UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year
ended June 30, 2015
or
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition
period from _______________ to _______________
Commission File Number: 000-51353
ATRINSIC, INC.
(Exact name of registrant as specified in
its charter)
Delaware |
|
06-1390025 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
65
Atlantic Avenue, Boston, Massachusetts 02110
(Address of Principal Executive Office)
(Zip Code)
(617)
823-2300
Registrant’s Telephone Number Including
Area Code
Securities registered under Section 12(b)
of the Exchange Act: None
Securities registered under Section 12(g)
of the Exchange Act: Common Stock, $0.000001 par value
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
¨ No x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
¨ No x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ¨
No x
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x
No ¨
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. x
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (check one):
Large accelerated filer ¨ |
Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting company x |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
The aggregate market value of the common
equity held by non-affiliates of the registrant was $800,000 based upon the closing price per share on the OTC Markets Group as
of December 31, 2014, the last business day of the registrant’s most recently completed second fiscal quarter.
As of September 25, 2015, there were 400,000,000
outstanding shares of the registrant’s common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ATRINSIC INC.
Form 10-K Annual Report
TABLE OF CONTENTS
EXPLANATORY NOTE
As used in this Annual
Report, unless the context otherwise requires, the terms “we,” “us,” “our,” “Atrinsic,”
or “the Company” refer to Atrinsic, Inc., a Delaware corporation, and/or our majority-owned subsidiary, Momspot, LLC
(“Momspot”).
FORWARD-LOOKING STATEMENTS
Except for statements
of historical fact, some information in this document contains “forward-looking statements” that involve substantial
risks and uncertainties. You can identify these forward-looking statements by words such as “anticipate,” “believe,”
“could,” “estimate,” “expect,” “intend,” “may,” “should,”
“will,” “would” or similar words. The statements that contain these or similar words should be read carefully
because these statements discuss our future expectations, contain projections of our future results of operations or of our financial
position, or state other forward-looking information. We believe that it is important to communicate our future expectations to
our investors. However, there may be events in the future that we are not able accurately to predict or control. Further, we urge
you to be cautious of the forward-looking statements which are contained in this Annual Report because they involve risks, uncertainties
and other factors affecting our operations, market growth, service, products and licenses. The factors listed in the sections captioned
“Risk Factors” and “Description of Business,” as well as other cautionary language in this Annual Report
and events in the future may cause our actual results and achievements, whether expressed or implied, to differ materially from
the expectations we describe in our forward-looking statements. The occurrence of any of the events described as risk factors or
other future events could have a material adverse effect on our business, results of operations and financial position. Since our
common stock is considered a “penny stock” we are ineligible to rely on the safe harbor for forward-looking statements
provided in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”).
PART I
Item 1. Business
Overview
Our principal asset
is a 51% membership interest in Momspot, which is in the process of developing an online affiliated marketing network targeting
the Mommy Market, as more particularly described in this Annual Report. We do not conduct any other business activity, directly
or indirectly. Since the fourth quarter Momspot’s development plan has been suspended pending receipt of incremental funding.
Our goal is to be
the premier specialty retail affiliate marketing company targeting women between the ages of 24 and 45 who are either mothers or
expecting their first child. We refer to our target audience as the “Mommy Market.” Towards that end, we are in the
process of building a website that incorporates various existing technologies that allows for product aggregation and enhanced
search and filtering capabilities, resulting in increased brand engagement and user traffic for the hundreds of manufacturers,
distributors, retailers and other merchants, whom we refer to as “Platform Partners,” that want to reach the Mommy
Market. We will also sell online advertisement space to various businesses (hereafter referred to in this context as “Advertisers”).
In many cases, our Platform Partners will also be Advertisers and vice versa. Momspot’s website, www.momspot.com,
will function as a vertical search engine and comparison shopping site that will enable mothers and mothers-to-be (hereafter, “Moms”
and “Moms-to-be”) to search for and compare thousands of products for themselves and their families from their desktop
and lap-top computers and mobile devices. We launched the Momspot website in March 2014.
We will focus on marketing
our website and services in order to build to awareness of the Momspot brand, which, we hope, will translate into heavy user traffic
and engagement. Ultimately, our value will be a function of the number of people using our website, the number of click-through
to the web sites of our Platform Partners and Advertisers, and the transactional volume attributable to our users.
Our marketing strategy
will focus on Moms and Moms-to-be, not just their babies and children. We will organize our merchandise and content according to
what Moms and Moms-to-be will find informative and helpful. Finally, we hope to distinguish our brand as a sophisticated and fashionable
comparison shopping tool and social destination for Moms and Moms-to-be, unlike existing Mom-related websites and retailers, whose
primary focus is on “cutesy” content having to do with babies, children and general parenting issues.
Although we
released the first live version of the Momspot website (v1.0) on March 1, 2014 and the second (v2.0) in May 2014, we
have no revenues to date.
Our business model
is heavily reliant on marketing in order to achieve the website activity required to become profitable. We estimate 10,000 unique
visitors per day to the Momspot website is the minimum amount of activity necessary to produce the revenue required to be a profitable
business. In order to achieve this level of activity, we estimate that an annual marketing budget of between $115,000 and $150,000
will be required. Moreover, we will need to hire the necessary resources to manage the marketing activities and provide the appropriate
level of development and technical support for these activities. At a minimum, we estimate we will need $375,000 in funding to
recommence development of the network and $750,000 over the next two years in order to achieve profitability as it will take between
12 and 24 months to reach the targeted activity levels.
Our auditors, in their
report for the fiscal year ended June 30, 2015, included a paragraph that there was substantial doubt as to our ability to continue
as a going concern. This concern was based on our limited amount of working capital, limited revenues and negative cash flows.
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, assuming
that we will continue as a going concern.
Business Model - Affiliate Marketing
Our business model,
affiliate marketing, is a type of performance-based marketing employed by many successful web-based companies, such as Kayak and
Google. Affiliate marketing companies do not hold any inventory or buy and/or sell products. Rather, they facilitate interactions
between consumers and merchants by creating an environment - i.e., a website - with multiple contact points for consumers, brands,
and merchants. Affiliate marketing enhances the connections between consumers, on the one hand, and merchants and brand owners,
on the other hand, by allowing for multiple opportunities for consumers to engage with multiple brands and products and services
through an affiliate’s (i.e., publisher’s) website. Affiliates, such as Momspot, offer a risk-free approach for merchants
and brand owners to increase consumer engagement with their products and brands, drive traffic to their sites and increase transaction
volume. Affiliates specialize in product aggregation and search, and focusing marketing efforts on a well-defined and specific
market segment (in our case, middle-to-upper class educated mothers between the ages of 24 and 45).
A publisher, also
referred to as an affiliate, is an individual or company that promotes multiple products, brands and/or services in exchange for
earning a commission. Merchants and brand owners contractually agree to work with a publisher and then provide the publisher with
content - in the form of links, product images and banner or text ads - that the publisher incorporates into its website. When
a user visits a publisher's website and clicks on a product, service, ad or other form of an advertiser's content, the visitor's
browser receives a special tracking cookie that identifies the advertiser, the publisher, and the specific content and commission
amount. This data is stored within the link information in what are called "parameters" and can include even more anonymous
data used for attribution.
The Market Opportunity
There are three key
factors why we believe Momspot presents a good business opportunity:
| 1. | Online advertising and mobile advertising are growing rapidly
and search is the most lucrative online business. |
|
2. |
There is an increasing shift towards performance-based marketing channels, such as affiliate marketing. |
|
3. |
The enormous size and spending power of a valuable market segment. |
Online Advertising Growth1
Internet advertising
revenues in the United States totaled $31.7 billion in 2011, an increase of 22% over 2010, and are growing steadily with a compounded
annual growth rate of 20.3% over the past ten years. Search remains the largest online advertising revenue format representing
46.5% of 2011 revenues, up from 44.8% in 2010, and in 2011, search revenues totaled $14.8 billion, up almost 27% from $11.7 billion
in 2010. We believe our advertising services address the large online and mobile advertising markets. From 2012 to 2017, the worldwide
online advertising market, excluding mobile advertising, is projected to increase from $91.1 billion to $124.7 billion, representing
a 6.5% compounded annual growth rate, according to industry sources. From 2012 to 2017, the worldwide mobile advertising market
is projected to increase from $10.0 billion to $52.2 billion, representing a 39.2% compounded annual growth rate, according to
industry sources.
Performance-Based Marketing Growth1
Advertisers are constantly
seeking ways to maximize marketing their return on investment through better alternatives to acquire users, generate traffic and
increase sales that produces measurable and repeatable results. The result is an increasing trend on the part of advertisers to
use targeted, performance-based marketing that consistently and effectively reaches their desired market segment. As such, ad spending
on traditional search engines is expected to grow more slowly than overall online ad spending, driving the growth of topical sites
that provide a targeted, performance-based marketing alternative grabbing a larger portion of marketing budgets.
According to the Interactive
Advertising Bureau (IAB), online advertising priced on a performance basis represented 62% of total U.S. online advertising spent
in 2010, which represents a 20% share gain from cost-per-mille (CPM) and hybrid pricing models since 2004. CPM represents the price
per 1000 user impression/views. It does not measure whether any revenue was generated form those views.
Online advertising
priced on a performance basis, such as cost-per-click (CPC), has taken significant share from advertising priced on either a per-impression
(CPM) or hybrid basis over the last several years, and the IAB expects performance-based online marketing will continue to grow
relative to non-performance-based marketing. Performance-based marketing maintains 65% of the Internet advertising market share,
or approximately $20.6 billion. This trend is fueled, in part, by the fact that the Internet enables self-directed and targeted
marketing. Highly targeted marketing messages will help advertisers tackle the difficulties of reaching certain fragmented audiences.
Internet search behaviors
are changing as users expect topical search services that produce more relevant search results. In addition, advertisers are seeking
more measurable and effective advertising options and the ability to easily target a well-defined market segment, such as the Mommy
Market.
The demand by advertisers
for performance-based marketing coupled with the increasing demand by users for more topical relevant search and shopping options
are changing the nature of search, resulting in the increased popularity and use of performance-based, topical search tools (also
known as vertical search engines) that produce relevant results specific to a narrowly defined market segment. Yelp, Kayak, and
ShopStyle are just a few examples of these sorts of search alternatives, and how their popularity has grown in the past few years.
