611,442) | (124,775) |
Cash flows from investing activities: | ||
Purchase of equipment | (5,821) | |
Development of software | (135,241) | |
Net cash used in investing activities | (141,062) | |
Cash flows from financing activities: | ||
Proceeds from the issuance of common stock | 3,820,001 | 500,000 |
Proceeds from notes payable | 2,100,000 | |
Repayments of note payable and PIK interest | (3,996,928) | (366,055) |
Payment of contingent consideration | (1,600,000) | |
Net cash (used in) provided by financing activities | (176,927) | 633,945 |
Net (decrease) increase in cash and cash equivalents | (929,431) | 509,170 |
Cash and cash equivalents, beginning of period | 1,048,762 | 1,091,186 |
Cash and cash equivalents, end of period | 119,331 | 1,600,356 |
Supplemental schedule of cash flow information: | ||
Cash paid for interest | 550,695 | 325,828 |
Cash paid for taxes | 20,000 | |
Supplemental schedule of noncash financing activities | ||
Initial derivative liability on issuance of put warrants | 3,038,344 | |
Common stock issued for vested grants | 52 | |
Issuance of common stock to be issued | 100 | |
Common stock issuance for payment of contingent consideration | $ 2,400,000 |
DESCRIPTION OF BUSINESS AND BAS
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | 3 Months Ended |
Mar. 31, 2017 | |
Description Of Business And Basis Of Presentation | |
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | NOTE 1 DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business Social Reality, Inc. ("Social Reality") is a Delaware corporation formed on August 2, 2011. These unaudited condensed consolidated financial statements include the consolidated results of Social Reality and its wholly owned subsidiary, Steel Media (Steel Media) (collectively referred to as we, us, our or the Company). Historically, the Company also included the results of Five Delta, Inc. (Five Delta) that was acquired in 2014. On January 1, 2015, the Company migrated management and control of Five Delta to Social Reality. In conjunction with the migration, Social Reality began complete dissolution of Five Delta and Five Delta transferred substantially all of its assets to Social Reality. The dissolution was completed in 2015. We are headquartered in Los Angeles, California. We sell digital advertising campaigns to advertising agencies and brands. We have developed technology that allows agencies and brands to launch and manage digital advertising campaigns, and we provide the platform that allows website publishers to sell their media inventory to many different digital adverting buyers. Our focus is to provide technology tools that enable both publishers and advertisers to maximize their digital advertising initiatives. We derive our revenue from: · sales of digital advertising campaigns to advertising agencies and brands; · sales of media inventory owned by our publishing partners through real-time bidding, or RTB, exchanges; · sales and licensing of our SRAX Social · creation of custom platforms for buying media on SRAX We offer our customers several pricing options including cost-per-thousand-impression, commonly referred to as 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. The Company is an approved Facebook, Inc. advertising partner. We sell targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies across large Facebook, Inc. applications and websites, generating qualified Facebook likes and quantifiable engagement for our clients, driving online sales and increased brand equity. Basis of Presentation The accompanying condensed consolidated financial statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in the Companys annual financial statements have been condensed or omitted. The December 31, 2016 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim three month periods ended March 31, 2017 and 2016. The results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any future period. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2016, included in the Company's annual report on Form 10-K filed with the SEC on March 31, 2017, as amended on Form 10-K/A (Amendment No. 1) as filed with the SEC on April 28, 2017. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Uses and Sources of Liquidity Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures and for general corporate purposes, including debt repayment. Our general, selling and administrative expenses increased from $3,805,101 for the three months ended March 31, 2016 to $4,409,807 for the three months ended March 31, 2017. We have incurred losses of $2,026,359 and $2,401,655 for the three months ended March 31, 2017 and 2016, respectively, and experienced negative cash flows amounting to $929,431 for the three months ended March 31, 2017. At March 31, 2017, we had an accumulated deficit of $16,416,363. As of March 31, 2017, we had $119,331 in cash and cash equivalents and a deficit in working capital of $8,569,716 as compared to $1,048,762 in cash and cash equivalents and a deficit in working capital of $8,276,099 at December 31, 2016. 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 the complete repayment of senior secured notes associated with a financing agreement previously held by Victory Park Management, LLC. During January 2017, we satisfied all outstanding obligations under a financing agreement utilizing proceeds from the factoring of our receivables and sales of our securities. While the repayment of the amounts owed under this financing agreement is expected to result in overall savings to us through the elimination of both the associated interest expense as well as the internal costs related to the reporting obligations under its terms, the repayment of these notes has adversely impacted our current liquidity. To address the immediate impact of this decreased liquidity, we developed certain operating plans that focus on increased revenue growth and cost reductions as further described herein. If our revenue increases throughout the next twelve months as anticipated, additional liquidity is expected to be readily available under our accounts receivable factoring agreement with FastPay Partners, LLC (FastPay). See Note 7 for a further discussion of this agreement. In March 2017, the Company initiated a restructuring program targeted to deliver cost savings in 2017 and beyond. Under the restructuring program, the Company made certain reductions in staffing and a restructuring of sales management compensation, delayed certain previously budgeted expenditures, eliminated certain operating expenses, simplified our organizational structure, including greater consolidation of our sales force and support functions, and extended payments to certain vendors. We recognized certain one-time costs amounting to $377,961 related to the restructuring. Although, we anticipate increasing our revenue streams, we believe our primary objective should evolve around profitability instead of revenue, market share and other metrics each of which relate to, but do not necessarily drive profit. Accordingly, the Company has taken several actions to continue to support its operations and meet its obligations. The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern. Our future success depends upon our ability to continue to grow our revenue, 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 revenue and cash flow to a level which supports profitable operations. It is uncertain whether the Company can attain profitability and positive cash flows from operations. In addition to increasing sales, lowering costs, and a more aggressive approach in managing our accounts payable, our plan to continue as a going concern also includes raising additional capital through borrowing and/or additional sales of equity or equity linked securities. During the three months ended March 31, 2017, we explored various options to raise additional capital to enhance current liquidity and to satisfy the warrant put obligations described in Note 7 and Note 8. In April 2017, we entered a definitive securities purchase agreement which provided $5,000,000 in additional capital allowing us to satisfy the warrant put obligations as further discussed in Note 12. We acknowledge that we continue to face a challenging competitive environment and while we continue to focus on our overall profitability, including managing expenses, we reported losses and were required