Attached files
| file | filename |
|---|---|
| 8-K/A - CURRENT REPORT - SRAX, Inc. | scri_8k.htm |
| EX-99.3 - PRO FORMA FINANCIAL STATEMENTS - SRAX, Inc. | scri_ex99z3.htm |
| EX-99.2 - UNAUDITED FINANCIAL STATEMENTS - SRAX, Inc. | scri_ex99z2.htm |
EXHIBIT 99.1
Steel Media
Financial Statements
December 31, 2013 and 2012
TABLE OF CONTENTS
| Page No. |
|
|
Independent Auditor's Report | 1 |
Balance Sheets | 2 |
Statements of Operations | 3 |
Statements of Stockholder's Equity | 4 |
Statements of Cash Flows | 5 |
Notes to Financial Statements | 6 - 9 |
![[scri_ex99z1002.gif]](scri_ex99z1002.gif)
INDEPENDENT AUDITOR'S REPORT
To Management
Steel Media
Alamo, California
We have audited the accompanying financial statements of Steel Media, an S Corporation (a California corporation), which comprise the balance sheets as of December 31, 2013 and 2012, and the related statements of operations, stockholder's equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Steel Media as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
|
|
| ArmaninoLLP |
| San Francisco, California |
![[scri_ex99z1004.gif]](scri_ex99z1004.gif)
March 4, 2014
![[scri_ex99z1006.gif]](scri_ex99z1006.gif)
- 1 -
STEEL MEDIA
Balance Sheets
December 31, 2013 and 2012
——————————————
|
| 2013 |
|
| 2012 |
| ||
ASSETS |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 715,371 |
|
| $ | 659,574 |
|
Accounts receivable |
|
| 1,756,378 |
|
|
| 760,308 |
|
Prepaid expenses and other current assets |
|
| 6,561 |
|
|
| 11,131 |
|
Total current assets |
|
| 2,478,310 |
|
|
| 1,431,013 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 8,415 |
|
|
| 57,221 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 2,486,725 |
|
| $ | 1,488,234 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | - |
|
| $ | 3,456 |
|
Accrued expenses |
|
| 998,722 |
|
|
| 390,559 |
|
Deferred revenue |
|
| 43,116 |
|
|
| 30,798 |
|
Total current liabilities |
|
| 1,041,838 |
|
|
| 424,813 |
|
|
|
|
|
|
|
|
|
|
Stockholder's equity |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000 shares authorized, issued, and outstanding |
|
| 100 |
|
|
| 100 |
|
Retained earnings |
|
| 1,444,787 |
|
|
| 1,063,321 |
|
Total stockholder's equity |
|
| 1,444,887 |
|
|
| 1,063,421 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholder's equity |
| $ | 2,486,725 |
|
| $ | 1,488,234 |
|
The accompanying notes are an integral part of these financial statements.
- 2 -
STEEL MEDIA
Statements of Operations
For the Years Ended December 31, 2013 and 2012
——————————————
|
| 2013 |
|
| 2012 |
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | 7,936,511 |
|
| $ | 5,654,598 |
|
Cost of revenues |
|
| 1,743,391 |
|
|
| 1,154,392 |
|
Gross profit |
|
| 6,193,120 |
|
|
| 4,500,206 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
General and administrative |
|
| 3,086,282 |
|
|
| 2,997,102 |
|
Sales and marketing |
|
| 2,728,364 |
|
|
| 1,830,323 |
|
Total operating expenses |
|
| 5,814,646 |
|
|
| 4,827,425 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| 378,474 |
|
|
| (327,219 | ) |
|
|
|
|
|
|
|
|
|
Other income, net |
|
| 13,424 |
|
|
| 44,720 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
| 391,898 |
|
|
| (282,499 | ) |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| 1,713 |
|
|
| 800 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 390,185 |
|
| $ | (283,299 | ) |
The accompanying notes are an integral part of these financial statements.