1
Interactive Advertising Bureau Advertising Revenue Report, 2011
The Value of the “Mommy Market”
The “Mommy Market”
is estimated to be in excess of 31 million women under the age of 42. This includes 9.9 million “Millennial Moms” (age
18-29) and 21.9 million GenX Moms (age 30-42), two of the more Internet savvy segments. 2
Digital media is an essential and important part of a Mom’s life today, and the Internet is a rapidly growing media outlet
that Moms turn to for information and entertainment. According to America Online DMS, mothers spend up to 16 hours and 52 minutes
per week online, which is more than teens (who are online approximately 12 hours and 17 minutes). 3
According to the same survey, Moms spend an average of 86 minutes per day reading and sending emails and 38% of those surveyed
indicated the Internet is their prime source of information, second only to television (48%). 4
What makes these facts even more interesting is that, when compared to women without children, Moms appear to favor the Internet
in many different aspects of their life. Women also tend to seek assistance and opinions from their female peers when making product
selection and purchasing decisions.
Our Value Proposition - To Users
Momspot endeavors
to be a new shopping experience - one tailored to the needs of busy and sophisticated women. For users, Momspot will be a topical,
one-stop product aggregator and vertical search engine that offers a simple way to find merchandise for the Mom herself and for
her children across all age milestones (i.e., new-born, infant, toddler, kids and teens). In addition, we will provide access to
special sales and promotions, allow users to interact with one another and curate informative content, all with the goal of enhancing
connections with brands and with other similarly situated users. Momspot will leverage key social networking features to facilitate
the sharing and promotion of merchandise, and allow users to create their own customized “spot” where they can highlight
and promote merchandise they particularly like for other users to view. We will differentiate ourselves from other websites by
focusing on the Mom, not just her babies or children. We will organize our merchandise and content according to what, we believe,
Mom will find informative and helpful. Our brand will emphasize this fact, and aims to be a sophisticated and fashionable shopping
tool and social destination for Moms and Moms-to-be. Ultimately, our goal is to become the number one destination on the Internet
for Moms and Moms-to-be by providing them with a simple, stylish and social way to search for, and compare, thousands of products
to make finding what they need, for themselves and their families, informative and easy.
Momspot will bring
the following value to its users:
|
· |
Targeted product search and filtering - search and filtering produces results that are more relevant to the user, saving time and reducing frustration; |
|
· |
Enhanced search and product selection functionality - our site will allow users to filter by brand, retailer, price, and/or product category, thus producing most relevant results and increasing the likelihood that the user will click-through to the merchants’ site; |
|
· |
Product aggregation for thousands of merchants and brands that want to reach the Mommy Market - provides the user with a one-stop shopping alternative that does not currently exist for this large market segment; |
|
· |
Special discounts and promotions -to entice users to the site and to click-through to merchants; |
|
· |
User community - to entice users to the site and increase user engagement that will increase likelihood of clicking through to merchants; |
|
· |
Social network integration and ability to solicit real time assistance from friends - to entice users to the site and increase user engagement that will increase likelihood of clicking through to merchants; |
|
· |
Trusted product reviews and ratings - a value-add for users to entice them to use the site; and |
|
· |
Ability to customize the user’s personal area for others to follow - to entice users to the site and increase user engagement that will increase likelihood of clicking through to merchants. |
2
BabyCenter US Mom Market Facts.
3
The U.S. Mom Market Report; Silver Stork Research & Packaged Facts, page 56.
4
The U.S. Mom Market Report; Silver Stork Research & Packaged Facts, page 55.
Our Value Proposition - To Platform
Partners and Advertisers
The value we will
create for our users will be enhanced by our Platform Partners and Advertisers. Platform Partners and Advertisers will integrate
with www.momspot.com through an application programing interface (“API”) that we provide which will allow
our users to seamlessly move from our website to the websites of our Platform Partners and Advertisers. We will provide our Platform
Partners with a set of development tools, APIs and embeddable widgets that will allow them to seamlessly integrate with our platform.
Affiliate marketing
companies, such as Momspot, offer a risk-free approach for merchants to increase consumer engagement with their brands, drive traffic
to their sites, and increase transaction volumes. Platform Partners will use www.momspot.com as a complementary distribution
channel to expand their reach and engage with their audiences.
We will also offer
advertising services via our website to allow our Advertisers to promote their brands, products and services, and to amplify their
visibility and reach. Advertisers can use www.momspot.com to communicate directly with their natural constituency
and reach a broader audience and further promote their brands, products and services. Our natural targeting capabilities allow
Advertisers to better reach users who are more likely to engage with their ads, better achieve their goals and improve the return
on their ad spending. Our advertising services provide compelling value to our Advertisers by delivering the ability to reach a
large audience through our website and to-be-developed mobile applications, the ability to target ads based on our understanding
of our users, and the opportunity to generate significant earned media. We expect that most, but not necessarily all, of our Advertisers
will be Platform Partners.
We believe the Momspot
platform will provide our Platform Partners and Advertisers with the following benefits:
|
· |
Risk-free opportunity to allow users to engage directly with products and brands. Because of our pay-for-performance revenue model, Platform Partners and Advertisers will pay us on a performance basis, meaning they only pay us when a user engages with their ad, such as when a user clicks on a link for a promoted product or replies to or favorites a promoted product. The pay-for-performance structure aligns our interests in delivering relevant and engaging ads to our users with those of our Advertisers. |
|
· |
Risk-free opportunity to drive user traffic and increase transaction volume; brand equity leverage. As Momspot’s brand equity is enhanced, Platform Partners and Advertisers will benefit. |
|
· |
Automatic market segmentation. Platform Partners and Advertisers will be able to instantly reach a distinct market segment, which happens to be large and that has a significant amount of disposable income. |
|
· |
Unique Ad Formats Native to the User Experience. The organization of our website, including product placement and curation, will appear to the user as natural and organic. Thus, we will provide Platform Partners and Advertisers with an opportunity to reach our users without disrupting or detracting from the user experience. As such, Platform Partners and Advertisers can drive product webpage visits or application installs. |
|
· |
Connect in Context. Platform Partners and Advertisers can gain meaningful insights and market intelligence from, and respond directly to, the feedback from customers. Our Platform Partners and Advertisers will have powerful context to connect their messages to what is most meaningful to our users in real time, and can engage directly with their customers. We will be able to provide Platform Partners and Advertisers with measurable, accountable and repeatable results including the following: unique monthly visits, average visit duration, bounce rate, pages per visit, page views, percentage of new visits, demographics ( e.g., age, gender) and geography ( e.g., country, region, state, city) |
|
· |
Extension of Offline Advertising Campaigns. Advertising on affiliated marketing sites complements offline advertising campaigns, such as television ads. Additionally, we enable Advertisers to engage directly with users who have been exposed to their ads on television. We believe that synchronizing Momspot and television advertising campaigns makes brand messages more engaging and interactive. |
Our Value Proposition - To Data Partners
We will license or
sell our data to Data Partners, i.e., third-party marketers and advertisers who will search and analyze historical and real-time
data on our platform. Our Data Partners will be able to use this data to generate and monetize data analytics, from which data
partners can identify user sentiment, influence and other trends.
Specifically, our
platform provides our Data Partners with the following benefits:
|
· |
Access to Actionable Data. Our platform will enable our Data Partners to analyze and act upon data based on how users engage on our platform. This data can then serve as the foundation for applications and tools that can draw relationships between social interactions and business results, and even derive signals that predict consumer preferences. |
|
· |
Ability to Create Measurement Standards. We will provide our Data Partners with the tools and data to find the right signal for the right audience. |
Revenue Model
Eventually, we expect
our revenue to include the following:
|
· |
Affiliate Commissions - When one of our users purchases a product from one of our Platform Partners or Advertisers, we will receive a percentage of the purchase price. The rate of the commissions will vary, depending on the merchant and other factors. For example, we may enter into special arrangements with Platform Partners to promote specific products, in which case the rate may be higher than the usual rate. |
|
· |
Affiliate CPC Revenue - Each time a user clicks on a button that redirects the user to the website of a Platform Partner or Advertiser, that Platform Partner or Advertiser will pay us a fee. |
|
· |
Display Advertising - Advertisers, whether or not they are Platform Partners, will pay us a fee for display ads. The rates will depend on the ad placement and frequency and are typically measured on a CPM basis (i.e., cost per 1,000 impressions). |
|
· |
Sponsored Content - Part of our strategy is to promote our website to serve as a resource for our targeted market segment and to serve as a forum where users can interact with each other. In order to achieve this goal, we will look to bring sponsored content, such as blogs or articles of interest to Moms. We will charge a fee to persons who wish to post content on our site. The fee will probably be based on a CPC pricing model. |
|
· |
Data Analytics -We have created a detailed measurement plan to regularly track and collect site data and user interactions. We plan to leverage Google Analytics as the platform and tool by which we will collect and analyze this data. This plan focuses on the analyzing the number of unique visitors per month, page views per visit, visit duration, bounce rate, and defined user conversions. We will look to sell or license this data to third party marketers and other interested parties. |
Our Growth Strategy
As is typical of affiliate
marketing companies, our strategy is to build brand awareness using marketing strategies that focus on our target market. See “Sales
and Marketing”, below. We believe that the growth of our business will be driven by a virtuous cycle that starts with what
is best for our users. We believe that growth in our user base and user engagement will be a fundamental driver to the growth of
our business, and we believe that there is a significant opportunity to develop a robust user base. Growth in our user base will
drive more unique content, which in turn will drive the viral, organic promotion of content on and off our properties, thereby
attracting more Platform Partners, Advertisers and even Data Partners. As we attract more users, the value proposition for Platform
Partners and Advertisers increases, incentivizing them to develop unique and compelling content for our platform.
In addition to our
Sales and Marketing strategy, our growth strategy includes the following:
|
· |
Add relevant and meaningful content to our website. We will expand our value proposition by adding editorial and sponsored content to www.momspot.com. This will most likely occur at first through the addition of a weblog or “Blog” section where individuals will write short articles (“Blog posts”) that are contextually relevant to our website. These may include consumer product reviews and recommendations, parenting tips, fashion and style trends, or discussions about popular culture. Initially, we will look to both syndicate articles and posts from partner content sites and use freelance writers to create exclusive content for Momspot. Eventually, we hope to build an in-house editorial team that will focus on publishing new content on the site on a weekly or daily basis. |
|
|
|
|
· |
Mobile Applications. We plan to develop mobile applications to increase our reach and make our service accessible to more users. |
|
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Product Development. We plan to continue to build and acquire new technologies to develop and improve our products and services and make our platform more valuable and accessible to people around the world. |
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· |
Replicate the platform for other market segments. Once the initial Momspot site is complete and we have achieved a certain amount of success in acquiring user traffic and building our brand reputation, we intend to replicate the Momspot platform for different market segments (e.g., men, students, athletes, grandparents). The functionality and features of these new websites will essentially be comparable to the Momspot website, but we will create a new logo and brand identity, including color palette and UI style, that we feel will appeal to the particular new market segment we are targeting. |
|
· |
Geographic expansion. Our initial focus for Momspot is the North American market. However, eventually, we hope to create cloned websites for other geographic markets (e.g., Latin America, Asia, the Middle East and Europe). Content on these sites will be in the local language, and contain Platform Partners and Advertisers that are well known in the specific region. |
|
· |
Expand into the physical realm. Once we have built Momspot into a well-recognized consumer brand, our hope is to leverage this brand equity and expand into the physical realm by creating “brick-and-mortar” “Momspots” that will be a combination of a café, day-care and retail store. The notion is to create a physical domain where Moms can go with their babies and/or children that offers them the following value-added services: |
|
(i) |
An opportunity for Moms to meet and socialize in a relaxed and comfortable environment; |
|
(ii) |
An opportunity for children to interact with other children their own age (i.e., play dates) under proper supervision; and |
|
(iii) |
A retail destination where Moms can shop for themselves and their children (of all ages). |
Acquisitions.