to fund cash used in operating and investing activities with cash provided by financing activities. We expect that the actions initiated in 2017 will enhance our liquidity and financial flexibility. Our historical operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern. We believe that the actions discussed above are probable of occurring and mitigating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt or capital financing, or whether such actions would generate the expected liquidity as currently planned. If we continue to experience operating losses, and we are not able to generate additional liquidity through the mechanisms described above or through some combination of other actions, while not expected, we may not be able to access additional funds and we might need to secure additional sources of funds, which may or may not be available to us under terms and conditions that are favorable to our success. Additionally, a failure to generate additional liquidity could negatively impact our access to services that are important to the operation of our business. The condensed 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 In September 2016, the Company completed a 1 for 5 reverse stock split of our Class A common stock. These condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented, unless otherwise specified. Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The condensed consolidated financial statements have been prepared in conformity with GAAP and requires management of the Company to make estimates and assumptions in the preparation of these condensed consolidated financial statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. 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, 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 either a revenue-generating event or 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 condensed 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 $246,598 and $254,875 at March 31, 2017 and December 31, 2016, 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 Company has not experienced any loss on these accounts. The balances are maintained in demand accounts to minimize risk. At March 31, 2017, three customers accounted for more than 10% of the accounts receivable balance for a total of 69%. For the three months ended March 31, 2017, one customer accounted for 13% of total revenue. At March 31, 2016, two customers accounted for more than 10% of the accounts receivable balance for a total of 61%. For the three months ended March 31, 2016, one customer accounted for 59% 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 March 31, 2017 and December 31, 2016, 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 three to six years. The Company capitalizes 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 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. The Company had historically performed its annual goodwill and impairment assessment on September 30 th st No impairment of goodwill has been recorded during the three months ended March 31, 2017 or 2016, respectively. 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 three months ended March 31, 2017 or 2016, respectively. Loss Per Share We use ASC 260, " Earnings Per Share There were 3,619,331 common share equivalents at March 31, 2017 and 2,577,403 common share equivalents at March 31, 2016. For the three months ended March 31, 2017 and 2016, 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 consolidated 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. |
IMPACT OF RECENTLY-ISSUED ACCOU
IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS | 3 Months Ended |
Mar. 31, 2017 | |
Impact Of Recently-issued Accounting Standards | |
IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS | NOTE 3 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Adoption of New Accounting Standards For a discussion of recent accounting pronouncements, please refer to Recently Issued Accounting Standards as contained in Note 1 in the December 31, 2016 audited consolidated financial statements included in the Companys annual report on Form 10-K filed with the SEC on March 31, 2017. During the three months ended March 31, 2017, the Company adopted Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718 Accounting Standards Issued But Not Yet Effective In January 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments In connection with its financial instruments project, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities · ASU No. 2016-13 introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking expected loss model that will replace the current incurred loss model and generally will result in earlier recognition of allowances for losses. The guidance will be effective for the first interim period of our 2021 fiscal year, with early adoption in fiscal year 2020 permitted. · ASU No. 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 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. 2016-08, 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) 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 condensed consolidated financial statements. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 3 Months Ended |
Mar. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 4 PROPERTY AND EQUIPMENT, NET Property and equipment consists of the following at March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Office equipment $ 124,912 $ 119,091 Accumulated depreciation (66,833 ) (63,599 ) Property and equipment, net $ 58,079 $ 55,492 Depreciation expense for the three months ended March 31, 2017 and 2016 was $3,234 and $9,477, respectively. |
INTANGIBLE ASSETS, NET
INTANGIBLE ASSETS, NET | 3 Months Ended |
Mar. 31, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS, NET | NOTE 5 INTANGIBLE ASSETS, NET Intangible assets consist of the following: March 31, 2017 December 31, 2016 Non-compete agreement $ 781,249 $ 1,250,000 Intellectual property 756,000 756,000 Internally developed software 254,466 119,225 1,791,715 2,125,225 Accumulated amortization (867,704 ) (759,984 ) Carrying value $ 924,011 $ 1,365,241 During the three months ended March 31, 2017, the Company capitalized $135,241 of costs associated with the development of internal-use software, including directly related payroll costs. In connection with a separation and release agreement with Mr. Steel, the Company agreed to reduce the remaining period of the non-compete agreement, previously entered through the acquisition of Steel Media, to a period of eighteen months from the date of his separation from the Company. As such, the Company wrote off $468,751 in value of the non-compete agreement during the three months ended March 31, 2017. Amortization expense was $37,800 for intellectual property, $52,083 for the non-compete agreement and $17,837 for the internally developed software for the three months ended March 31, 2017. Amortization expense was $37,800 for intellectual property and $52,083 for the non-compete agreement for the three months ended March 31, 2016. The estimated future amortization expense for the remainder of 2017 and the years ended December 31 thereafter, are as follows: Remainder of 2017 $ 325,365 2018 357,550 2019 229,826 2020 11,270 $ 924,011 |
ACCOUNTS PAYABLE AND ACCRUED EX
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 3 Months Ended |
Mar. 31, 2017 | |
Accounts Payable and Accrued Liabilities [Abstract] | |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | NOTE 6 ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses are comprised of the following: March 31, 2017 December 31, 2016 Accounts payable, trade $ 11,403,102 $ 11,745,026 Accrued expenses 859,671 260,818 Accrued compensation 292,289 319,246 Accrued commissions 405,871 830,993 Total $ 12,960,933 $ 13,156,083 |
NOTES PAYABLE
NOTES PAYABLE | 3 Months Ended |
Mar. 31, 2017 | |
Notes Payable [Abstract] | |
