SRAX Announces Non-Reliance on Previously Issued Financial Statements

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Social Reality, Inc. (NASDAQ: SRAX), a digital marketing and consumer data management technology company, today announced that 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, 2017June 30, 2017September 30, 2017December 31, 2017March 31, 2018June 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 PERIOD ENDED SEPTEMBER 30, 2018

(Unaudited)

AS 
REPORTED

Restated

YTD 
September

YTD 
September

2018

Adjustments

2018

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

$             21,210,439

$         2,200,000

$      23,410,439

Net Income (loss)

$             12,717,573

$         2,200,000

$      14,917,573

Net (loss) income pershare, basic 

$                        1.59

$                1.86

Net (loss) income pershare, 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

2017

Adjustments

2017

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 pershare, 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

2018

2018

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

Restated

December 31,

December

2017

Adjustments

2017

 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

23,605,699

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, 2018June 30, 2018 and September 30, 2018, to amend and restate its financial condition and financial results for the affected periods as soon as practicable.

About SRAX

Social Reality, Inc. (NASDAQ: SRAX) is a digital marketing and consumer data management technology company. SRAX’s technology delivers the tools to unlock data to reveal brands core consumers and their characteristics across marketing channels. Through its blockchain identification graph technology platform, BIGtoken, SRAX has developed a consumer-managed data marketplace where people can own and earn from their data thereby providing everyone in the Internet ecosystem choice, transparency, and compensation. SRAX’s technology and tools deliver a digital competitive advantage for brands in the CPG, automotive, investor relations and lifestyle verticals by integrating all aspects of the advertising experience, including verified consumer participation, into one platform. For more information on SRAX, visit www.srax.com.

 

SOURCE SRAX