We may also seek to acquire other businesses or assets that would enable us to expand our business. These acquisition opportunities
may be in the same or complementary markets. We cannot assure you that we will be able to complete any acquisitions.
Sales and Marketing
As a start-up venture,
sales and marketing is critical to our success. Acquisition of users, Platform Partners, and Advertisers requires significant resources,
which is why we have made it such a significant part of our budget and one of the largest focuses of our business. Our goal through marketing is to build our brand popularity and reputation
that will translate into heavy user traffic and engagement, and ultimately traffic and sales for Platform Partners and Advertisers.
To achieve this, we have developed the following sales and marketing strategy:
|
· |
Search Engine Marketing (SEM) - paying a search engine to display your ad when a user searches on specific keyword terms; |
|
· |
Search Engine Optimization (SEO) - optimizing site code and content such that the site URL is ranked higher in a search engines organic search results; |
|
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Paid advertising - paying websites or other media to display ads or sponsored content; |
|
· |
Public relations - promoting our website through various popular media channels, including television, radio, magazines and online channels (e.g. blogs, online magazines); |
|
· |
Strategic partnerships - entering into relationships with other enterprises that we believe will enhance our image, increase brand awareness or otherwise have a positive impact on our business; |
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· |
Event Sponsorships - attending or participating in trade shows and conventions and sponsoring various events that target the Mommy Market; and |
|
· |
Viral marketing campaigns - a method of product promotion that relies on getting customers to market an idea, product or service on their own by telling their friends about the idea, product or service, usually via email or text. |
With respect to acquiring
Platform Partners and Advertisers, our principal strategy is to work through third parties that specialize in building affiliate
networks, principally CJ Affiliate by Conversant (formerly known as “Commission Junction”), and to solicit Platform
Partners and Advertisers directly. At the present time, we have approximately 20 Platform Partners, all of whom we acquired through
CJ Affiliate by Conversant.
Competition
Our industry is evolving
rapidly and is becoming increasingly competitive, and we cannot assure you that we will be able to compete effectively. See the
sections titled “Risk Factors-If we are unable to compete effectively for users and advertiser spend, our business and operating
results could be harmed” and “We will need to hire highly skilled personnel to grow and operate our business, and if
we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.” We believe the principal
barriers to entry are the following:
|
· |
acquiring a valuable domain name; |
|
· |
building a user base and a robust affiliate network; and |
|
· |
financial resources for sales and marketing. |
We expect to face
significant competition in all aspects of our business - for users, Platform Partners, Advertisers and also for personnel.
In general, the competitive
landscape in which we operate is vast. Our competitors include traditional “brick and mortar” retailers, whether or
not they have an online presence; online retailers, such as Amazon.com; and comparison shopping sites such as GoogleShop, Shopzilla
and others. However, rather than view these enterprises as competitors, we prefer to treat them as potential Platform Partners.
In our view, our real competitors are online comparison shopping sites that target the Mommy Market. We are aware of three such
sites: www.weespring.com and www.cricketscircle.com.
Many of our competitors
and potential competitors have greater financial resources, larger user bases and longer operating histories than we do. As a result,
they have a significant competitive advantage over us when it comes to attracting users, Platform Partners, Advertisers and personnel.
Our ability to compete effectively will ultimately depend on many factors, some of which may not be entirely within our control.
These factors include usefulness, ease of use, performance and reliability of our website; the scope and quality of the products
and services offered on our website; our ability to establish and maintain relationships with Platform Partners that integrate
with our platform; and our reputation and the strength of our brand.
Notwithstanding the
highly competitive environment in which we will operate, we believe we will be able to compete effectively based on the following:
|
· |
We own valuable internet real estate, technical capabilities and a unique and trademarked brand name that has the potential to become extremely popular, giving us the ability to target and attract this large and valuable market segment. |
|
· |
Our curated content and unique features, including the ability to create one’s own customizable “Momspot,” will increase user engagement and product click rates. Advertisers will want to leverage these assets to help them market their products and services to this market segment. |
|
· |
The functionality of the website will allow for better product searching, including paid search results that appear to be natural and organic leading to improved click-through rates. Natural/organic results have 10x the click-through rate compared to display ads. Additionally, our website will have unique functionality that allows users to solicit real-time product search/selection assistance from friends on Momspot or other social networks. |
|
· |
Retailers and brands targeting this market number in the thousands, and include large multi-national companies. We intend to give these merchants a risk-free channel to market their products and services to this market, acquire new traffic and customers, and have their products viewed by a larger audience. |
Our belief, as described
above, is based on a number of factors including our familiarity with the marketplace, management’s experience with online
businesses and the success of other companies that have employed the affiliated network business model. To a lesser extent it is
also based on anecdotal evidence acquired through informal surveys and discussions with users and potential users following their
participation in various surveys we conducted.
We further believe
that, ultimately, the growth of our business will be driven by a virtuous cycle that starts with what is best for our users. We
believe that growth in our user base and user engagement will be a fundamental driver to the growth of our business, and we believe
that there is a significant opportunity to develop a robust user base. Growth in our user base will drive more unique content,
which in turn will drive the viral, organic promotion of content on and off our properties, thereby attracting more Platform Partners,
Advertisers and even Data Partners. As we attract more users, the value proposition for Platform Partners, and Advertisers increases,
incentivizing them to develop unique and compelling content for our platform.
In order to attract
users, we will differentiate ourselves from other websites by focusing on the Mom, not just her babies or children. We will organize
our merchandise and content according to what we believe the Mom will find informative and helpful. Our brand will emphasize this
fact, and aims to be a sophisticated and fashionable shopping tool and social destination for Moms and Moms-to-be.
Ultimately, our success
will depend, in part, on the scope and quality of products available through our website. Therefore, it is imperative that we build
the right affiliate relationships. Our competition for Platform Partners will include other online and mobile affiliate marketing
companies, as well as online retailers. Our strategy for building an affiliate network is to work through third parties that specialize
in this area. To date, we have a 20 Platform Partners. We believe this number will grow rapidly once we launch our website and
begin to generate traffic.
We will also face
significant competition for Advertisers. Our competition for spending on advertising will include online and mobile businesses
and traditional media outlets such as television, radio and print. We believe that our ability to compete effectively for advertiser
spend depends upon many factors, including the size and composition of our user base; our ad targeting capabilities; the timing
and market acceptance of our advertising services; our marketing and selling efforts; the return our Advertisers receive from our
advertising services; and our reputation and the strength of our brand.
As we grow and need
to expand our work force, we may also experience significant competition for highly skilled personnel, including senior management,
engineers, designers and product managers. Our growth strategy depends in part on our ability to retain our personnel and add highly
skilled employees. Competition for highly skilled personnel is intense, particularly in the New York market, where we are located,
and we compete for personnel against online and mobile businesses; other companies in the technology industry; and traditional
media businesses such as television, radio and print. In addition, our ability to compete effectively for highly skilled personnel
will depend on our ability to foster a work environment that encourages independence, creativity and innovation; opportunities
to work on challenging, meaningful and important projects; the reputation and strength of our brand; and compensation.
Finally, and perhaps
most importantly, we require significant financial resources to execute our sales and marketing strategy to attract users, Platform
Partners and Advertisers. At the present time, we have a limited budget for sales and marketing. Until we raise additional capital,
we will rely on strategies that do not involve significant expenditures such as activating our social media presence and user network.
Technology, Research and Development
We are in the process
of developing a user-friendly website with many features and functionalities that will be of value to our users, as detailed below.
Site Features
The Momspot website focuses on the following
features:
|
· |
Intuitive and simple product search: Curated content, including product content such as special promotions, and editorial content such as topical articles discussing Mom, children or general parenting issues, as well as other useful information. |
|
· |
Multi-dimensional product filtering: Giving the user the ability to filter search results by many different criteria, including by price, brand, and retailer; |
|
· |
Product specifications: Giving the user the ability to filter search results by many different criteria, including details of the selected product such as product description, price, product ratings and user reviews; |
|
· |
Product and price comparison capability: A table showing the various merchants that sell a particular product, and the price for each merchant; |
|
· |
Social integration: The ability to post and share products and reviews to social networks, including Facebook, Twitter and Pinterest; and |
|
· |
Customizable area (“My Momspot”): The ability to curate content that is “followable” by other users, and where users can build a community of users with whom they can share and recommend products and interact. |
Design and development of the Momspot website
will focus on four main sections. These areas are:
|
1. |
Momspot homepage and universal navigation; |
|
2. |
Product search results and filtering; |
“My Momspot”
The “My Momspot”
section will be a place where users can customize content in order to highlight certain products they want to recommend and/or
promote to their Momspot user community. Certain views of this section will be publicly viewable by all members of Momspot, and
others will be viewable only to those members the user has granted access.
My Momspot will consist
of six important sub-sections:
|
1. |
My Favorites: users are able to “like” products using buttons located on the product image, which are saved to the “My Favorites” area of the My Momspot; |
|
2. |
Product Reviews: users are able to review and rate products, which are then saved to the “Reviews”; |
|
3. |
Baby Registry: users are able to flag products for a baby registry, which are saved to their “Baby Registry” section of My Momspot; |
|
4. |
Followers: users are able to see other users may be following them, access their public My Momspot, and select any of those users’ profiles in order to view the public section of that user’s My Momspot; |
|
5. |
Following: users are able to see the other Momspot users they are following, and allow any of those users to view their public My Momspot; and |
|
6. |
User Profile: this will have two functions: |
|
a. |
Create/Edit Profile: users are able to add personal information, including hometown, and age and gender of children; and |
|
b. |
Manager Alerts and Emails: users are able to manage price alerts they may set, as well as the type of frequency of email they receive from Momspot. |
Site Design & Development
The site design will
have a clean and sleek look and feel, with stylish colors. The user interface will be simple and intuitive, with logical high-level
product categorization and navigation. The site imagery will focus on the Mom, not her baby or children, and should dominate the
screen space. Moms will be youthful looking and attractive. No sponsored promotions or display/banner ads will be located on the
home page.