NOTES PAYABLE | NOTE 7 NOTES PAYABLE Financing Agreement with Victory Park Management, LLC as agent for the lenders On October 30, 2014 (the "Financing Agreement Closing Date"), the Company entered 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 initial and subsequent notes issued (the Financing Notes) bore 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 achieved a reduction in the leverage ratio as described in the Financing Agreement, the PIK interest rate declined on a sliding scale from 4% to 2%. The Financing Notes issued under the Financing Agreement were scheduled to mature on October 30, 2017. During the three months ended March 31, 2017, we completely repaid the Financing Notes and made principal and PIK interest repayments in the amount of $3,996,928. Notes payable consisted of the following at December 31, 2016: December 31, 2016 Current portion of notes payable and PIK interest $ 3,996,928 Non-current portion of notes payable Total notes payable and PIK interest 3,996,928 Less deferred financing costs (578,140 ) Notes payable and PIK interest, net of deferred costs $ 3,418,788 We incurred a total of $3,164,352 of costs related to the Financing Agreement. These costs were amortized to interest expense over the life of the debt. During the three months ended March 31, 2017 and 2016, $578,140 and $294,857, respectively, of debt issuance costs were amortized as interest expense. As of March 31, 2017, all deferred debt issuance costs have been completely amortized. During the three months ended March 31, 2017 and 2016, $0 and $120,284, respectively, were recorded as PIK interest expense. Pursuant to the Financing Agreement, the Company issued to the lender 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 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. 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, but prior to October 30, 2019, 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 consolidated revenue for the Company 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 March 31, 2017 and December 31, 2016, respectively. 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 Post-Effective Amendment No. 1 to the registration statement on Form S-1 that was declared effective by the SEC in March 2016. Financing and Security Agreement with FastPay In September 2016, the Company executed a Financing and Security Agreement, as amended (collectively, the "FastPay Agreement"), with 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 receivable. 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. As a result of the Debentures that we issued in April 2017, the Company agreed to reduce the amount of receivables to be purchased to a maximum of $4,000,000. 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 is 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, as defined, 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, including the payment of an early termination fee. At March 31, 2017, $2,349,849 of accounts receivable purchased by FastPay remain outstanding and are subject to repurchase under the terms of the FastPay Agreement. |
PUT WARRANT LIABILITY
PUT WARRANT LIABILITY | 3 Months Ended |
Mar. 31, 2017 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
PUT WARRANT LIABILITY | NOTE 8 PUT WARRANT LIABILITY As more fully described in Note 9, the Company issued Series A Warrants and Series B Warrants in connection with the Agreement. The Series A Warrants and the Series B Warrants have been accounted for utilizing ASC 815 Derivatives and Hedging. The Company identified embedded derivatives related to the warrants issued. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the warrants and to adjust the fair value as of each subsequent balance sheet date. At the inception of the warrants, the Company determined a fair value of $3,038,344 of the embedded derivatives. On January 4, 2017, the date of inception, the fair value of the embedded derivatives was determined using the Black-Scholes Model based on a risk-free interest rate of 2% for both the Series A Warrants and the Series B Warrants, an expected term of 5.5 years for the Series A Warrants and 5 years for the Series B Warrants, an expected volatility of 110% for the Series A Warrants and the Series B Warrants and a 0% dividend yield for the Series A Warrants and the Series B Warrants, respectively. Fair value at March 31, 2017 was estimated to be $1,143,781 and based on a risk-free interest rate of 1.875% for both the Series A Warrants and the Series B Warrants, an expected term of 5.25 years for the Series A Warrants and 4.75 years for the Series B Warrants, an expected volatility of 110% for the Series A Warrants and the Series B Warrants and a 0% dividend yield for the Series A Warrants and the Series B Warrants, respectively. During the period ended March 31, 2017, the decrease in the fair value of the warrant derivative liability of $1,894,563 was recorded as a gain on change in fair value of derivative liability. The put warrant liability is comprised of the following at March 31, 2017: March 31, 2017 Initial derivative liability on issuance of put warrants $ 3,038,344 Less accretion of put warrants (1,894,563 ) Put warrant liability $ 1,143,781 |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 3 Months Ended |
Mar. 31, 2017 | |
Stockholders' Equity Note [Abstract] | |
STOCKHOLDERS' EQUITY | NOTE 9 STOCKHOLDERS' EQUITY Common Stock On January 4, 2017, the Company entered a definitive securities purchase agreement (the Agreement) with two fundamental institutional investors (the Investors) 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 $3,980,001. Simultaneously we conducted a private placement with the same Investors 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 Investors. 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 Warrants 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 exercise the Series B Warrants on a cashless basis for 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 exercised on a cashless basis, a specified amount in cash, with a maximum cash payment of $2,500,000. The ability to exercise the Series B Warrants on a cashless basis will be extinguished when 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. See Note 12. 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 a 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 reimbursement of its expenses related to 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 Warrants). The Placement Warrants have an exercise price of $6.50 per share and are 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 Warrants. The net proceeds to the Company from the offering, after deducting placement agent fees and estimated offering expenses, were $3,830,000. The proceeds of the offering were used to satisfy the outstanding notes issued under the terms of the Financing Agreement. 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 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 SEC on November 16, 2016 and declared effective on November 28, 2016. In September and October 2016, we sold an aggregate of 920,000 units of our securities to accredited investors in a private placement exempt from registration under the Securities Act 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 $4,625,000. 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 SEC 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, 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 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 (T.R. Winston), a broker-dealer and member of FINRA, acted as placement agent for us in this offering. We paid placement agent commissions totaling $266,000 and agreed to issue it three year warrants Placement Agent Warrants to purchase 68,400 shares of our Class A common stock at an exercise price of $7.50 per share. We also provided T.R. Wilson 22,392 units in this offering in lieu of cash placement agent commissions totaling $109,956 and the reimbursement of certain expenses. T.R. Winston has reallocated a portion of the 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 a fee of 4% of the proceeds we may receive upon the exercise of the warrants included in the units. We used $2,000,000 of the net proceeds received by us in this offering to further reduce our obligations which were outstanding under the Financing Agreement. We are using the balance of the proceeds for general working capital. In connection with an advisory agreement with kathy ireland Worldwide LLC ("kiWW"), the Company issued affilates and designees of kiWW 100,000 shares of its Class A common stock valued at $678,000 on January 2, 2017. In January 2017, we issued 3,858 shares of our Class A common stock valued at $12,500 to Mr. Derek J. Ferguson upon his appointment to our board of directors and the audit committee of the board. He 