JERSEY CITY, N.J., April 03, 2018 (GLOBE NEWSWIRE) -- SITO Mobile Ltd. (NASDAQ:SITO), an insights-driven Consumer Behavior and Location Sciences™ company, filed its Annual Report on Form 10-K for the year ended December 31, 2017 with the Securities and Exchange Commission after the market closed yesterday.

In connection with the preparation and audit of the financial statements included in the Company’s Form 10-K for the year ended December 31, 2017, the Audit Committee of the Company’s Board of Directors, in consultation with management and its current and former independent auditors, concluded that the Company’s unaudited condensed consolidated financial statements included in its quarterly reports on Form 10-Q for the periods ended June 30, 2017 and September 30, 2017 (the “Initial Filings”), should no longer be relied upon. In addition, the Company’s earnings and press releases and similar communications, to the extent that they relate to the periods covered by these financial statements, as well as the Company’s fourth quarter and fiscal 2017 earnings release dated March 21, 2018, should no longer be relied upon as a result of certain accounting adjustments, described below.

The Company intends to file amendments to its quarterly reports on Form 10-Q for the quarterly periods ended June 30, 2017 and September 30, 2017 (together, the “Amended Filings”) on or before April 30, 2018 to restate the previously issued interim financial statements in the Initial Filings.

We believe it is important that investors understand that these accounting adjustments:

• do not reflect a fundamental change in our underlying business;
• do not relate to the Company’s operating performance;
• do not materially impact the key corporate performance metrics used by the Company, including media-placement revenue and gross profit or non-GAAP Adjusted EBITDA;
• do not impact our cash and cash equivalents; and
• do not impact our compliance with our contractual obligations.

Net Impact of Accounting Adjustments

Second Quarter 2017 Adjustments. The net impact of these adjustments to the Company’s statement of operations for the three and six months ended June 30, 2017 is (i) an increase in loss from operations of $49,356 and $141,569, respectively, (ii) a decrease in net loss of $1,323,185 for both periods and (iii) a decrease in basic and diluted net loss per share of $0.06 for both periods. The net impact of these adjustments to the Company’s balance sheet as of June 30, 2017 is (i) a decrease in current deferred revenue of $337,500, (ii) a decrease in long-term deferred revenue of $985,685, (iii) a decrease in accumulated deficit of $1,323,185.

Third Quarter 2017 Adjustments. The net impact of these adjustments to the Company’s statement of operations for the three and nine months ended September 30, 2017 is (i) a decrease in loss from operations of $230,862 and $89,293, respectively, (ii) an increase in net loss of $405,594 and decrease in net loss $917,591, respectively and (iii) an increase in basic and diluted net loss per share of $0.02 and decrease of $0.04, respectively. The net impact of these adjustments to the Company’s balance sheet as of September 30, 2017 is (i) a decrease in current deferred revenue of $252,431, (ii) a decrease in long-term deferred revenue of $900,616, (iii) an increase in warrant liability of $1,698,034, (iv) a decrease in additional paid-in capital of $1,377,509 and (v) a decrease in accumulated deficit of $832,522.

Company Internal Control Environment

These accounting adjustments, described in further detail below, reflect management’s dedication to improving the accounting and disclosure regime of the Company and result in part from management’s engagement in February of this year of BDO USA, LLP, an internationally-recognized accounting firm, as the Company’s independent outside auditor.

Nonetheless, in light of these accounting adjustments, the Company’s management also discloses in the Annual Report and in its Current Report on Form 8-K, filed on April 2, 2018, that the Company’s internal control processes suffer from a material weakness surrounding the accounting for complex non-routine transactions that the Company is already working to remedy. The material weakness was in part attributable to high turnover with respect to the Company’s board of directors, management, chief financial officer, accounting staff and independent outside auditors over the last few years, particularly in the first three quarters of 2017.
“Since joining the Company as Chief Financial Officer in June of last year, we have embarked on a careful evaluation of prior management’s performance, including the Company’s accounting processes and practices, and have been seeking to establish the financial rigor that was needed throughout the organization. The hiring of an internationally recognized accounting firm like BDO USA, LLP was a key part of that process,” said Mark Del Priore, SITO’s Chief Financial Officer.

“The Company has already commenced a remedial process by hiring a financial accounting consulting firm to provide additional guidance on complex non-routine transactions, and has received proposals from multiple companies to assist with SOX 404 design and implementation and interviewing candidates to augment our finance and accounting staff.”