In terms of technical
development, we have organized Momspot’s functionality into the following four areas:
1. |
Core: |
· |
Merchandise database |
· |
Merchandise data feed |
· |
User database |
· |
Product search |
· |
Product filtering |
· |
Product sort |
· |
Detailed product view |
· |
Product utilities (e.g. sharing, saving, emailing, etc.) |
2. |
Administrative: |
· |
Merchandise management system (MMS) |
· |
Content management system (CMS) |
· |
User analytics |
3. |
Value-Added Commercial Services: |
· |
Promotions/sponsored products |
· |
Sponsored content |
· |
Display advertisements |
|
|
4. |
Social: |
· |
My Momspot |
· |
Instant message/chat |
Current Progress
Since July 2013, we
have achieved the following milestones in connection with our business plan:
1. |
Created Momspot logo and brand symbol; |
2. |
Developed style guidelines to manage the visual identity of the brand; |
3. |
Analyzed user experience and developed wireframes and functional requirements for key sections of the website; |
4. |
Developed webpage mockups by applying the Momspot style and visual identity standards to the wireframes (i.e. skinning); |
5. |
Developed full webpage comps (i.e., mock-ups of web pages) as a blueprint for technical development; |
6. |
Began analyzing data integration solutions between an affiliate network (CJ Affiliate by Conversant) and Momspot; |
7. |
Began inquiring with merchants regarding their affiliate programs and compiling merchant product data |
|
a. |
We presently have 22 merchant partners whose products are contained on the site; |
8. |
Completed early development of search and browsing technology; |
9. |
Completed full version of the website for testing purposes; |
10. |
Published a temporary website to the URLwww.momspot.com in November 2013, which allows users to get basic information about us and add their email address to our mailing list; |
11. |
Conducted numerous focus group sessions to get user feedback and help shape functional requirements; |
12. |
Released the first live version of Momspot (v1.0) towww.momspot.com on March 1 , 2014 |
|
a. |
We are not promoting the current live site, but rather waiting till the release of the next version of the website with the newly designed homepage |
|
b. |
Despite this, since release more than 1,000 users have visited the site, accruing more than 2,200 page views, clicking on 213 merchant products and conducting nine sales transactions; and |
13. |
Began designing and developing a newly redesigned homepage and other site functionality, which is currently live in our staging environment. |
Our development team,
comprised of our sole employee and outside consultants, has made good progress with product development, having completed a number
of phases of site design and the development of the following areas of the website:
· |
Temporary public website |
· |
Homepage |
· |
User registration & login |
· |
Universal navigation |
· |
Merchant data integration |
· |
Product search capability |
· |
Product details |
· |
Ability to review and rate products |
· |
My Momspot area |
|
o |
User profile |
|
o |
Favorites view |
|
o |
Registry view |
|
o |
Follower/Following view |
|
o |
Product Reviews view |
Intellectual Property
At the present time
our only intellectual property consists of our name, which is trademarked, and we are the registered owner of the URL www.momspot.com.
Over time, as our business matures we may develop processes, methodologies and/or technologies that we deem proprietary. We may
seek to protect those rights through contractual arrangements such as confidentiality and non-disclosure agreements, assignment
of invention agreements with employees and/or independent contractors, license agreements with vendors and platform partners, and/or
through the filing of trademark and copyright registrations or patent applications. We cannot assure you that our efforts to protect
our proprietary information and technology will be effective. We may be unable to obtain patent or trademark protection for our
technologies and brands, and even if we do they may not provide us with competitive advantages or distinguish our products and
services from those of our competitors. In addition, any patents and trademarks may be contested, circumvented or found unenforceable
or invalid, and we may not be able to prevent third parties from infringing, diluting or otherwise violating them.
Many companies in
the Internet, technology and media industries own large numbers of patents, copyrights, trademarks and trade secrets, and frequently
enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other
rights. In addition, various “non-practicing entities” that own patents and other intellectual property rights often
attempt to aggressively assert their rights in order to extract value from technology companies. We may, in the future, face allegations
that we have infringed on or otherwise violated the patents, copyrights, trademarks, trade secrets, and other intellectual property
rights of third parties, including our competitors and non-practicing entities. As we face increasing competition and as our business
grows, we will likely face more intellectual property-related claims and litigation matters. For additional information, see the
section titled “Risk Factors-We are currently, and expect to be in the future, party to intellectual property rights claims
that are expensive and time consuming to defend, and, if resolved adversely, could have a significant impact on our business, financial
condition or operating results.”
Government Regulation
We may be subject
to a number of foreign and U.S. federal and state and laws and regulations that may involve matters central to our business. These
laws and regulations may involve privacy, rights of publicity, data protection, content regulation, intellectual property, competition,
consumer protection, taxation or other subjects. Many of these laws and regulations are still evolving and being tested in courts
and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and
regulations often are uncertain, particularly in the new and rapidly evolving industry in which we operate.
We may also subject
to federal, state and foreign laws regarding privacy and the protection of user data. Foreign data protection, privacy, consumer
protection, content regulation and other laws and regulations are often more restrictive than those in the United States. We may
also be affected by a number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign
governments concerning data protection. For example, regulation relating to the 1995 European Union Data Protection Directive is
currently being considered by European legislative bodies that may include more stringent operational requirements for entities
processing personal information and significant penalties for non-compliance.
Employees
As of June 30, 2015,
Atrinsic had no employees and Momspot had one part-time employee.
History, Background of Our Reorganization
Prior to the filing
of our Plan of Reorganization under Chapter 11 of the United States Bankruptcy Code on June 15, 2012 (the “Plan of Reorganization”),
we were a marketer of direct-to-consumer subscription products and an Internet search marketing agency. We sold entertainment and
lifestyle subscription products directly to consumers, which we marketed through the Internet. We also sold Internet marketing
services to our corporate and advertising clients. The Plan of Reorganization was conditionally confirmed by the United States
Bankruptcy Court, Southern District of New York (Case No.: 12-12553 (JMP)) on June 26, 2013 subject to the consummation of our
acquisition of a 51% controlling equity interest in Momspot, which was completed on July 12, 2013. Momspot currently constitutes
our only business operation. Pursuant to the Plan of Reorganization, all debt was converted to equity with the secured creditors
receiving 4,600,000,000 shares, $0.000001 par value per share, of a newly created class of preferred stock designated as Series
A Convertible Preferred Stock (the “Series A Preferred Stock”) and general unsecured creditors receiving an aggregate
of 300,000,000 shares of common stock, $0.000001 per share (“Common Stock”). Prior to March 30, 2012, the Company was
a reporting company under the Exchange Act, and filed periodic reports with the Securities and Exchange Commission (the “SEC”).
On March 30, 2012, we filed a Form 15 with the SEC, terminating our obligation to file periodic reports under Sections 13 and 15(d)
of the Exchange Act.
Atrinsic, Inc. was
originally incorporated under the name Millbrook Acquisition Corp. on or about February 3, 1994. On or about May 2, 2007, Millbrook
Acquisition Corp. changed its name to New Motion, Inc. On or about February 4, 2008, New Motion, Inc. merged with Traffix, Inc.,
pursuant to which Traffix, Inc. became wholly-owned subsidiary of New Motion, Inc. On or about June 25, 2009, New Motion, Inc.
changed its name to Atrinsic, Inc. Pursuant to the terms of a Membership Interest Purchase Agreement dated July 12, 2013, we acquired
a 51% equity interest in Momspot in exchange for our commitment to contribute up to $165,000 (none has been funded to date)
of working capital to Momspot over a two-year period to fund its business development and operations. Simultaneous with the acquisition,
we became a party to the Momspot Operating Agreement and the manager thereunder.
Item 1A. Risk Factors
Investing in our
Common Stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together
with all of the other information in this Annual Report, including the section titled “Management’s Discussion and
Analysis of Financial Condition and Plan of Operation” and our consolidated financial statements and related notes, before
making a decision to invest in our Common Stock. The risks and uncertainties described below may not be the only ones we face.
If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and
adversely affected. In that event, the market price of our Common Stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Our
Industry
As we have no operating history and
we plan to operate in a new and unproven market, it is difficult to evaluate our future prospects and the risk that we will not
be successful is heightened.
We have no
operating history, which makes it difficult to effectively assess our future prospects or forecast our future results. Given
our lack of any operating history the suspension of Momspot’s development plan, and the rapidly evolving markets
in which we compete, it is very difficult, if not impossible, for you to predict our future operating results. You
should consider our business and prospects in light of the risks and challenges we encounter or may encounter in this
developing and rapidly evolving market. These risks and challenges include our ability to, among other things:
|
· |
attract users and generate user engagement; |
|
· |
develop strategic relationships with Platform Partners and Advertisers; |
|
· |
successfully expand our business; |
|
· |
develop a reliable, scalable, secure, high-performance technology infrastructure that can efficiently handle increased usage; |
|
· |
convince Platform Partners and Advertisers of the benefits of our platform compared to alternative forms of advertising; |
|
· |
develop and deploy new features, products and services; |
|
· |
successfully compete with other companies, some of which have substantially greater resources and market power than us, that are currently in, or may in the future enter, our industry, or duplicate the features of our products and services; |
|
· |
attract, retain and motivate talented employees, particularly engineers, designers and product managers; |
|
· |
process, store, protect and use personal data in compliance with governmental regulations, contractual obligations and other obligations related to privacy and security; |
|
· |
continue to earn and preserve our users’ trust, including with respect to their private personal information; and |
|
· |
defend ourselves against litigation, regulatory, intellectual property, privacy or other claims. |
If we fail to educate potential users and
potential advertisers about the value of our product offerings, if the market for our platform does not develop as we expect or
if we fail to address the needs of this market, our business will be harmed. We may not be able to successfully address these risks
and challenges or others. Failure to adequately address these risks and challenges could harm our business and cause our operating
results to suffer.
We require additional capital to
support our operations and the growth of our business, and we cannot be certain that this capital will be available on reasonable
terms when required, or at all.
We will need additional
financing to operate and grow our business. Since the fourth quarter of the 2015 fiscal year Momspot’s development plan
has been suspended pending receipt of incremental funding. As such, we need to raise additional capital to cover our budgeted operating
and capital expenditures. At a minimum, we estimate we will need $375,000 in funding to recommence development of the network and
$750,000 over the next two years in order to achieve profitability. The largest single line items in our budget are marketing (estimated
between $115,000 and $150,000 per year) and development (estimated between $80,000 and $130,000 per year), which is essentially
the cost of one to two full-time equivalent software engineers and/or programmers.
In order to enable
us to continue to sustain our operations until we consummate a financing, on September 3, 2015 each of our two principal stockholders
loaned us an additional $25,000, or $50,000 in the aggregate, and extended the maturity dates of their existing loans to us to
August 31, 2016, which should provide us with sufficient working capital for an additional 90 days. We have recently begun to explore
new financing opportunities.