- 3 -
STEEL MEDIA
Statements of Stockholder's Equity
For the Years Ended December 31, 2013 and 2012
——————————————
|
|
|
|
|
|
|
|
|
|
| Total |
| ||||
|
| Common Stock |
|
| Retained |
|
| Stockholder's |
| |||||||
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Equity |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balances at December 31, 2011 |
|
| 100,000 |
|
| $ | 100 |
|
| $ | 1,357,329 |
|
| $ | 1,357,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| (283,299 | ) |
|
| (283,299 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to stockholder |
|
| - |
|
|
| - |
|
|
| (10,709 | ) |
|
| (10,709 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2012 |
|
| 100,000 |
|
|
| 100 |
|
|
| 1,063,321 |
|
|
| 1,063,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
| - |
|
|
| 390,185 |
|
|
| 390,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to stockholder |
|
| - |
|
|
| - |
|
|
| (8,719 | ) |
|
| (8,719 | ) |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013 |
|
| 100,000 |
|
| $ | 100 |
|
| $ | 1,444,787 |
|
| $ | 1,444,887 |
|
The accompanying notes are an integral part of these financial statements.
- 4 -
STEEL MEDIA
Statements of Cash Flows
For the Years Ended December 31, 2013 and 2012
——————————————
|
| 2013 |
|
| 2012 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net income (loss) |
| $ | 390,185 |
|
| $ | (283,299 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 3,224 |
|
|
| 15,350 |
|
Loss on sale of property and equipment |
|
| 15,220 |
|
|
| - |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (996,070 | ) |
|
| 491,626 |
|
Prepaid expenses and other current assets |
|
| 4,570 |
|
|
| (11,131 | ) |
Accounts payable |
|
| (3,456 | ) |
|
| (4,342 | ) |
Accrued expenses |
|
| 608,163 |
|
|
| (228,298 | ) |
Deferred revenue |
|
| 12,318 |
|
|
| 25,131 |
|
Net cash provided by operating activities |
|
| 34,154 |
|
|
| 5,037 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (9,176 | ) |
|
| (2,034 | ) |
Proceeds from sale of property and equipment |
|
| 39,538 |
|
|
| - |
|
Net cash provided by (used in) operating activities |
|
| 30,362 |
|
|
| (2,034 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Distributions made to stockholder |
|
| (8,719 | ) |
|
| (10,709 | ) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 55,797 |
|
|
| (7,706 | ) |
Cash and cash equivalents at beginning of period |
|
| 659,574 |
|
|
| 667,280 |
|
Cash and cash equivalents at end of period |
| $ | 715,371 |
|
| $ | 659,574 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes |
| $ | 1,713 |
|
| $ | 800 |
|
The accompanying notes are an integral part of these financial statements.
- 5 -
STEEL MEDIA
Notes to Financial Statements
December 31, 2013 and 2012
——————————————
1. Organization and Summary of Significant Accounting Policies
Organization and description of the business
Steel Media (the "Company"), a California S corporation headquartered in New York, New York, provides Online Display, Mobile, Online Video and Email ad inventory to both brands and ad agencies. Clients can orchestrate targeted and integrated digital campaigns. The Company also offers a database marketing capability that provides clients the ability to target certain populations via email. The Company works to optimize online display and video campaigns, providing brands and ad agencies the power to deploy, manage, and measure all digital advertising campaigns in one place.
Use of estimates
The preparation of the financial statements requires management of the Company to make a number of estimates and assumptions relating to 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 revenues and expenses during the period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid instruments with original or remaining maturities of 90 days or less at the date of purchase to be cash equivalents.
Accounts receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the existing accounts receivable. The Company determines the allowance for doubtful accounts based on historical write-off experience and probability of collection, which is reviewed on a monthly basis. There was no allowance for doubtful accounts as of December 31, 2013 or December 31, 2012.
Property and equipment
Property and equipment are stated at cost net of accumulated depreciation. Depreciation on property and equipment is calculated on the straight-line basis over the estimated useful lives of the assets, typically three years. Improvements are capitalized while repairs and maintenance are charged to expense in the period incurred. Gains and losses realized on the disposal or retirement of property and equipment are recognized or charged to other income (expense).
- 6 -
STEEL MEDIA
Notes to Financial Statements
December 31, 2013 and 2012
——————————————
1. Organization and Summary of Significant Accounting Policies (continued)
Revenue recognition
The Company recognizes revenue by providing online display, mobile, online video and email advertising to advertising agencies and to brands directly. Clients contract with the Company by way of an Insertion Order ("I.O.") which stipulates the type of advertising, quantity, flight dates, and ad sizes. Once an I.O. is signed by the client, the Company then secures the advertising space and prepares the ads (also called "tags"). Next, the Company works with third party ad servers and reporting platforms to set up reporting and billing information, test creative tags, launch the campaign and monitor campaign delivery and performance.