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 Mr. Steven Antebi 150,000 shares of our Class A common stock valued at $540,000 as compensation for services under the terms of a consulting agreement. He is a principal stockholder of the Company. In March 2017, we issued 51,667 shares of Class A common stock for vested stock awards. In March 2017, we issued 6,510 shares of our Class A common stock valued at $12,500 to Mr. Robert Jordan upon his appointment to our board of directors and the audit committee of the board. He 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. Stock Awards There were no new grants of stock awards made during the three months ended March 31, 2017. Awards in the amount of 3,333 common shares were forfeited during the three months ended March 31, 2017. During the three months ended March 31, 2017 and 2016, we recorded stock award expenses of $144,848 and $111,460; respectively. Stock Options and Warrants There were no new grants of stock options made during the three months ended March 31, 2017. Awards in the amount of 152,000 options were forfeited during the three months ended March 31, 2017. During the three months ended March 31, 2017 and 2016, we recorded stock option income of $33,419 and stock option expense of $48,890, respectively. On November 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. As of March 31, 2017, the Consultant has not yet attained any of the milestones contained within the Consulting Agreement and the Company reversed $163,987 of expense related to the Consulting Agreement. Reverse Stock Split In September 2016, the Company completed a reverse stock split whereby 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 condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented, unless otherwise specified. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2017 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 10 RELATED PARTY TRANSACTIONS Mr. Malcolm Casselle, a member of our board of directors, is the Chief Technology Officer and President of New Ventures of Tronc, Inc. (Tronc), one of our major advertisers. At March 31, 2017, Tronc owed us $956,680, net of liabilities owed Tronc. The majority of the net amount outstanding relates to a number of transactions with Tronc and a predecessor company controlled by Tronc that dates back to the second quarter 2016. The Company is currently negotiating with Tronc for a complete resolve regarding this outstanding balance. Mr. Steven Antebi, a principal stockholder in the Company, serves as a consultant to the Company. We paid him $458,006 and $0 for services provided to us during the three months ended March 31, 2017 and 2016, 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 8. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 11 COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases office space under operating leases with lease terms which expire through January 31, 2018. Rent expense for office space amounted to $40,212 and $61,986 for the three months ended March 31, 2017 and 2016, respectively. Future minimum lease payments required under the operating leases amount to $35,100 for the remainder of the year ended December 31, 2017 and $800 for the year ended December 31, 2018. 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 | 3 Months Ended |
Mar. 31, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 12 SUBSEQUENT EVENTS In April 2017, the Company entered into definitive securities purchase agreements (the Securities Purchase Agreements) with certain accredited investors (the Purchasers) for the purchase and sale of an aggregate of : (i) $5,000,000 principal amount of 12.5% secured convertible debentures (the Debentures); and (ii) five-year Series A warrants (the Debenture Warrants) representing the right to acquire up to 833,337 shares of our Class A common stock in a transaction exempt from registration under the Securities Act, in reliance on an exemption provided by Rule 506(b) of Regulation D and Section 4(a)(2) of the Securities Act. The Debentures, which mature three years from the date of issuance, pay interest in cash at the rate of 12.5% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on July 1, 2017. Our obligations under the Debentures are secured by a second position security interest in our accounts receivable and a first position security interest in the balance of our assets, and we are subject to continued compliance with certain financial covenants. The Debentures are convertible at the option of the holder into shares of our Class A common stock at an initial conversion price of $3.00 per share, subject to adjustment as hereinafter set forth. Subject to our compliance with certain equity conditions set forth in the Debentures, upon 20 trading days' notice to the holders we have the right to redeem the Debentures in cash at a 120% premium during the first year and a 110% premium during the remaining term of the Debentures. Upon any optional redemption, we are obligated to issue the holder five-year warrant Series B warrants, the terms of which will be identical to the Debenture Warrants, to purchase a number of shares of our Class A common stock as shall equal 50% of conversion shares issuable on an as-converted basis as if the principal amount of the Debenture had been converted immediately prior to the optional redemption. In the event of future financings by us, subject to certain exempt issuances, the holders have the right to cause us to allocate 20% of the proceeds we may receive to as a mandatory redemption of a portion of the principal amount then outstanding Debentures. We are also required to redeem the Debentures upon our failure to maintain certain financial covenants which include a minimum monthly current ratio, a maximum quarterly corporate expense ratio, and maintain minimum quarterly revenue and EBITDA related to SRAXmd The Debenture also contains certain customary events of default (including, but not limited to, default in payment of principal or interest thereunder, breaches of covenants, agreements, representations or warranties thereunder, the occurrence of an event of default under certain material contracts of the Company, changes in control of the Company and the entering or filing of certain monetary judgments against the Company). Upon the occurrence of any such event of default, the outstanding principal amount of the Debenture, plus liquidated damages, interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the holders election, immediately due and payable in cash. The Company is also subject to certain customary non-financial covenants under the Debenture. The Debenture holders were granted board observation rights so long as the lead investor continues to hold the Debentures. The Debenture Warrants are initially exercisable at $3.00 per share and, if at any time after the six-month anniversary of the issuance the underlying shares of our Class A common stock are not covered by an effective resale registration statement, the Debenture Warrants are exercisable on a cashless basis. The conversion price of the Debentures and the exercise price of the Debenture Warrants are subject to adjustments upon certain events, including stock splits, stock dividends, subsequent equity transactions (other than specified exempt issuances), subsequent rights offerings, and fundamental transactions, subject to a floor of $1.40 per share. If we fail to timely deliver the shares of our Class A common stock upon any conversion of the Debentures or exercise of the Debenture Warrants we will be subject to certain buy-in provisions. Pursuant to the terms of the Debentures and Debenture Warrants, a holder will not have the right to convert any portion of the Debentures or exercise any portion of the Debenture Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of Class A common stock outstanding immediately after giving effect to such conversion or exercise, as such percentage ownership is determined in accordance with the terms of the Debentures and the Debenture Warrants; provided that after the Shareholder Approval Date, as defined below, 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 accordance with the Nasdaq Marketplace Rules, until such time as our stockholders have approved the Securities Purchase Agreements and the transactions thereunder (the "Shareholder Approval Date"), we are not obligated to issue any shares of