Our ability to obtain
additional financing, if and when required, will depend on investor and lender interest, our operating performance, the condition
of the capital markets and other factors, and we cannot assure you that additional financing will be available to us on favorable
terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities,
those securities may have rights, preferences or privileges senior to the rights of our Common Stock, and our existing stockholders
may experience dilution. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require
it, our ability to continue to support the operation or growth of our business could be significantly impaired and our operating
results may be harmed.
If we cannot continue as a going
concern, you will lose your entire investment.
In their report in
connection with our financial statements for the fiscal year ended June 30, 2015, our independent registered public accounting
firm included an explanatory paragraph stating that because we have incurred net losses and have yet to establish profitable operations
and other factors, there is substantial doubt as to our ability to continue as a going concern. If we cannot continue
as a going concern, your entire investment may be worthless. Our ability to continue as a going concern will depend, in large part,
on our ability to obtain additional financing and generate positive cash flow from operations, neither of which is certain.
If we fail to develop a significant
user base, or if user engagement or ad engagement on our platform do not materialize, our revenue, business and operating results
may be harmed.
The size of our user
base and their level of engagement will be critical to our overall success, including our financial performance. Convincing potential
new users of the value of our product offering is critical to increasing our user base and to the success of our business. We are
unable to predict the size of our user base or its growth rate. If the Mommy Market does not perceive our website to be useful,
reliable and trustworthy, we may not be able to attract users or increase the frequency of their engagement with our platform.
In addition, we cannot assure you that we will be able to maintain or sustain any level of user base or engagement. A number of
consumer-oriented websites that achieved early popularity have since seen their user bases or levels of engagement decline, in
some cases precipitously. There is no guarantee that we will not experience a similar erosion of our user base or engagement levels.
A number of factors could potentially negatively affect user growth and engagement, including if:
|
· |
users engage with other websites or platforms as an alternative to ours; |
|
· |
influential users, such as celebrities, athletes, journalists, media outlets and brands or certain age demographics conclude that a competing website or platform is more relevant; |
|
· |
we are unable to convince potential new users of the value and usefulness of our website; |
|
· |
there is a decrease in the perceived quality of the products and services available through our website; |
|
· |
we fail to introduce new and improved products or services or if we introduce new or improved products or services that are not favorably received or that negatively affect user engagement; |
|
· |
technical or other problems prevent us from delivering products or services in a rapid and reliable manner or otherwise affect the user experience; |
|
· |
we are unable to present users with products, services or content that is interesting, useful and relevant to them; |
|
· |
users believe that their experience is diminished as a result of the decisions we make with respect to the frequency, relevance and prominence of ads that we display; |
|
· |
there are user concerns related to privacy and communication, safety, security or other factors; |
|
· |
we are unable to combat spam or other hostile or inappropriate usage on our platform; |
|
· |
there are adverse changes in the products or services available through our website that are mandated by, or that we elect to make, to address, legislation, regulatory authorities or litigation, including settlements or consent decrees; |
|
· |
we fail to provide adequate customer service to users; or |
|
· |
we do not maintain our brand image or our reputation is damaged. |
If we are unable to attract a significant
number of users or if the number of users begins to decline, this could result in our website being less attractive to potential
new users as well as to Platform Partners and Advertisers, which would have a material and adverse impact on our business, financial
condition and operating results.
Our revenue will depend on our ability
to attract Platform Partners and Advertisers to advertise on our website.
We anticipate that,
at least initially, most, if not all of our revenue will be performance-based, determined by the frequency that users click through
to a Platform Partner’s or Advertiser’s website or purchase a Platform Partner’s or Advertiser’s products
or services. It is unlikely that we will have long-term commitments from Platform Partners or Advertisers. In addition, Platform
Partners and Advertisers may view our business experimental and unproven, and we may need to devote additional time and resources
to educate them about our business. Platform Partners may not want to partner with us if they feel that user engagement with their
products and services is too infrequent. Advertisers will not continue to do business with us or will reduce the prices they are
willing to pay to advertise with us if we do not deliver ads in an effective manner, or if they do not believe that their investment
in advertising with us will generate a competitive return relative to alternatives, including online, mobile and traditional advertising
platforms. Thus, our revenue could be adversely affected by a number of other factors, including:
|
· |
decreases in user engagement with our platform; |
|
· |
our inability to demonstrate the value of partnering with us or advertising on our platform; |
|
· |
if the products available through our website are not cost-effective or valuable or if we are unable to develop cost effective or valuable advertising services for different types of Advertisers; |
|
· |
if we are unable to convince Platform Partners and Advertisers to maintain a brand presence on our website; |
|
· |
changes we may make that change the frequency or relative prominence of ads displayed on our platform or that detrimentally impact revenue in the near term with the goal of achieving long term benefits; |
|
· |
our inability to increase Advertiser demand; |
|
· |
our inability to increase the relevance of ads shown to users; |
|
· |
our inability to help Advertisers effectively target ads, including as a result of the fact that we will not collect extensive private personally identifiable information directly from our users and that we may not have real-time geographic information for all of our users; |
|
· |
decreases in the cost per ad engagement; |
|
· |
loss of advertising market share to our competitors; |
|
· |
decreases in user access of our platform; |
|
· |
if we enter into revenue sharing arrangements or other partnerships with third parties that adversely affect our relationships with current advertisers; |
|
· |
the impact of new technologies that could block or obscure the display of our ads; |
|
· |
adverse legal developments relating to advertising or measurement tools related to the effectiveness of advertising, including legislative and regulatory developments, and developments in litigation; |
|
· |
adverse media reports or other negative publicity involving us or other companies in our industry; |
|
· |
our inability to create new products and services that sustain or increase the value of our advertising services to both our Advertisers and our users; |
|
· |
the impact of fraudulent clicks or spam on our platform and our users; |
|
· |
changes in the way our advertising is priced; and |
|
· |
the impact of macroeconomic conditions and conditions in the advertising industry in general. |
The occurrence of any of these or other
factors could result in a reduction in demand for the products and services available through our website, which may reduce the
prices we receive for our ads, either of which would negatively affect our revenue and operating results.
If we are unable to compete effectively
for users, Platform Partners and Advertisers, our business and operating results could be harmed.
Competition for users
will be intense. We will compete against many companies to attract and engage users, including traditional “brick and mortar”
retailers that serve the Mommy Market, and online shopping sites including a number of online shopping sites that target the same
market segment that we target. Most of these competitors and potential competitors have greater financial resources and substantially
larger user bases than we do, such as Amazon.com, ShopStyle, Google and Cafemom, which offer a variety of Internet and mobile
device-based products, services and content. For example, users can search, compare and shop using both Amazon and Google. The
online affiliate marketing websites that target the Mommy Market, including www.weespring.com and
www.cricketscircle.com , tend to be smaller but nevertheless are already serving the market and, in some cases,
are well-funded. As a result, our competitors may acquire and engage users at the expense of the growth or engagement of our user
base, which would negatively affect our business. We may also compete against smaller companies, and companies based in foreign
countries.
We believe that our
ability to compete effectively for users depends upon many factors both within and beyond our control, including:
|
· |
the popularity, usefulness, ease of use, performance and reliability of our website compared to those of our competitors; |
|
· |
the timing and market acceptance of product available on or through our website; |
|
· |
our ability, and the ability of our competitors, to develop new products and services and to enhance existing products and services; |
|
· |
the frequency and relative prominence of the ads displayed by us or our competitors; |
|
· |
our ability to establish and maintain relationships with Platform Partners and Advertisers; |
|
· |
changes mandated by, or that we elect to make to address, legislation, regulatory authorities or litigation, including settlements and consent decrees, some of which may have a disproportionate effect on us; |
|
· |
government action regulating competition; |
|
· |
our ability to attract, retain and motivate talented employees, particularly engineers, designers and product managers; |
|
· |
acquisitions or consolidation within our industry, which may result in more formidable competitors; and |
|
· |
our reputation and the brand strength relative to our competitors. |
We also face significant
competition for Advertisers as we will be competing against online and mobile businesses, including those referenced above, as
well as traditional media outlets such as television, radio and print, for advertising budgets. In order to compete effectively
for advertising spend, our budget for that form of revenue must be commensurate with those of our competitors, many of which are
larger companies that offer more traditional and widely accepted advertising products. In addition, some of our larger competitors
have substantially broader product or service offerings and are able to leverage their relationships based on other products or
services to gain additional share of advertising budgets.
We believe that our
ability to compete effectively for Advertisers depends upon many factors both within and beyond our control, including:
|
· |
the size and composition of our user base relative to those of our competitors; |
|
· |
our ad targeting capabilities relative those of our competitors; |
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the timing and market acceptance of our advertising services relative to those of our competitors; |
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our marketing and selling efforts relative to those of our competitors; |
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the pricing for products available through our website relative to the advertising products and services of our competitors; |
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the return our Advertisers receive from our advertising services, and those of our competitors; and |
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our reputation and the strength of our brand relative to our competitors. |
In recent years, there
have been significant acquisitions and consolidation by and among our actual and potential competitors. We anticipate that this
trend of consolidation will continue, and that it will present heightened competitive challenges for our business. Acquisitions
by our competitors may adversely impact our existing relationships or ability to forge new relationships with Platform Partners
and Advertisers. Consolidation may also enable our larger competitors to offer bundled or integrated products that feature alternatives
to our platform. A reduction in the number of our strategic relationships or an increase in our competitors’ ability to offer
bundled or integrated products that compete directly with us may cause our user growth, user engagement and ad engagement to decline
and Advertisers to reduce their spend with us.
If we are not able
to compete effectively for users and advertiser spend, our business and operating results would be materially and adversely affected.
User growth and engagement depend
upon effective interoperation with operating systems, networks, devices, web browsers and standards that we do not control.
Ultimately, we want
our platform to be available across a variety of operating systems. Thus, the interoperability of our platform with popular devices,
web browsers, and desktop and mobile operating systems that we do not control, such as Mac OS, Windows, Android, iOS, Chrome and
Firefox will be critical to our future success. Any changes in such systems, devices or web browsers that degrade the functionality
of our platform or that give preferential treatment to competitive products or services could adversely affect usage of our website.
Further, if the number of operating systems for which we develop our platform expands, it will result in an increase in our operating
expenses. In order to deliver high quality products and services, it is important that our platform work well with a range of operating
systems, networks, devices, web browsers and standards that we do not control. In addition, because we expect that a significant
percentage of our users will access our platform through mobile devices, we will be particularly dependent on the interoperability
of our platform with mobile devices and operating systems. We may not be successful in developing relationships with key participants
in the mobile industry or in developing or modifying our platform to operate effectively with these operating systems, networks,
devices, web browsers and standards. In the event that it is difficult for our users to access and use our website, particularly
on their mobile devices, our user growth and engagement could be harmed, and our business and operating results could be adversely
affected.