Summary of Accounting Adjustments

The improperly accounted for items are described in detail in our Annual Report on Form 10-K for the year ended December 31, 2017, and are summarized below.

• Warrants. In connection with our direct registered offering of common stock in July 2017, the Company issued 320,000 warrants, which were accounted for as equity. After consultation with its advisors, the Audit Committee has determined that the warrants should have been accounted for as a liability under generally accepted accounting principles because of the inherent risk that unknown future effects could compromise the ability of the Company to maintain an effective registration statement for the shares of common stock underlying such warrants. As a result, our stockholders’ equity-additional paid-in capital was overstated by approximately $1,000,000 and our Warrant Liability was understated by approximately $1,700,000 as of September 30, 2017. In addition, under the liability method of accounting, the Company will mark to market the warrants each reporting period. Other income/(expense) – Income/(loss) on revaluation of warrant liability was understated by approximately $600,000 for the three and nine months ended September 30, 2018.
• Earnings from Joint Venture. The Company has maintained licensing arrangement providing for a joint venture with Personalized Media Communications, LLC (the “JV License”). The JV License was renewed in June 2017 in exchange for a pre-payment of approximately $4,500,000. The Company has historically recorded revenue from the JV License as deferred revenue, which was recognized as revenue over the life of the JV License. After consultation with its advisors, the Audit Committee has determined that the licensing revenue should have been recorded as Earnings from Joint Venture rather than top-line revenue. Furthermore, the renewal of the JV license in June 2017 resulting in the JV License becoming a perpetual license under generally acceptable accounting principles, requiring upfront recognition of the pre-payment noted above. As a result, our deferred revenue was overstated by approximately $1,300,000, comprised of approximately $300,000 of current deferred revenue and approximately $1,000,000 of long-term deferred revenue, and Earnings of Joint Venture was understated by approximately $1,400,000 and approximately $1,500,000 for the three and six months ended June 30, 2017, respectively. As a result, our net loss for the three and six months ended June 30, 2017, was overstated by approximately $1,300,000 for both periods, respectively. Our deferred revenue was overstated by approximately $1,200,000, comprised of approximately $300,000 of current deferred revenue and approximately $900,000 of long-term deferred revenue, and Earnings of Joint Venture was understated by approximately $1,500,000 for the nine months ended September 30, 2017. As a result, our net loss was understated by approximately $100,000 for the three months ended September 30, 2017 and our net loss was overstated by approximately $1,200,000 for the nine months ended September 30, 2017.
• Professional Fees. Approximately $300,000 in fees associated with the Company’s direct registered offering of common stock in July 2017 were incorrectly classified as general and administrative expenses as presented in the three and nine month periods ended September 30, 2017. As these expenses directly related to the public offering of common stock, they should have been recorded as a charge against equity. As a result, our general and administrative expenses were overstated by approximately $300,000 and our net loss was overstated by approximately $300,000 for the three and nine months ended September 30, 2017.
• Litigation Settlement. As previously reported, on February 20, 2018, the Company and TAR SITO LendCo LLC (“TAR”), Mr. Julian Singer, Ms. Karen Singer and Mr. Gary Singer (collectively, the “TAR Group”), entered into a settlement agreement, pursuant to which, among other things, certain contractual obligations were terminated and discharged and all pending litigation between the Company and the members of the TAR Group was dismissed with prejudice in exchange for a lump sum payment of $3,500,000 from the Company to the TAR Group. While the Company had previously intended to record $3,500,000 of litigation settlement expense in the first quarter of 2018, after consultation with its advisors, the Company has recorded this expense in the fourth quarter of 2017, and accrued a liability in such amount on the Company’s balance sheet as of December 31, 2017.

About SITO Mobile, Ltd.

SITO turns the consumer journey into a powerful instrument for marketers, delivering actionable insights that influence behavior in real-time. Through Consumer Behavior and Location Sciences™, SITO develops customized, data-driven solutions for brands spanning strategic insights and media. Our science and products reveal a deeper, real-time understanding of customer interests, actions and experiences providing increased clarity for brands when it comes to navigating business decisions and delivering advertising. The Company is home to an internally developed, proprietary location-data technology stack, arming clients with a powerful resource for granular data, real-time insights and optimization, and delivery of successful media campaigns. Using in-store targeting, proximity targeting, geo-conquesting and attribution data, SITO creates audience profiles to develop measurable hyper-targeted campaigns for brands. For more information regarding SITO’s science, technology and customized solutions spanning media and research, visit www.sitomobile.com.