our Class A common stock upon any conversion of the Debentures and/or exercise of the Debenture Warrants, and the holders have no right to receive upon conversion and/or exercise thereof any shares of our Class A common stock, to the extent the issuance of such shares of Class A common stock would exceed 20% of our outstanding Class A common stock prior to the transaction. We are obligated to hold a special meeting of our stockholders on or before June 30, 2017 for the purpose of submitting the approval of the Securities Purchase Agreements and the transactions thereunder to our stockholders. We expect to hold a special meeting of our stockholders on June 23, 2017. Stockholders representing approximately 21% of our Class A common stock have executed a voting agreement with us agreeing to vote to approve the Securities Purchase Agreements and the transactions contemplated thereunder. We agreed to file a registration statement registering the resale of the shares of our Class A common stock underlying the Debentures and the Debenture Warrants. Under the terms of the Securities Purchaser Agreements, we also granted the Purchasers of the Debentures the right to purchase an additional $3,000,000 of Debentures upon the same terms and conditions for a period beginning on the Shareholder Approval Date and expiring on earliest of the date that (a) the initial registration statement has been declared effective by the SEC, (b) all of the underlying shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for our company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, (c) following the one year anniversary of the closing date provided that a holder of the underlying shares is not an affiliate of the Company or (d) all of the underlying shares may be sold pursuant to an exemption from registration under Section 4(a)(1) of the Securities Act. Chardan Capital, Noble Capital Markets, Inc. ("Noble") and Aspenwood Capital (an independent branch of Colorado Financial Services Corporation) (Aspenwood), all broker-dealers and members of FINRA, acted as either our placement agent or a finder in connection with the sale of the securities pursuant to the Securities Purchase Agreements. In addition, an affiliate of Noble purchased Debentures amounting to $720,000 and was issued Debenture Warrants to purchase 120,000 shares of our Class A common stock in this offering. We paid aggregate cash commissions amounting to $276,700 to these broker-dealers in connection with the sale of the Debentures. Additionally, we issued Chardan Capital placement agent warrants ("Chardan Placement Agent Warrants") to purchase 100,000 shares of our Class A common stock at an exercise price of $3.75 per share which are exercisable for 5.5 years commencing six months from the issuance date. We issued Noble placement agent warrants (Noble Placement Agent Warrants) to purchase up to 66,800 shares of our Class A common stock at an exercise price of $3.00 per share which will become exercisable six months from the date of issuance. We also issued Colorado Financial Service Corporation and its designees warrants (Aspenwood Warrants) to purchase 7,700 shares of our Class A common stock at an exercise price of $3.75 per share which are exercisable for 5.5 years commencing six months from the issuance date. We will include the shares underlying the Chardan Placement Agent Warrants, the Noble Placement Agent Warrants, and the Aspenwood Warrants in the aforedescribed resale registration statement we expect to file. The net proceeds to us from the offering, after deducting placement agent fees and estimated offering expenses, were approximately $4,547,000. We utilized $2,500,000 of the net proceeds to satisfy a put obligation under the Series B warrants issued to investors in a registered direct offering that we conducted in January 2017 as described in Note 8. The balance of the net proceeds will be used for the potential obligation to satisfy the warrant put right held by the Agent, accounts payable, and other working capital requirements. As a result of the sale of the Debentures, the exercise price of the Series A Warrants issued to investors in our January 2017 private offering were reset to $2.245 per share. |
SUMMARY OF SIGNIFICANT ACCOUN18
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Uses and Sources of Liquidity | Uses and Sources of Liquidity Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures and for general corporate purposes, including debt repayment. Our general, selling and administrative expenses increased from $3,805,101 for the three months ended March 31, 2016 to $4,409,807 for the three months ended March 31, 2017. We have incurred losses of $2,026,359 and $2,401,655 for the three months ended March 31, 2017 and 2016, respectively, and experienced negative cash flows amounting to $929,431 for the three months ended March 31, 2017. At March 31, 2017, we had an accumulated deficit of $16,416,363. As of March 31, 2017, we had $119,331 in cash and cash equivalents and a deficit in working capital of $8,569,716 as compared to $1,048,762 in cash and cash equivalents and a deficit in working capital of $8,276,099 at December 31, 2016. 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 the complete repayment of senior secured notes associated with a financing agreement previously held by Victory Park Management, LLC. During January 2017, we satisfied all outstanding obligations under a financing agreement utilizing proceeds from the factoring of our receivables and sales of our securities. While the repayment of the amounts owed under this financing agreement is expected to result in overall savings to us through the elimination of both the associated interest expense as well as the internal costs related to the reporting obligations under its terms, the repayment of these notes has adversely impacted our current liquidity. To address the immediate impact of this decreased liquidity, we developed certain operating plans that focus on increased revenue growth and cost reductions as further described herein. If our revenue increases throughout the next twelve months as anticipated, additional liquidity is expected to be readily available under our accounts receivable factoring agreement with FastPay Partners, LLC (FastPay). See Note 7 for a further discussion of this agreement. In March 2017, the Company initiated a restructuring program targeted to deliver cost savings in 2017 and beyond. Under the restructuring program, the Company made certain reductions in staffing and a restructuring of sales management compensation, delayed certain previously budgeted expenditures, eliminated certain operating expenses, simplified our organizational structure, including greater consolidation of our sales force and support functions, and extended payments to certain vendors. We recognized certain one-time costs amounting to $377,961 related to the restructuring. Although, we anticipate increasing our revenue streams, we believe our primary objective should evolve around profitability instead of revenue, market share and other metrics each of which relate to, but do not necessarily drive profit. Accordingly, the Company has taken several actions to continue to support its operations and meet its obligations. The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern. Our future success depends upon our ability to continue to grow our revenue, 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 revenue and cash flow to a level which supports profitable operations. It is uncertain whether the Company can attain profitability and positive cash flows from operations. In addition to increasing sales, lowering costs, and a more aggressive approach in managing our accounts payable, our plan to continue as a going concern also includes raising additional capital through borrowing and/or additional sales of equity or equity linked securities. During the three months ended March 31, 2017, we explored various options to raise additional capital to enhance current liquidity and to satisfy the warrant put obligations described in Note 7 and Note 8. In April 2017, we entered a definitive securities purchase agreement which provided $5,000,000 in additional capital allowing us to satisfy the warrant put obligations as further discussed in Note 11. We acknowledge that we continue to face a challenging competitive environment and