Our operating results may fluctuate
from quarter to quarter, which makes them difficult to predict.
Our quarterly operating
results will likely fluctuate. Our operating results in any given quarter can be influenced by numerous factors, many of which
we are unable to predict or are outside of our control, including:
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our ability to grow our user base and the frequency and level of user engagement; |
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our ability to attract and retain Platform Partners and Advertisers; |
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fluctuations in spending by our Advertisers, including as a result of seasonality and extraordinary news events or other factors; |
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the number of product or service engagements by users, whether with Platform Partners or Advertisers; |
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the pricing of ads and products and services available on or through our website; |
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the development and introduction of new products or services or changes in features of existing products or services; |
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the impact of competitors or competitive products and services; |
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our ability to maintain or increase revenue; |
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our ability to maintain or improve gross margins and operating margins; |
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increases in research and development, marketing and sales and other operating expenses that we may incur to grow and expand our operations and to remain competitive; |
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stock-based compensation expense; |
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costs related to the acquisition of businesses, talent, technologies or intellectual property, including potentially significant amortization costs; |
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system failures resulting in the inaccessibility of our website; |
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breaches of security or privacy, and the costs associated with remediating any such breaches; |
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adverse litigation judgments, settlements or other litigation-related costs, and the fees associated with investigating and defending claims; |
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changes in the legislative or regulatory environment, including with respect to security, privacy or enforcement by government regulators, including fines, orders or consent decrees; |
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fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies; |
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seasonal factors; |
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changes in U.S. generally accepted accounting principles; and |
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changes in global business or macroeconomic conditions. |
We have incurred significant operating
losses in the past, and we may not be able to achieve or subsequently maintain profitability.
Since emerging from
bankruptcy in July 2013, we have incurred significant operating losses. As of June 30, 2015, we had an accumulated deficit of approximately
$1,555,000. We believe that our future revenue growth will depend on, among other factors, our ability to attract users, Platform
Partners and Advertisers; increase user engagement and ad engagement; increase our brand awareness; compete effectively; maximize
our sales efforts; demonstrate a positive return on investment for Advertisers; and successfully develop new products and services.
Accordingly, you should not rely on the revenue growth of any quarterly or annual period as an indication of our future performance.
We also expect our costs to increase in future periods as we continue to expend substantial financial resources on:
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our technology infrastructure; |
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research and development for our products and services; |
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sales and marketing; |
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domestic and international expansion efforts; |
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attracting and retaining talented employees; |
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strategic opportunities, including commercial relationships and acquisitions; and |
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general administration, including personnel costs and legal and accounting expenses related to being a public company. |
These investments
may not result in increased revenue or growth in our business.
If we are unable to
generate adequate revenue growth and to manage our expenses, we may continue to incur significant losses in the future and may
not be able to achieve or maintain profitability.
Our business depends on continued
and unimpeded access to our website by our users. If we or our users experience disruptions in Internet service or if Internet
service providers are able to block, degrade or charge for access to our website, we could incur additional expenses and the loss
of users.
We depend on the ability
of our users to access the Internet seamlessly and at relatively low cost. Currently, this access is provided by companies that
have significant market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable
companies, mobile communications companies, government-owned service providers, device manufacturers and operating system providers,
any of whom could take actions that degrade, disrupt or increase the cost of user access to our website, which would, in turn,
negatively impact our business. The adoption of any laws or regulations that adversely affect the growth, popularity or use of
the Internet, including laws or practices limiting Internet neutrality, could decrease the demand for, or the use of, our website,
increase our cost of doing business and adversely affect our operating results. We also rely on other companies to maintain reliable
network systems that provide adequate speed, data capacity and security to us and our users. As the Internet continues to experience
growth in the number of users, frequency of use and amount of data transmitted, the Internet infrastructure that we and our users
rely on may be unable to support the demands placed upon it. The failure of the Internet infrastructure that we or our users rely
on, even for a short period of time, could undermine our operations and harm our operating results.
In order to remain competitive and
continue to attract users, Platform Partners and Advertisers, we will need to develop new products and services. If we fail to
so, we may not be able to generate revenue or increase our revenue base.
Our ability to increase
the size and engagement of our user base, attract advertisers and generate revenue will depend in part on our ability to create
successful new products and services, both independently and in conjunction with third parties. In the future, we may invest in
new products, services and initiatives to generate revenue, but there is no guarantee these approaches will be successful. We may
not be successful in future efforts to generate revenue from our new products or services. If our strategic initiatives do not
enhance our ability to monetize our existing products and services or enable us to develop new approaches to monetization, we may
not be able to maintain or grow our revenue or recover any associated development costs and our operating results could be adversely
affected. We cannot assure you that we will be able to improve or enhance our existing platform or develop or offer new products
and services.
Spam could diminish the user experience
on our platform, which could damage our reputation and deter our current and potential users from using our products and services.
“Spam”
refers to a range of abusive activities that are prohibited by our terms of service and is generally defined as unsolicited, repeated
actions that negatively impact other users with the general goal of drawing user attention to a given account, site, product or
idea, misleading links (e.g., to malware or click-jacking pages) or other false or misleading content, adding users to lists and
sending invitations. Our terms of service also prohibit the creation of serial or bulk accounts, both manually or using automation,
for disruptive or abusive purposes. Spam detracts from the user experience. Accordingly, we will need to devote considerable resources
to combat spam on our platform. Our actions to combat spam require the diversion of significant time and focus of our engineering
team from improving our products and services. If spam increases on our platform, it could hurt our reputation for delivering relevant
content or reduce user growth and user engagement and result in continuing operational cost to us.
If we fail to effectively manage
our growth, our business and operating results could be harmed.
In order to compete
successfully, we must make substantial investments to expand our operations, research and development, sales and marketing and
general and administrative capabilities. We will face significant competition for employees, particularly engineers, designers
and product managers, from other Internet and high-growth companies, which include both publicly-traded and privately-held companies,
and we may not be able to hire new employees quickly enough to meet our needs. To attract highly skilled personnel, we will need
to offer highly competitive compensation packages. As we grow, we run the risk of over-hiring, over-compensating our employees
and over-expanding our operating infrastructure, and we must also face the challenges of integrating, developing and motivating
a rapidly growing employee base. In addition, we may not be able to innovate or execute as quickly as a smaller, more efficient
organization. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability
to meet our operational and financial goals and our employee morale, productivity and retention could suffer, and our business
and operating results could be adversely affected.
In addition, as we
grow, we may need to significantly expand our operating lease commitments. Maintaining our platform and website will be costly
and we expect our expenses to increase in the future as we broaden our user base and increase user engagement, as the number of
users who visit our website increase and as we develop and implement new features, products and services that require more infrastructure.
In addition, we expect our operating expenses, such as our research, development, sales and marketing expenses, will grow rapidly
as our business expands. Rapid growth could also strain our ability to maintain reliable service levels for our users, develop
and improve our operational, financial, and legal and management controls, and enhance our reporting systems and procedures. As
a public company we will incur significant legal, accounting, insurance and other expenses that we would not incur as a private
company. Our expenses may grow faster than our revenue, and our expenses may be greater than we anticipate. Managing our growth
will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level
of efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.
We will need to hire highly skilled
personnel to grow and operate our business, and if we are unable to hire, retain and motivate our personnel, we may not be able
to grow effectively.
Our future success
will depend upon our ability to identify, hire, develop, motivate and retain highly skilled personnel, including senior management,
engineers, designers and product managers. Our ability to execute efficiently depends on contributions from our employees, in particular
our senior management team. We do not have employment agreements with any of our existing employees, and we do not maintain key
person life insurance for any of our existing employees. In addition, from time to time, there may be changes in our senior management
team that may be disruptive to our business. If our senior management team, including any new hires which we may make, fails to
work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed.
Our growth strategy
also depends on our ability to attract, hire and retain highly skilled personnel. Identifying, recruiting, training and integrating
qualified individuals will require significant time, expense and attention. In addition to hiring new employees, we must continue
to focus on retaining our best employees. Competition for highly skilled personnel is intense, particularly in the New York market
where we are based. We may need to invest significant amounts of cash and equity to attract and retain new employees and we may
never realize returns on these investments. If we are not able to effectively add and retain employees, our ability to achieve
our strategic objectives will be adversely impacted, and our business will be harmed.
Our business and operating results
may be harmed by a disruption in our service, or by our failure to timely and effectively scale and adapt our existing technology
and infrastructure.
As an Internet company,
we will inevitably experience service disruptions, outages and other performance problems due to a variety of factors, including
infrastructure changes, human or software errors, hardware failure, capacity constraints due to an overwhelming number of people
accessing our products and services simultaneously, computer viruses and denial of service or fraud or security attacks. We will
rely on third-party hosting services, who may or may not have their own data centers. Accordingly, in the event of a significant
issue at the data center supporting most of our network traffic, our website may become inaccessible to the public or the public
may experience difficulties accessing our website. Any disruption or failure in our infrastructure could hinder our ability to
handle existing or increased traffic on our platform, which could significantly harm our business.
As the number of users
increases and as user engagement on our website increases, we may be required to expand and adapt our technology and infrastructure
to continue to reliably service the increased traffic to and content on our website. It may become increasingly difficult to maintain
and improve the performance of our website, especially during peak usage times, as our product offerings become more complex and
user traffic increases. In addition, we cannot assure you that we will be able to increase our data center infrastructure to meet
user demand in a timely manner, or on favorable economic terms. If our users are unable to access Momspot or we are not able to
make information available rapidly on Momspot, users may seek other channels to obtain the information, and may not return to Momspot
or use Momspot as often in the future, or at all. This would negatively impact our ability to attract users and advertisers and
increase engagement of our users. We expect to continue to make significant investments to maintain and improve the capacity, capability
and reliability of our infrastructure. To the extent that we do not effectively address capacity constraints, upgrade our systems
as needed and continually develop our technology and infrastructure to accommodate actual and anticipated changes in technology,
our business and operating results may be harmed.
If we are unable to maintain and
promote our brand, our business and operating results may be harmed.
We believe that maintaining
and promoting our brand is critical to expanding our base of users and Advertisers. Maintaining and promoting our brand will depend
largely on our ability to continue to provide useful, reliable and innovative website, which we may not do successfully. We may
introduce new features, products, services or terms of service that users, Platform Partners or Advertisers do not like, which
may negatively affect our brand. Additionally, the actions of Platform Partners may affect our brand if users do not have a positive
experience using third-party applications or websites integrated with Momspot or that make use of Momspot content. Our brand may
also be negatively affected by the actions of users that are hostile or inappropriate to other people, by users impersonating other
people, by users identified as spam, by users introducing excessive amounts of spam on our platform or by third parties obtaining
control over users’ accounts. Maintaining and enhancing our brand may require us to make substantial investments and these
investments may not achieve the desired goals. If we fail to successfully promote and maintain our brand or if we incur excessive
expenses in this effort, our business and operating results could be adversely affected.
