SOCIAL REALITY, INC. (NASDAQ:SRAX) Files An 8-K Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
Item 4.02
Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
On April 7, 2019, management of Social Reality, Inc. (the “Company”) concluded and the audit committee of the Company has concurred that the Company’s previously issued quarterly and year-to-date unaudited consolidated financial statements for March 31, 2017, June 30, 2017, September 30, 2017, December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018 and that its audited consolidated financial statements for the year ending December 31, 2017 should no longer be relied upon. Similarly, related press releases, earnings releases, and investor communications describing the Company’s financial statements for these periods should no longer be relied upon. The errors identified are all non-cash and primarily related to the Company’s classification of certain outstanding warrants with provisions that allow the warrant holder to force cash redemption under certain circumstances.
Based on its preliminary assessment, the Company is providing the following estimates regarding the aggregate impact of these errors on consolidated total current liabilities, total liabilities, equity, other income, net income (loss) and income (loss) per share, calculated in accordance with accounting principles generally accepted in the U.S., for each of the periods presented:
SOCIAL REALITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2018
(Unaudited)
|
AS REPORTED |
Restated |
|||||
|
YTD September |
YTD September |
|||||
|
|
Adjustments |
|
||||
|
Revenues |
$ |
8,823,592 |
$ |
8,823,592 |
||
|
Cost of revenue |
2,902,179 |
2,902,179 |
||||
|
Gross profit |
$ |
5,921,413 |
$ |
5,921,413 |
||
|
Loss from operations |
$ |
(8,492,866 |
) |
$ |
(8,492,866 |
) |
|
Other income (expense) |
||||||
|
Total interest expense |
$ |
(2,772,448 |
) |
$ |
(2,772,448 |
) |
|
Loss on repricing of Series A warrants |
$ |
– |
$ |
– |
||
|
Accretion of put warrants |
$ |
800,000 |
$ |
800,000 |
||
|
Accretion of debenture warrants |
$ |
800,000 |
$ |
800,000 |
||
|
Accretion of Leapfrog warrants |
$ |
600,000 |
$ |
600,000 |
||
|
Loss (Gain) on Sale of Fixed Assets |
$ |
23,978,389 |
$ |
23,978,389 |
||
|
Other Income |
$ |
21,205,941 |
$ |
2,200,000 |
$ |
23,410,439 |
|
Net Income (loss) |
$ |
12,717,573 |
$ |
2,200,000 |
$ |
14,917,573 |
|
Net (loss) income per share, basic |
$ |
1.59 |
$ |
1.86 |
||
|
Net (loss) income per share, diluted |
1.59 |
$ |
1.86 |
|||
|
Weighted average shares outstanding, basic |
8,008,717 |
– |
8,008,717 |
|||
|
Weighted average shares outstanding, diluted |
8,008,717 |
– |
8,008,717 |
SOCIAL REALITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2017
|
AS REPORTED |
Restated |
||||||||
|
Full Year |
Full Year |
||||||||
|
|
Adjustments |
|
|||||||
|
Revenues |
$ |
23,348,714 |
$ |
23,348,714 |
|||||
|
Cost of revenue |
9,328,893 |
9,328,893 |
|||||||
|
Gross profit |
$ |
14,019,821 |
$ |
14,019,821 |
|||||
|
Loss from operations |
$ |
(3,843,679 |
) |
$ |
(3,843,679 |
) |
|||
|
Other income (expense) |
|||||||||
|
Total interest expense |
$ |
(2,815,203 |
) |
$ |
(2,815,203 |
) |
|||
|
Loss on repricing of Series A warrants |
$ |
– |
$ |
(100,000 |
) |
$ |
(100,000 |
) |
|
|
Accretion of put warrants |
$ |
500,000 |
$ |
500,000 |
|||||
|
Accretion of debenture warrants |
$ |
(700,000 |
) |
$ |
(700,000 |
) |
|||
|
Accretion of Leapfrog warrants |
$ |
(1,500,000 |
) |
$ |
(1,500,000 |
) |
|||
|
Loss (Gain) on Sale of Fixed Assets |
$ |
– |
$ |
– |
|||||
|
Other Income |
$ |
(2,815,203 |
) |
$ |
(1,800,000 |
) |
$ |
(4,615,203 |
) |
|
Net Income (loss) |
$ |
(6,658,882 |
) |
$ |
(1,800,000 |
) |
$ |
(8,458,882 |
) |
|
Net (loss) income per share, basic |
$ |
(0.81 |
) |
$ |
(1.02 |
) |
|||
|
Weighted average shares outstanding, basic |
8,253,851 |
– |
8,253,851 |
SOCIAL REALITY, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2018
(Unaudited)
|
September 30 |
September 30 |
|||
|
|
|
|||
|
As Reported |
Adjustments |
As Restated |
||
|
Total assets |
34,341,324 |
– |
34,341,324 |
|
|
Liabilities and stockholders’ equity |
||||
|
Current liabilities: |
||||
|
Accounts payable and accrued expenses |
2,475,229 |
2,475,229 |
||
|
Leapfrog warrant liability |
– |
1,000,000 |
1,000,000 |
|
|
Warrant liability – Series A |
– |
1,300,000 |
1,300,000 |
|
|
Debenture warrant liability |
– |
1,600,000 |
1,600,000 |
|
|
Total current liabilities |
2,475,229 |
3,900,000 |
6,375,229 |
|
|
Secured convertible debentures, net |
2,943,109 |
– |
2,943,109 |
|
|
Total liabilities |
5,418,338 |
3,900,000 |
9,318,338 |
|
|
Total stockholders’ equity |
28,922,886 |
(3,900,000 |
) |
25,022,886 |
|
Total liabilities and stockholders’ equity |
34,341,224 |
– |
34,341,224 |
SOCIAL REALITY, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2017
|
As Reported |
Restated |
|||
|
December 31, |
December |
|||
|
|
Adjustments |
|
||
|
Total assets |
23,605,699 |
– |
23,605,699 |
|
|
Liabilities and stockholders’ equity |
||||
|
Current liabilities: |
||||
|
Accounts payable and accrued expenses |
5,010,815 |
5,010,815 |
||
|
Leapfrog warrant liability |
1,700,000 |
1,700,000 |
||
|
Warrant liability – Series A |
2,100,000 |
2,100,000 |
||
|
Debenture warrant liability |
2,500,000 |
2,500,000 |
||
|
Total current liabilities |
5,010,815 |
6,300,000 |
11,310,815 |
|
|
Secured convertible debentures, net |
1,711,146 |
– |
1,711,146 |
|
|
Total liabilities |
6,721,961 |
6,300,000 |
13,021,961 |
|
|
Total stockholders’ equity |
16,883,738 |
(6,300,000 |
) |
10,583,738 |
|
Total liabilities and stockholders’ equity |
23,605,699 |
– |
33,358,527 |
Since the Company has not yet fully completed its review, the estimates regarding the impact set forth above are preliminary and remain subject to change.