while we continue to focus on our overall profitability, including managing expenses, we reported losses and were required to fund cash used in operating and investing activities with cash provided by financing activities. We expect that the actions initiated in 2017 will enhance our liquidity and financial flexibility. Our historical operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern. We believe that the actions discussed above are probable of occurring and mitigating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt or capital financing, or whether such actions would generate the expected liquidity as currently planned. If we continue to experience operating losses, and we are not able to generate additional liquidity through the mechanisms described above or through some combination of other actions, while not expected, we may not be able to access additional funds and we might need to secure additional sources of funds, which may or may not be available to us under terms and conditions that are favorable to our success. Additionally, a failure to generate additional liquidity could negatively impact our access to services that are important to the operation of our business. The condensed 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 | Effect of Reverse Stock Split on Presentation In September 2016, the Company completed a 1 for 5 reverse stock split of our Class A common stock. These condensed consolidated financial statements give retroactive effect to the reverse stock split for all periods presented, unless otherwise specified. |
Principles of Consolidation | Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany transactions and balances have been eliminated in consolidation. |
Use of Estimates | Use of Estimates The condensed consolidated financial statements have been prepared in conformity with GAAP and requires management of the Company to make estimates and assumptions in the preparation of these condensed consolidated financial statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. 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, 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 either a revenue-generating event or 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 condensed 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 $246,598 and $254,875 at March 31, 2017 and December 31, 2016, 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 Company has not experienced any loss on these accounts. The balances are maintained in demand accounts to minimize risk. At March 31, 2017, three customers accounted for more than 10% of the accounts receivable balance for a total of 69%. For the three months ended March 31, 2017, one customer accounted for 13% of total revenue. At March 31, 2016, two customers accounted for more than 10% of the accounts receivable balance for a total of 61%. For the three months ended March 31, 2016, one customer accounted for 59% 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 March 31, 2017 and December 31, 2016, 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 three to six years. The Company capitalizes 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 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. The Company had historically performed its annual goodwill and impairment assessment on September 30 th st No impairment of goodwill has been recorded during the three months ended March 31, 2017 or 2016, respectively. |
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 three months ended March 31, 2017 or 2016, respectively. |
Loss Per Share | Loss Per Share We use ASC 260, " Earnings Per Share There were 3,619,331 common share equivalents at March 31, 2017 and 2,577,403 common share equivalents at March 31, 2016. For the three months ended March 31, 2017 and 2016, 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 consolidated 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. |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | March 31, 2017 December 31, 2016 Office equipment $ 124,912 $ 119,091 Accumulated depreciation (66,833 ) (63,599 ) Property and equipment, net $ 58,079 $ 55,492 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible assets | March 31, 2017 December 31, 2016 Non-compete agreement $ 781,249 $ 1,250,000 Intellectual property 756,000 756,000 Internally developed software 254,466 119,225 1,791,715 2,125,225 Accumulated amortization (867,704 ) (759,984 ) Carrying value $ 924,011 $ 1,365,241 |
Schedule of estimated future amortization expense | Remainder of 2017 $ 325,365 2018 357,550 2019 229,826 2020 11,270 $ 924,011 |
ACCOUNTS PAYABLE AND ACCRUED 21
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Accounts Payable and Accrued Liabilities [Abstract] | |
Schedule of Accounts payable and accrued expenses | March 31, 2017 December 31, 2016 Accounts payable, trade $ 11,403,102 $ 11,745,026 Accrued expenses 859,671 260,818 Accrued compensation 292,289 319,246 Accrued commissions 405,871 830,993 Total $ 12,960,933 $ 13,156,083 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Notes Payable [Abstract] | |
Schedule of notes payable | December 31, 2016 Current portion of notes payable and PIK interest $ 3,996,928 Non-current portion of notes payable Total notes payable and PIK interest 3,996,928 Less deferred financing costs (578,140 ) Notes payable and PIK interest, net of deferred costs $ 3,418,788 |
PUT WARRANT LIABILITY (Tables)
PUT WARRANT LIABILITY (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Schedule of Put Warrant Liability | The put warrant liability is comprised of the following at March 31, 2017: March 31, 2017 Initial derivative liability on issuance of put warrants $ 3,038,344 Less accretion of put warrants (1,894,563 ) Put warrant liability $ 1,143,781 |
SUMMARY OF SIGNIFICANT ACCOUN24
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 1 Months Ended | 3 Months Ended | |||
Apr. 30, 2017USD ($) | Mar. 31, 2017USD ($)Itemshares | Mar. 31, 2016USD ($)shares | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | |
General, selling and administrative expense | $ 4,409,807 | $ 3,805,101 | |||
Net loss | 2,026,359 | 2,401,655 | |||
Net decrease in cash and cash equivalents | 929,431 | (509,170) | |||
Restructuring costs | $ 377,961 | ||||
Reverse stock split ratio | 5 | ||||
Allowance for doubtful accounts | $ 246,598 | $ 254,875 | |||
Number of operating segments | Item | 1 | ||||
Antidilutive common share equivalents | shares | 3,619,331 | 2,577,403 | |||
Goodwill impairment | $ 0 | $ 0 | |||
Impairment of long-lived assets | 0 | 0 | |||
Accumulated deficit | 16,416,363 | 14,390,004 | |||
Cash and cash equivalents | 119,331 | $ 1,600,356 | 1,048,762 | $ 1,091,186 | |
Working capital deficit | $ 8,569,716 | $ 8,276,099 | |||
Minimum [Member] | |||||
Property and equipment estimated useful life | 3 years | ||||
Intangible assets estimated useful life | 3 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 | 69.00% | 61.00% | |||
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | |||||
Concentration risk percentage | 13.00% | 59.00% | |||
Subsequent Event [Member] | |||||
Proceeds from debentures | $ 5,000,000 |
PROPERTY AND EQUIPMENT (Schedul
PROPERTY AND EQUIPMENT (Schedule of Property and equipment) (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | |
Property, Plant and Equipment [Line Items] | |||
Property and equipment | $ 124,912 | $ 119,091 | |
Accumulated depreciation and amortization | (66,833) | (63,599) | |
Property and equipment, net | 58,079 | 55,492 | |
Depreciation expense | 3,234 | $ 9,477 | |
Office Equipment [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment | $ 124,912 | $ 119,091 |
INTANGIBLE ASSETS (Schedule of
INTANGIBLE ASSETS (Schedule of Intangible assets) (Details) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Intangible assets | $ 1,791,715 | $ 2,125,225 |
Accumulated amortization | (867,704) | (759,984) |
Carrying value | 924,011 | 1,365,241 |
Non-compete agreement [Member] | ||
Intangible assets | 781,249 | 1,250,000 |
Intellectual property [Member] | ||
Intangible assets | 756,000 | 756,000 |
Internally developed software [Member] | ||
Intangible assets | $ 254,466 | $ 119,225 |
INTANGIBLE ASSETS (Narrative) (
INTANGIBLE ASSETS (Narrative) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Capitalization of costs associated with the development of internal use software | $ 135,241 | |