Negative publicity could adversely
affect our business and operating results.
Negative publicity
about our company, including about the quality and reliability of our platform, changes to our platform, privacy and security practices,
litigation, regulatory activity, the actions of our users or user experience with our platform, even if inaccurate, could adversely
affect our reputation and the confidence in and the use of our platform. Such negative publicity could also have an adverse effect
on the size, engagement and loyalty of our user base and result in decreased revenue, which could adversely affect our business
and operating results.
Our future performance depends in
part on support from Platform Partners and Advertisers.
We believe user engagement
with our website will depend, in large part, on the availability of products and services from our Platform Partners and, to a
lesser extent, from our Advertisers. The availability of products and services depends on Platform Partners’ perceptions
and analysis of the relative benefits of partnering with us. If Platform Partners focus their efforts on other platforms, business
may suffer. We cannot assure you that our Platform Partners will continue to offer products and services through our website. If
Platform Partners cease to offer products and services through our website, user engagement may decline. In addition, we expect
to generate revenue from licensing our historical and real-time data to third parties. If any of these relationships are terminated
or not renewed, or if we are unable to enter into similar relationships in the future, our operating results could be adversely
affected.
We will focus on product innovation
and user engagement rather than short-term operating results.
We intend to focus
on improving the user experience with our platform and on developing new and improved products and services for our platform. We
will prioritize innovation and the user experience on our platform over short-term operating results. We anticipate that some of
our decisions may reduce our short-term operating results although they may be consistent with our goals to improve the user experience
and performance for Platform Partners and Advertisers and to improve our operating results over the long term. These decisions
may not be consistent with the short-term expectations of investors and may not produce the long-term benefits that we expect,
in which case our user growth and user engagement, our relationships with Platform Partners and Advertisers, and our business and
operating results could be harmed. In addition, our focus on the user experience may negatively impact our relationships with our
existing or prospective Platform Partners and/or Advertisers. This could result in a loss of Platform Partners and/or Advertisers,
which could harm our revenue and operating results.
Our platform may contain undetected
software errors, which could harm our business and operating results.
Our platform will
incorporate complex software and we will encourage employees to quickly develop and help us launch new and innovative features.
Our software may contain errors, bugs or vulnerabilities. Some errors in our software code may only be discovered after the product
or service has been released. Any errors, bugs or vulnerabilities discovered in our code after release could result in damage to
our reputation, loss of users, loss of Platform Partners, loss of Advertisers or advertising revenue, or liability for damages,
any of which could adversely affect our business and operating results.
User trust regarding privacy is important
to the growth of users and the increase in user engagement on our platform, and privacy concerns relating to our products and services
could damage our reputation and deter current and potential users and advertisers from using Momspot.
Privacy and the integrity
of personal information is a major issue for Internet users. Any publicity relating to the disclosure and/or unauthorized use of
personal information or other privacy-related matters of our users, even if unfounded, could damage our reputation, cause us to
lose users and advertisers, and adversely affect our operating results. While our goal is to comply with applicable data protection
laws and regulations, as well as our own posted privacy policies and other obligations we may have with respect to privacy and
data protection, the failure or perceived failure to comply may result in negative publicity and damage to our reputation and brand,
each of which could cause us to lose users, Platform Partners or Advertisers, which could have an adverse effect on our business.
Any systems failure or compromise of our security that results in the unauthorized access to or release of personal information
or data relating to our users, Platform Partners or Advertisers could significantly limit user engagement, as well as harm our
reputation and brand and, therefore, our business. We expect to expend significant resources to protect against security breaches.
The risk that these types of events could seriously harm our business is likely to increase as we expand the number of products
and services we offer and increase the size of our user base.
If our security measures are breached,
or if our website is subject to attacks that degrade or deny the ability of users to access our website, our website may be perceived
as not being secure, users may curtail or stop using our website and our business and operating results could be harmed.
Our products and services
involve the storage and transmission of personal information and data relating to users, and security breaches expose us to a risk
of loss of this information, litigation and potential liability. We may experience cyber-attacks of varying degrees on a regular
basis, and as a result, unauthorized parties may obtain access to our data or that of our users. Our security measures may also
be breached due to employee error, malfeasance or otherwise. Additionally, outside parties may attempt to fraudulently induce employees
and/or users to disclose sensitive information in order to gain access to our data or our users’ data or accounts, or may
otherwise obtain access to such data or accounts. Since our users, may establish and maintain online identities on our website,
use of these identities may damage their reputations and brands as well as ours. Any such breach or unauthorized access could result
in significant legal and financial exposure, damage to our reputation and a loss of confidence in the security of our website that
could have an adverse effect on our business and operating results. Because the techniques used to obtain unauthorized access,
disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target,
we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach
of our security occurs, the market perception of the effectiveness of our security measures could be harmed; we could lose users,
and, as a result, Platform Partners and Advertisers; and we may also incur significant legal and financial exposure, including
legal claims and regulatory fines and penalties. Any of these actions could have a material and adverse effect on our business,
reputation and operating results.
We may face lawsuits or incur liability
as a result of content published or made available on our website.
We may face claims
relating to products and services that are made available on or through our website. In particular, the nature of our business
exposes us to claims related to intellectual property rights and personal injury torts. The law relating to the liability of providers
of online products or services for activities of their users remains somewhat unsettled, both within the United States and internationally.
In addition, the public nature of communications on our network exposes us to risks arising from the creation of impersonation
accounts intended to be attributed to our users, Platform Partners or Advertisers. We could incur significant costs investigating
and defending these claims. If we incur costs or liability as a result of these events occurring, our business, financial condition
and operating results could be adversely affected.
We have limited intellectual property
rights. However, we believe the intellectual property rights we do have are valuable, and if we don’t protect them effectively
the value of our products, services and brand could be adversely affected.
At the present time,
our only intellectual property rights include our name - Momspot - and our domain name - www.momspot.com. These rights
are important as, in our view, they provide some protection against copycats. In order to protect these rights, we rely on trademark,
trade dress, domain name and copyright laws. Effective protection of trademarks and domain names is expensive and difficult to
maintain, both in terms of application and registration costs as well as the cost of defending and enforcing those rights. We may
be required to protect our rights in an increasing number of countries, a process that is expensive and may not be successful or
which we may not pursue in every country in which our products and services are distributed or made available.
We may also rely on
non-patented proprietary information and technology, such as trade secrets, confidential information, know-how and technical information.
To protect this type of intellectual property we may rely on a combination of trade secret laws as well as confidentiality and
license agreements with employees, consultants and other third parties. Even if we enter into agreements with employees and third
parties that place restrictions on the use and disclosure of this intellectual property, these agreements may be breached or this
intellectual property may otherwise be disclosed or become known to our competitors, which could cause us to lose any competitive
advantage resulting from this intellectual property.
Significant impairments
of our intellectual property rights and limitations on our ability to assert our intellectual property rights against others could
harm our business and our ability to compete. Also, obtaining, maintaining and enforcing our intellectual property rights are costly
and time consuming. Various events outside of our control pose a threat to our intellectual property rights as well as our products,
services and technologies. For example, we may fail to obtain effective intellectual property protection, or effective intellectual
property protection may not be available in every country in which our products and services are available. Also, the efforts we
have taken to protect our existing intellectual property rights may not be sufficient or effective, and any of our intellectual
property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. We
cannot assure you that our intellectual property rights will be sufficient to protect against others offering products or services
that are substantially similar to ours and compete with our business. Any increase in the unauthorized use of our intellectual
property could make it more expensive to do business and harm our operating results.
We may, in the future, become party
to intellectual property rights claims that are expensive and time consuming to defend, and, if resolved adversely, could have
a significant adverse impact on our business, financial condition or operating results.
Unlike most other
Internet and technology companies, we do not own or possess significant intellectual property rights. In order to build our website,
we are relying on existing technologies for which we obtained licenses to the extent necessary. Nevertheless, we cannot assure
you that we will not be a targeted for claims of violating the intellectual property rights of others. Many Internet and technology
companies that own large portfolios of patents, trademarks, trade names and copyrights frequently enter into litigation based on
allegations of infringement, misappropriation or other violations of intellectual property or other rights. Many of these companies
are substantially larger than we are and have significantly greater financial and human resources than we do, which could make
us a target for litigation as we may not be able to assert counterclaims against parties that sue us for patent or other intellectual
property infringement. In addition, various “non-practicing entities” that own patents and other intellectual property
rights often attempt to aggressively assert claims in order to extract value from technology companies. Further, from time to time
we may introduce new products and services, including in areas where we currently do not have an offering, which could increase
our exposure to patent and other intellectual property claims from competitors and non-practicing entities. In addition, some of
our agreements with Advertisers, Platform Partners and Data Partners may require us to indemnify them for certain intellectual
property claims against them, which could require us to incur considerable costs in defending such claims, and may require us to
pay significant damages in the event of an adverse ruling. Advertisers, Platform Partners and Data Partners may also discontinue
use of our products, services and technologies as a result of injunctions or otherwise, which could result in loss of revenue and
adversely impact our business.
There may be intellectual
property or other rights held by others, including issued or pending patents, that cover significant aspects of our products and
services, and we cannot be sure that we are not infringing or violating, and have not infringed or violated, any third-party intellectual
property rights or that we will not be held to have done so or be accused of doing so in the future. Any claim or litigation alleging
that we have infringed or otherwise violated intellectual property or other rights of third parties, with or without merit, and
whether or not settled out of court or determined in our favor, could be time-consuming and costly to address and resolve, and
could divert the time and attention of our management and technical personnel. The outcome of any litigation is inherently uncertain,
and there can be no assurances that favorable final outcomes will be obtained in all cases. In addition, plaintiffs may seek, and
we may become subject to, preliminary or provisional rulings in the course of any such litigation, including potential preliminary
injunctions requiring us to cease some or all of our operations. We may decide to settle such lawsuits and disputes on terms that
are unfavorable to us. Similarly, if any litigation to which we are a party is resolved adversely, we may be subject to an unfavorable
judgment that may not be reversed upon appeal. The terms of such a settlement or judgment may require us to cease some or all of
our operations or pay substantial amounts to the other party. In addition, we may have to seek a license to continue practices
found to be in violation of a third party’s rights. If we are required, or choose, to enter into royalty or licensing arrangements,
such arrangements may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses.
As a result, we may also be required to develop or procure alternative non-infringing technology or discontinue use of the technology.
The development or procurement of alternative non-infringing technology could require significant effort and expense or may not
be feasible. An unfavorable resolution of the disputes and litigation referred to above could adversely affect our business, financial
condition and operating results.
