SITO MOBILE, LTD.

The 180 days to regain compliance ended on January 2, 2020, during which time the Company’s stock failed to meet the minimum closing bid price of $1.00 for ten (10) consecutive business days. On January 6, 2020, since the Company’s stock closing bid price did not meet NASDAQ’s minimum, the Company received notification that its stock would be delisted. On January 13, 2020, in accordance with NASDAQ Listing Rules, the Company requested a hearing with the NASDAQ Listing Council to seek a 180-day extension to correct the minimum bid price deficiency. If, at the conclusion of the 180-day extension period, the Company has not achieved compliance, the Company’s stock will be delisted. The Company was granted a hearing by NASDAQ’s Listing Council, which hearing is scheduled for February 20, 2020; however, there can be no assurance that the Listing Council will grant the Company a 180-day extension, or that the Company will be successful in regaining compliance with NASDAQ Listing Rules. Among the deficiencies to be cured are: (i) realizing a stock closing minimum bid price equal to or greater than $1.00 for ten (10) consecutive business days, which may be accomplished by enacting a reverse stock-split; if such, is approved by the Company’s stockholders, (ii) holding its 2019 annual shareholder meeting, which was adjourned pending resolution of certain SEC matters related to the failed merger with MediaJel, Inc. (see Business Combinations), and other Listing Rules as may be applicable.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amends several aspects of the measurement of credit losses on financial assets, including replacing the existing incurred credit loss model with the Current Expected Credit Losses (“CECL”) model. There are few exceptions to the financial assets that are within the scope of ASU 2016-13; however, as currently applicable to the Company, trade receivables is the most significantly affected class of financial assets. The CECL model requires that financial assets (i.e., trade receivables) be presented at the net amount expected to be collected, based on pooling financial assets that share similar characteristics (e.g., type, term, geography, industry, effective interest rate), but does not prescribe a specific methodology for measuring the allowance for expected credit losses. For example, the Company may use a loss-rate methodology or an aging schedule, or a combination thereof, which process is not significantly different from currently employed. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; however, at its July 2019 meeting, the FASB proposed a three-year deferral to the effective date of ASU 2016-13 that will affect smaller reporting companies, which is the Company’s current SEC filing classification. If approved, the ASU will be effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact, if any, that ASU 2016-13 will have on its Unaudited Consolidated Financial Statements and related disclosures.

On January 31, 2020, the Company’s operating leases at the Newport Office Center VIII, Jersey City, New Jersey expired. The Company determined not to renew its leases, rather opting to obtain less expensive space for a reduced workforce resulting from management’s restructuring and reorganization efforts. Management determined it to be more cost effective to abandon the office furniture, as no buyers were interested in finalizing a purchase nor were any parties interested in removing the items. The remaining equipment and computer hardware will be donated to a charitable organization, as such equipment was determined to have little resale value, but such entities have expressed interest in disposing of the items. Due to the abandonment of the property and equipment, a loss on abandonment of $125.3 thousand was recognized in the Unaudited Consolidated Statement of Operations for the three- and nine-months ended September 30, 2019 representing the realizable carrying value of such assets that remain in use through the termination of the lease on January 31, 2020.

On November 6, 2019, Mobile Marketing Association, Inc. (“MMA”) filed a summons with notice with the Supreme Court of New York, County of New York requiring SITO Mobile, Ltd. to appear within thirty (30) days of the summons and respond to MMA’s claim that SITO has breached its contract with the trade association by not paying its membership dues. MMA is seeking $471 thousand representing the balance of unpaid and not yet owed quarterly dues for a two-year membership ending January 14, 2021 plus a $10 thousand event fee. The Company has accrued $143 thousand, which amount is included in the Unaudited Consolidated Financial Statements, representing the quarterly dues owed for membership in the trade association through September 30, 2019. On January 2, 2020, MMA filed a notice of motion for default judgment against SITO seeking a demand judgment for the full amount of membership through January 2021 against which the Company intends to defend itself vigorously.

The Company reported a loss from operations for the three-months ended September 30, 2019 of approximately $20.4 million compared to a loss from operations for the three-months ended September 30, 2018 of approximately $5 million, representing an increase in the loss of operations of approximately $15.4 million. The increase in the loss from operations between periods is primarily attributable to the provision for the account receivable due from Aviron Pictures LLC (“Aviron”) (the “Aviron Receivable”) in the amount of $10.4 million and the impairment of goodwill in the amount of $6.4 million, which is associated with subsidiaries that are no longer generating operating revenues and whose assets have been absorbed by the Parent. The increase in the loss from operations is offset by continued efforts by management to stream-line operations, reduce costs where possible, and restructure the organization to maximize its potential, which savings of $2.7 million and $2.8 million can be observed in reductions to sales and marketing and general and administrative expenses, before the provision of the Aviron Receivable, respectively.