Write-off of non-compete agreement | 468,751 | |
Remainder of 2017 | 325,365 | |
2,018 | 357,550 | |
2,019 | 229,826 | |
2,020 | 11,270 | |
Estimated future amortization expense, total | 924,011 | |
Intellectual property [Member] | ||
Amortization expense | 37,800 | 37,800 |
Non-compete agreement [Member] | ||
Write-off of non-compete agreement | 468,751 | |
Amortization expense | 52,083 | $ 52,083 |
Internally developed software [Member] | ||
Capitalization of costs associated with the development of internal use software | 135,241 | |
Amortization expense | $ 17,837 |
ACCOUNTS PAYABLE AND ACCRUED 28
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Accounts Payable and Accrued Liabilities [Abstract] | ||
Accounts payable, trade | $ 11,403,102 | $ 11,745,026 |
Accrued expenses | 859,671 | 260,818 |
Accrued compensation | 292,289 | 319,246 |
Accrued commissions | 405,871 | 830,993 |
Total | $ 12,960,933 | $ 13,156,083 |
NOTES PAYABLE (Financing Agreem
NOTES PAYABLE (Financing Agreement with Victory Park Management, LLC) (Details) - USD ($) | Aug. 22, 2016 | Feb. 16, 2016 | Jan. 26, 2016 | Oct. 26, 2015 | Jul. 06, 2015 | Oct. 30, 2014 | Oct. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 |
Debt Instrument [Line Items] | ||||||||||
Present value of put liability | $ 1,500,000 | $ 1,500,000 | ||||||||
Amortization of debt issue costs | 578,140 | $ 294,857 | ||||||||
Costs related to agreement | 1,982,124 | |||||||||
Repayments of note payable | 3,996,928 | 366,055 | ||||||||
PIK interest expense accrued to principal | $ 120,284 | |||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Interest rate (as a percent) | 10.00% | 10.00% | ||||||||
Paid-in-kind interest rate (as a percent) | 4.00% | 4.00% | ||||||||
Exercise price of warrants | $ 5 | |||||||||
Beneficially own shares as a percentage of shares outstanding | 4.99% | |||||||||
Percentage of revenue used as base to calculate purchase price | 50.00% | |||||||||
Amount used as base to calculate purchase price | $ 1,500,000 | |||||||||
Costs related to agreement | $ 3,164,352 | |||||||||
Maturity date | Dec. 31, 2016 | Oct. 30, 2017 | Oct. 30, 2017 | Oct. 30, 2017 | Oct. 30, 2017 | |||||
Repayments of note payable | $ 2,000,000 | |||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | Common Class A [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Number of shares callable by warrant | 580,000 | |||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | Maximum [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Paid-in-kind interest rate (as a percent) | 4.00% | |||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | Minimum [Member] | ||||||||||
Debt Instrument [Line Items] | ||||||||||
Paid-in-kind interest rate (as a percent) | 2.00% |
NOTES PAYABLE (Schedule of Note
NOTES PAYABLE (Schedule of Notes Payable) (Details) | Dec. 31, 2016USD ($) |
Notes Payable [Abstract] | |
Current portion of note payable and PIK interest | $ 3,996,928 |
Non-current portion of note payable | |
Total notes payable and PIK interest | 3,996,928 |
Less deferred financing costs | (578,140) |
Notes payable and PIK interest, net of deferred costs | $ 3,418,788 |
NOTES PAYABLE (Financing Agre31
NOTES PAYABLE (Financing Agreement with Fast Pay Partners, LLC) (Details) - Financing Agreement [Member] - Fast Pay Partners, LLC [Member] - USD ($) | Sep. 19, 2016 | Apr. 30, 2017 | Mar. 31, 2017 |
Debt Instrument [Line Items] | |||
Notes issued | $ 2,349,849 | ||
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 | ||
Subsequent Event [Member] | |||
Debt Instrument [Line Items] | |||
Maximum amount of advances pledged | $ 4,000,000 |
PUT WARRANT LIABILITY (Narrativ
PUT WARRANT LIABILITY (Narrative) (Details) | Jan. 04, 2017 | Mar. 31, 2017 |
Series A Warrants [Member] | ||
Rick-free interest rate | 1.875% | |
Expected term | 5 years 3 months | |
Expected volatility | 110.00% | |
Dividend yield | 0.00% | |
Series B Warrants [Member] | ||
Rick-free interest rate | 1.875% | |
Expected term | 5 years | |
Expected volatility | 110.00% | |
Dividend yield | 0.00% | |
Series A Warrants Embedded Derivative [Member] | ||
Rick-free interest rate | 2.00% | |
Expected term | 5 years 6 months | |
Expected volatility | 110.00% | |
Dividend yield | 0.00% | |
Series B Warrants Embeded Derivative [Member] | ||
Rick-free interest rate | 2.00% | |
Expected term | 5 years | |
Expected volatility | 110.00% | |
Dividend yield | 0.00% |
PUT WARRANT LIABILITY (Details)
PUT WARRANT LIABILITY (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||
Initial derivative liability on issuance of put warrants | $ 3,038,344 | ||
Accretion of put warrants | (1,894,563) | ||
Put warrant liability | $ 1,143,781 |
STOCKHOLDERS' EQUITY (Preferred
STOCKHOLDERS' EQUITY (Preferred and Common Stock) (Details) | Jan. 04, 2017USD ($)$ / sharesshares | Jan. 02, 2017USD ($)shares | Dec. 29, 2016USD ($)$ / sharesshares | Mar. 31, 2017USD ($)$ / sharesshares | Feb. 28, 2017USD ($)shares | Jan. 31, 2017USD ($) | Nov. 30, 2016USD ($)$ / sharesshares | Oct. 31, 2016USD ($)$ / sharesshares | Mar. 31, 2017USD ($)$ / sharesshares | Mar. 31, 2016USD ($) | Dec. 31, 2016$ / sharesshares | Oct. 30, 2014$ / sharesshares | Aug. 16, 2013$ / sharesshares |
Class of Stock [Line Items] | |||||||||||||
Preferred Stock, shares authorized | 50,000,000 | 50,000,000 | 50,000,000 | ||||||||||
Preferred Stock, par value per share | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | ||||||||||
Proceeds from the issuance of common stock units | $ | $ 3,830,000 | $ 3,820,001 | $ 500,000 | ||||||||||
Repayments of note payable | $ | $ 3,996,928 | 366,055 | |||||||||||
Stock awards forfeited during the period | 3,333 | ||||||||||||
Stock options forfeited during period | 152,000 | ||||||||||||
Stock based compensation | $ | $ 512,442 | 277,849 | |||||||||||
Reverse stock split ratio | 5 | ||||||||||||
Stock award expenses | $ | $ 144,848 | 111,460 | |||||||||||
Stock Option [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Stock based compensation | $ | $ (33,419) | $ 48,890 | |||||||||||
Private Placement [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Proceeds from the sale of stock | $ | $ 4,625,000 | ||||||||||||
Proceeds from the sale of stock, shares | 920,000 | ||||||||||||
Price per share of stock sold | $ / shares | $ 5 | ||||||||||||
Financing Agreement [Member] | Victory Park Management, LLC [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Exercise price of warrant | $ / shares | $ 5 | ||||||||||||
Repayments of note payable | $ | $ 2,000,000 | ||||||||||||
Common Class A [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Common Stock, shares authorized | 250,000,000 | 250,000,000 | 250,000,000 | ||||||||||
Common Stock, par value per share | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | ||||||||||
Common Stock, shares outstanding | 8,025,017 | 8,025,017 | 6,951,077 | ||||||||||
Proceeds from the sale of stock | $ | $ 3,980,001 | ||||||||||||
Proceeds from the sale of stock, shares | 761,905 | ||||||||||||
Threshhold of ownership | 9.99% | ||||||||||||
Shares issued for stock awards that have vested | 51,667 | ||||||||||||
Common Class A [Member] | Minimum [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Share price | $ / shares | $ 10 | ||||||||||||
Common Class A [Member] | Series A Warrants [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, total | 380,953 | ||||||||||||
Exercise price of warrant | $ / shares | $ 6.70 | ||||||||||||
Common Class A [Member] | Series A Warrants [Member] | Minimum [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Exercise price of warrant | $ / shares | $ 1.20 | ||||||||||||
Common Class A [Member] | Series B Warrants [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, total | 380,953 | ||||||||||||
Exercise price of warrant | $ / shares | $ 7 | ||||||||||||
Award term | 5 years | ||||||||||||
Common Class A [Member] | Series B Warrants [Member] | Minimum [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Exercise price of warrant | $ / shares | $ 1.20 | ||||||||||||
Share price | $ / shares | $ 5.25 | ||||||||||||
Common Class A [Member] | Series B Warrants [Member] | Maximum [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Cashless payment amount | $ | $ 2,500,000 | ||||||||||||
Common Class A [Member] | Private Placement [Member] | Series A Warrants [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, per warrant | 0.5 | ||||||||||||