In connection with the restatement, management has determined that a material weakness related to the accounting for financing transactions in the Company’s internal control over financial reporting existed for the periods from March 31, 2017 through December 31, 2018. The Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2017 through December 31, 2018, and the Company’s management has concluded that its internal control over financial reporting was not effective as of December 31, 2018.
The Company anticipates that it will file amended Quarterly Reports on Form 10-Q for the periods ended March 31, 2018, June 30, 2018 and September 30, 2018, to amend and restate its financial condition and financial results for the affected periods as soon as practicable.
Members of the Company’s management have discussed the matters disclosed in this Item 4.02 with RBSM, LLP, the Company’s independent registered public accounting firm.
Cautionary Statement on Forward-looking Information
This Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 or under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, “forward-looking statements”) that may not be based on historical fact, but instead relate to future events, including without limitation statements containing the words “believe”, “may”, “plan”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar expressions. All statements other than statements of historical fact included in this communication are forward-looking statements.
Such forward-looking statements are based on a number of assumptions. Although the Company’s management believes that the assumptions made and expectations represented by such statements are reasonable, there can be no assurance that a forward-looking statement contained herein will prove to be accurate. Actual results and developments may differ significantly from those expressed or implied by the forward-looking statements contained herein and even if such actual results and developments are realized or substantially realized, there can be no assurance that they will have the expected consequences or effects. These risks include, among other things: the ability to complete the restatement of the affected financial statements and address any material weaknesses; the timing of completion of necessary restatements, interim reviews and audits by the Company’s independent registered public accounting firm; risks relating to the substantial costs and diversion of personnel’s attention and resources deployed to address the restatement of the affected financial statements and internal control matters; the risk of litigation or regulatory action arising from the restatement of the affected financial statements; the timing of the review by, and the conclusions of, the Company’s independent auditor regarding the restatement ; the ability of the Company to remediate any material weaknesses in internal control over financial reporting; potential reputational damage that the Company may suffer as a result of the restatement of the affected financial statements; the impact of the restatement of the affected financial statements on the value of the Company’s common stock; the risk that the filing of the restatement of the affected financial statements will take longer than anticipated; and the risk factors described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, its quarterly reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, including subsequent current and periodic reports, information statements and registration statements filed with the U.S. Securities and Exchange Commission. You are cautioned to review such reports and other filings at www.sec.gov.
Given these risks, uncertainties and factors, you are cautioned not to place undue reliance on such forward-looking statements and information, which are qualified in their entirety by this cautionary statement. All forward-looking statements and information made herein are based on the Company’s current expectations and the Company does not undertake an obligation to revise or update such forward-looking statements and information to reflect subsequent events or circumstances, except as required by law.
Item 9.01
Financial Statements and Exhibits.
|
Exhibit No. |
Description |
|
99.01 |
Press Release Dated April 8, 2019 |
SOCIAL REALITY, Inc. Exhibit
EX-99.01 2 srax_ex99z01.htm EARNINGS CALL TRANSCRIPT Press Release EXHIBIT 99.1 SRAX Announces Non-Reliance on Previously Issued Financial Statements LOS ANGELES,…
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About SOCIAL REALITY, INC. (NASDAQ:SRAX)
Social Reality, Inc. is an Internet advertising and platform technology company. The Company provides tools to automate the digital advertising market. It is engaged in the sales of digital media advertising campaigns to advertising agencies and brands; sales of media inventory through real-time bidding (RTB) exchanges; sale and licensing of its SRAX Social platform and related media, and creation of custom platforms for buying media on SRAX for various brands. Its technology assists publishers in delivering their media inventory to the RTB exchanges. It provides the SRAX platform to brands and their advertising agencies. SRAX Social is a social media and loyalty platform that allows brands to launch and manage their social media initiatives. SRAX MD is an advertisement targeting and data platform for healthcare brands and medical content publishers. SRAX APP is a platform that allows publishers and content owners to launch native mobile applications through its SRAX platform.