The Company recognizes revenue when all of the following criteria are met:
·
Persuasive evidence of an arrangement exists
·
Delivery or performance has occurred
·
The fee is fixed or determinable; and
·
Collectability is reasonably assured
Revenue is generated under sales agreements with multiple elements in conjunction with the following platforms: 1) Online Display, 2) Email, 3) Video, and 4) Mobile. The Company also offers creative services to assist customers in building and managing apps and websites. The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered items have standalone value and delivery of the undelivered element is probable and within the Company's control. The Company has determined that services do not have standalone value and are, therefore, treated as one unit of accounting. The Company recognizes revenues over the campaign period.
Gross versus net revenue recognition
In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. The determination of whether revenue should be reported gross or net is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. In determining whether the Company acts as the principal or an agent, the Company follows the accounting guidance for principal-agent considerations and the Company places the most weight on whether or not the Company is the primary obligor in the arrangement.
The Company is considered the primary obligor to its clients. It separately negotiates each sales or unit pricing contract, assumes the credit risk for amounts invoiced to its customers, and has discretion in the advertiser selection. Therefore, it recognizes revenue on a gross basis.
- 7 -
STEEL MEDIA
Notes to Financial Statements
December 31, 2013 and 2012
——————————————
1. Organization and Summary of Significant Accounting Policies (continued)
Deferred revenue
Deferred revenue arises when customers pay for services in advance of revenue recognition. The Company's deferred revenue generally results from services not yet rendered.
Software development costs
The Company has not capitalized any software development costs to date as the period between achieving technological feasibility and the general availability of the related products has been short and software development costs qualifying for capitalization have not been material. All software development costs are recognized as a component of operating expenses.
Research and development
Research and development expenses are expensed as incurred.
Income taxes
The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Accordingly, the financial statements do not include a provision for federal income taxes. Instead, the earnings and losses are included in the stockholder's personal income tax returns and are taxed based on the stockholder's personal tax situation. The Company is, however, subject to certain minimum state franchise tax fees and a minimum California state franchise tax of $800.
2. Property and Equipment
Property and equipment consist of the following as of December 31, 2013 and 2012:
|
| 2013 |
|
| 2012 |
| ||
Computer equipment |
| $ | 14,170 |
|
| $ | 4,994 |
|
Automobile |
|
| - |
|
|
| 68,990 |
|
|
|
| 14,170 |
|
|
| 73,984 |
|
Less: accumulated depreciation |
|
| (5,755 | ) |
|
| (16,763 | ) |
|
| $ | 8,415 |
|
| $ | 57,221 |
|
Depreciation expense totaled $3,224 and $15,350 for 2013 and 2012, respectively.
In November 2013, the Company sold an automobile with a net book value of $54,758 for $39,538, resulting in a loss of $15,220.
- 8 -
STEEL MEDIA
Notes to Financial Statements
December 31, 2013 and 2012
——————————————
3. Accrued Expenses
Accrued expenses as of December 31, 2013 and 2012 consisted of the following:
|
| 2013 |
|
| 2012 |
| ||
Accrued expenses |
| $ | 647,868 |
|
| $ | 223,624 |
|
Accrued commissions |
|
| 79,714 |
|
|
| 20,685 |
|
Accrued bonuses |
|
| 271,140 |
|
|
| 146,250 |
|
Total accrued expenses |
| $ | 998,722 |
|
| $ | 390,559 |
|
4. Related Party Transactions
Over the course of 2013 and 2012, the Company dispensed funds to the stockholder's relatives totaling $61,100 and $1,000, respectively, for various consulting services.
5. Commitments and Contingencies
Lease commitments
The Company leases its New York office space under an annual agreement that expires in October 2014. Leases at all other locations are short-term with less than one-year terms.
Scheduled minimum rental payments for the remaining lease terms are as follows:
Year Ending December 31, |
|
|
| |
2014 |
| $ | 58,500 |
|
Rent expense, which includes the Alamo property, amounted to $74,190 and $50,251 during 2013 and 2012, respectively.
Legal proceedings
The Company is subject to certain routine legal proceedings, as well as demands, and claims that arise in the normal course of its business. The Company believes that the ultimate amount of liability, if any, for any pending claims of any type, will not materially affect its financial position, results of operations or liquidity.
6. Subsequent Events
The Company has evaluated subsequent events through March 4, 2014, the date which the financial statements were available to be issued.
- 9 -