Exercise price of warrant | $ / shares | $ 7.50 | ||||||||||||
Award term | 3 years | ||||||||||||
Common Class A [Member] | Financing Agreement [Member] | Victory Park Management, LLC [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, total | 580,000 | ||||||||||||
Common Class B [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Common Stock, shares authorized | 9,000,000 | 9,000,000 | 9,000,000 | ||||||||||
Common Stock, par value per share | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | ||||||||||
Common Stock, shares outstanding | 0 | 0 | 0 | ||||||||||
Series 1 Preferred Stock [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Preferred Stock, shares authorized | 200,000 | ||||||||||||
Liquidation preference per share | $ / shares | $ 0.001 | ||||||||||||
Consultant [Member] | Common Class A [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, total | 200,000 | ||||||||||||
Mr. Steven Antebi [Member] | Common Class A [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, total | 200,000 | ||||||||||||
Stock issued for services, value | $ | $ 540,000 | ||||||||||||
Stock issued for services, shares | 150,000 | ||||||||||||
Market Street Investor Relations, LLC [Member] | Common Class A [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, total | 400,000 | ||||||||||||
Fair value of warrants at date of grant | 1,390,264 | ||||||||||||
Exercise price of warrant | $ / shares | $ 7.50 | ||||||||||||
Placement agent fees | $ | $ 100,000 | ||||||||||||
Stock based compensation | $ | $ (163,987) | ||||||||||||
Mr. Robert Jordan [Member] | Common Class A [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Stock issued for services, value | $ | $ 12,500 | ||||||||||||
Stock issued for services, shares | 6,510 | ||||||||||||
Kathy Ireland Worldwide LLC [Member] | Common Class A [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Stock issued for services, value | $ | $ 678,000 | ||||||||||||
Stock issued for services, shares | 100,000 | ||||||||||||
T.R. Winston & Company, LLC [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Award term | 3 years | ||||||||||||
Fee percentage of proceeds | 4.00% | ||||||||||||
Placement agent fees | $ | $ 266,000 | ||||||||||||
Stock issued for services, value | $ | $ 109,956 | ||||||||||||
Stock issued for services, shares | 22,392 | ||||||||||||
T.R. Winston & Company, LLC [Member] | Common Class A [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, total | 68,400 | ||||||||||||
Exercise price of warrant | $ / shares | $ 7.50 | ||||||||||||
Chardan Capital Markets, LLC [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Cash fee amount | $ | $ 160,000 | ||||||||||||
Fee percentage of proceeds | 4.00% | ||||||||||||
Reimbursement amount | $ | $ 15,000 | ||||||||||||
Chardan Capital Markets, LLC [Member] | Common Class A [Member] | |||||||||||||
Class of Stock [Line Items] | |||||||||||||
Number of shares callable by warrants, total | 76,190 | ||||||||||||
Exercise price of warrant | $ / shares | $ 6.50 | ||||||||||||
Award term | 5 years 6 months |
RELATED PARTY TRANSACTIONS (Nar
RELATED PARTY TRANSACTIONS (Narrative) (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Tronc, Inc. [Member] | ||
Related Party Transaction [Line Items] | ||
Due from related party | $ 956,680 | |
Mr. Steven Antebi [Member] | ||
Related Party Transaction [Line Items] | ||
Services purchased from related party | $ 458,006 | $ 0 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Lease expiration period | Jan. 31, 2018 | |
Rent expense | $ 40,212 | $ 61,986 |
Future minimum lease payments, 2017 | 35,100 | |
Future minimum lease payments, 2018 | $ 800 |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) - USD ($) | Jan. 04, 2017 | Dec. 29, 2016 | Apr. 30, 2017 | Jan. 31, 2017 | Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 |
Sale of common stock | $ 3,830,000 | $ 3,820,001 | $ 500,000 | ||||
Repayments of note payable | 3,996,928 | $ 366,055 | |||||
Note payable | $ 3,418,788 | ||||||
Common Class A [Member] | |||||||
Stock issued, shares | 761,905 | ||||||
Threshhold of ownership | 9.99% | ||||||
Chardan Capital Markets, LLC [Member] | |||||||
Fee percentage of proceeds | 4.00% | ||||||
Chardan Capital Markets, LLC [Member] | Common Class A [Member] | |||||||
Exercise price of warrant | $ 6.50 | ||||||
Warrants to purchase shares of common stock, number of shares of common stock | 76,190 | ||||||
Series A Warrants [Member] | Common Class A [Member] | |||||||
Exercise price of warrant | $ 6.70 | ||||||
Warrants to purchase shares of common stock, number of shares of common stock | 380,953 | ||||||
Series A Warrants [Member] | Common Class A [Member] | Minimum [Member] | |||||||
Exercise price of warrant | $ 1.20 | ||||||
Series B Warrants [Member] | Common Class A [Member] | |||||||
Exercise price of warrant | $ 7 | ||||||
Warrants to purchase shares of common stock, number of shares of common stock | 380,953 | ||||||
Series B Warrants [Member] | Common Class A [Member] | Minimum [Member] | |||||||
Exercise price of warrant | $ 1.20 | ||||||
Subsequent Event [Member] | |||||||
Sale of common stock | $ 4,547,000 | ||||||
Proceeds used to satisfy put obligation | 2,500,000 | ||||||
Subsequent Event [Member] | Securities Purchase Agreements [Member] | |||||||
Debenture princpal amount | $ 5,000,000 | ||||||
Interest rate | 12.50% | ||||||
Subsequent Event [Member] | Securities Purchase Agreements [Member] | Common Class A [Member] | |||||||
Threshhold of ownership | 20.00% | ||||||
Voting agreement percentage of shareholders | 21.00% | ||||||
Subsequent Event [Member] | Securities Purchase Agreements [Member] | Colorado Financial Service Corporation [Member] | Common Class A [Member] | |||||||
Exercise price of warrant | $ 3.75 | ||||||
Warrants to purchase shares of common stock, number of shares of common stock | 7,700 | ||||||
Exercise period of warrants | 5 years 6 months | ||||||
Subsequent Event [Member] | Securities Purchase Agreements [Member] | Noble Capital Markets [Member] | Common Class A [Member] | |||||||
Exercise price of warrant | $ 3 | ||||||
Warrants to purchase shares of common stock, number of shares of common stock | 66,800 | ||||||
Exercise period of warrants | 6 months | ||||||
Subsequent Event [Member] | Securities Purchase Agreements [Member] | Chardan Capital Markets, LLC [Member] | Common Class A [Member] | |||||||
Exercise price of warrant | $ 3.75 | ||||||
Warrants to purchase shares of common stock, number of shares of common stock | 100,000 | ||||||
Exercise period of warrants | 5 years | ||||||
Subsequent Event [Member] | Securities Purchase Agreements [Member] | Three Broker-Dealers [Member] | |||||||
Placement agent commissions | $ 276,700 | ||||||
Subsequent Event [Member] | Securities Purchase Agreements [Member] | Affiliate of Noble [Member] | |||||||
Debenture princpal amount | $ 720,000 | ||||||
Warrants to purchase shares of common stock, number of shares of common stock | 120,000 | ||||||
Subsequent Event [Member] | Securities Purchase Agreements, Additional Debentures [Member] | |||||||
Debenture princpal amount | $ 3,000,000 | ||||||
Subsequent Event [Member] | Series A Warrants [Member] | |||||||
Exercise price of warrant | $ 2.245 | ||||||
Subsequent Event [Member] | Series A Warrants [Member] | Securities Purchase Agreements [Member] | Common Class A [Member] | |||||||
Exercise price of warrant | $ 3 | ||||||
Warrants to purchase shares of common stock, number of shares of common stock | 833,337 | ||||||
Exercise period of warrants | 3 years | ||||||
Premium exercise percentage during first year | 120.00% | ||||||
Premium exercise percentage during the remainder of the term | 120.00% | ||||||
Threshhold of ownership | 4.99% | ||||||
Subsequent Event [Member] | Series A Warrants [Member] | Securities Purchase Agreements [Member] | Common Class A [Member] | Maximum [Member] | |||||||
Threshhold of ownership | 9.99% | ||||||
Subsequent Event [Member] | Series A Warrants [Member] | Securities Purchase Agreements [Member] | Common Class A [Member] | Minimum [Member] | |||||||
Exercise price of warrant | $ 1.40 | ||||||
Subsequent Event [Member] | Series B Warrants [Member] | Securities Purchase Agreements [Member] | Common Class A [Member] | |||||||
Percentage of conversion shares issuable | 50.00% | ||||||
Fee percentage of proceeds | 20.00% |