We will rely, in part, on Internet
search engines and application marketplaces to drive traffic to our platform, and if we fail to appear high up in the search results
or rankings, traffic to our platform could decline and our business and operating results could be adversely affected.
We will depend, in
part, on Internet search engines, such as Google, Bing and Yahoo!, to drive traffic to our website. For example, when a user types
an inquiry into a search engine, we rely on a high organic search result ranking of our webpages in these search results to refer
the user to our website. However, our ability to maintain high organic search result rankings is not within our control. Our competitors’
search engine optimization, or SEO, efforts may result in their websites receiving a higher search result page ranking than ours,
or Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings. For
example, Google has integrated its social networking offerings, including Google+, with some of its products, including search,
which has negatively impacted the organic search ranking of our webpages. If Internet search engines modify their search algorithms
in ways that are detrimental to us, or if our competitors’ SEO efforts are more successful than ours, the growth in our user
base could slow. Based on our knowledge of how search engines work and experiences of other websites, we expect our website to
also experience fluctuations in search result rankings, which could adversely impact the number of users visiting our website.
Any reduction in the number of users directed to our mobile applications or website through application marketplaces and search
engines could harm our business and operating results.
In the future, should
we develop a mobile application for momspot.com, we will rely on application marketplaces, such as Apple’s App Store and
Google’s Play, to drive downloads of our mobile applications. In the future, Apple, Google or other operators of application
marketplaces may make changes to their marketplaces which make access to our platform more difficult.
More people are using devices other
than personal computers to access the Internet and new platforms to produce and consume content. We need to develop and promote
the adoption of our mobile applications, and our business and operating results may be harmed if we are unable to do so.
The number of people
who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers
such as net books and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few
years. Our business and operating results may be harmed if we fail to develop mobile applications or users do not install our mobile
application when they change or upgrade their mobile device. At the present time, we do not have the capital to develop a mobile
application, which could be detrimental to our competitive position. In addition, as new devices and platforms are continually
being released, users may consume content in a manner that is more difficult to monetize. It is difficult to predict the problems
we may encounter in adapting our products and services and developing competitive new products and services that are compatible
with new devices or platforms. If we are unable to develop products and services that are compatible with new devices and platforms,
or if we are unable to drive continued adoption of our mobile applications, our business and operating results may be harmed.
Natural disasters, including earthquakes,
fire, power outages, floods and other catastrophic events, and man-made problems, such as acts of terrorism could have a material
adverse impact on our operations.
A significant natural
disaster, such as an earthquake, fire, flood or significant power outage, could have a material adverse impact on our business,
operating results, and financial condition. In October 2012, Super Storm Sandy caused major damage along the Atlantic Coast, including
New York City. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problem at our
data centers could result in lengthy interruptions to our services. In addition, acts of terrorism and other geo-political unrest
could cause disruptions in our business. All of the aforementioned risks may be further increased if our disaster recovery plans
prove to be inadequate. Given the start-up nature of our business, we do not yet have a disaster recovery plan nor do we carry
business interruption insurance to compensate us for the potentially significant losses, including the potential harm to our business,
which may result from interruptions in our ability to provide our products and services.
We have determined that our disclosure
controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal
controls could materially adversely affect our financial condition and ability to carry out our business plan .
Our management team
for financial reporting, specifically, our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of the design and operation of our internal controls. At June 30, 2015, because of the inability to sufficiently
test the effectiveness of remediated internal controls, we concluded that our internal control over financial reporting was not
effective. At June 30, 2015, we concluded that our disclosure controls and procedures were not effective at a reasonable assurance
level because of the material weakness in our internal control over financial reporting that continued to exist. Until we are able
to test the operating effectiveness of remediated internal controls and ensure the effectiveness of our disclosure controls and
procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and
results of operations in the future in a timely and reliable manner. In addition, although we continually review and evaluate internal
control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not
discover additional weaknesses in our internal control over financial reporting. Any such additional weakness or failure to remediate
the existing weakness could materially adversely affect our financial condition or ability to comply with applicable financial
reporting requirements and the requirements of the Company’s various financing agreements.
Risks Related to Ownership of Our Common
Stock
Anti-takeover provisions contained
in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law,
could impair a takeover attempt.
Our amended and restated
certificate of incorporation, our bylaws, and Delaware law contain or will contain provisions which could have the effect of rendering
more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. Among other things, our amended
and restated certificate of incorporation and our amended and restated bylaws will include provisions:
· |
authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our Common Stock; |
· |
limiting the liability of, and providing indemnification to, our directors and officers; |
· |
limiting the ability of our stockholders to call and bring business before special meetings; |
· |
requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and |
· |
controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings. |
These provisions,
alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
As a Delaware corporation,
we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents
certain stockholders holding more than 15% of our outstanding Common Stock from engaging in certain business combinations without
approval of the holders of at least two-thirds of our outstanding Common Stock not held by such 15% or greater stockholder.
Any provision of our
amended and restated certificate of incorporation, our bylaws or Delaware law that has the effect of delaying, preventing or deterring
a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock,
and could also affect the price that some investors are willing to pay for our Common Stock.
While shares of our Common Stock
are quoted on the OTC Pink, an active trading market for our Common Stock may never develop or be sustained.
Our Common Stock
is quoted on the OTC Pink, an interdealer electronic quotation system operated by OTC Markets Group, Inc. under the symbol “ATRN”.
However, we cannot assure you that an active trading market for our Common Stock will develop on the OTC Pink or elsewhere, or,
if developed, that any market will be sustained. An illiquid trading market could make it more difficult for investors to sell
their shares and could also adversely impact the market price.
The market price of our Common Stock
may be volatile, and you could lose all or part of your investment.
Since there has not
been a public offering for our stock, we are unable to predict the price at which shares of our Common Stock will trade or the
volume that will trade. In addition, the market price of our Common Stock is likely to be highly volatile and could be subject
to wide fluctuations in response to various factors, some of which are beyond our control.
The market price of
our Common Stock may fluctuate substantially and will depend on a number of factors many of which are beyond our control and may
not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Common
Stock since you might be unable to sell your shares at or above the price you pay for the shares. Factors that could cause fluctuations
in the market price of our Common Stock include the following:
· |
price and volume fluctuations in the overall stock market from time to time; |
· |
volatility in the market prices and trading volumes of technology stocks; |
· |
changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; |
· |
sales of shares of our Common Stock by us or our stockholders; |
· |
failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; |
· |
the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; |
· |
announcements by us or our competitors of new products or services; |
· |
the public’s reaction to our press releases, other public announcements and filings with the SEC; |
· |
rumors and market speculation involving us or other companies in our industry; |
· |
actual or anticipated changes in our operating results or fluctuations in our operating results; |
· |
actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; |
· |
litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; |
· |
developments or disputes concerning our intellectual property or other proprietary rights; |
· |
announced or completed acquisitions of businesses or technologies by us or our competitors; |
· |
new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
· |
changes in accounting standards, policies, guidelines, interpretations or principles; |
· |
any significant change in our management; and |
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general economic conditions and slow or negative growth of our markets. |
In addition, in the
past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities
class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result
in substantial costs and a diversion of our management’s attention and resources.
In making your investment decision,
you should understand that we have not authorized any other party to provide you with information concerning us or our business.
You should carefully
evaluate all of the information in this annual report. We have not authorized any other party to provide you with information concerning
us or our business.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our Common Stock adversely, the price of our Common Stock and trading volume could decline.
The trading market
for our Common Stock will be influenced by the research and reports that securities or industry analysts may publish about us,
our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our
Common Stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Common Stock
would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports
on us, we could lose visibility in the financial markets, which in turn could cause the price of our Common Stock or trading volume
to decline. At the present time, we are not aware of any analysts who plan to follow our stock.
We do not expect to declare any dividends
in the foreseeable future.
We do not anticipate
declaring any cash dividends to holders of our Common Stock in the foreseeable future. Consequently, investors may need to rely
on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on
their investment. Investors seeking cash dividends should not purchase our Common Stock.
We are subject to the “penny
stock” rules, which could adversely affect the trading volume and market price of our shares.
Trades of our Common
Stock are subject to the “penny stock” rules promulgated by the SEC under the Exchange Act, which imposes certain requirements
on broker/dealers who sell securities subject to the rules to persons other than established customers and accredited investors.
For transactions covered by the rules, broker/dealers must make a special suitability determination for purchasers of the securities
and receive the purchaser’s written agreement to the transaction prior to sale. The SEC also has other rules that regulate
broker/dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities listed on a national securities exchange, provided that current price and
volume information with respect to transactions in that security is provided by the exchange or system). The penny stock rules
require a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in
the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market
value of each penny stock held in the customer’s account. The bid and offer quotations and the broker/dealer and salesperson
compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given
to the customer in writing before or with the customer’s confirmation. These disclosure requirements have the effect of reducing
the level of trading activity for our Common Stock. As a result of the foregoing, investors may find it difficult to sell their
shares.
ITEM 1B. Unresolved Staff Comments.
None.
Item 2. Properties
We do not own or rent
any real property as all of our administrative functions, principally accounting, are outsourced to third parties. Momspot is headquartered
in Boynton Beach, Florida.
Item 3. Legal Proceedings
At the present time
we are not involved in nor are we are aware of any potential material legal proceedings, claims or government investigations. Future
litigation may be necessary, among other things, to defend ourselves, our platform partners and our users by determining the scope,
enforceability, and validity of third-party proprietary rights or to establish our proprietary rights. The results of any current
or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on
us because of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosure
Not applicable.
PART II
Item 5. Market For Registrant’s
Common Equity, Related Stockholder matters and Issuer Purchases of Securities.
Market Information
Our Common Stock is
quoted on the OTC Pink tier of the OTC Markets Group (the “OTC”) under the symbol “ATRN”. The
following table sets forth, for the periods indicated and as reported on the OTC, the high and low bid prices for our Common Stock. Such
quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual
transactions.
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High |
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Low |
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2014(1) |
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First Quarter |
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$ |
* |
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* |
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Second Quarter |
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* |
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* |
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Third Quarter |
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* |
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* |
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Fourth Quarter |
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* |
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* |
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2015(1) |
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First Quarter |
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* |
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* |
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Second Quarter |
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* |
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* |
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Third Quarter |
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* |
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* |
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Fourth Quarter |
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* |
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* |
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* Less than $0.01 per share
(1) The prices for the fiscal years
ended June 30, 2014 and 2015 are actual sale prices because the bid price information was not available.
Holders
As of September 24,
2015, there were 333 holders of record of our Common Stock. This does not reflect beneficial stockholders who hold their stock
in nominee or “street” name through brokerage firms.
Dividends
We have not declared
or paid any dividends and do not intend to pay any dividends in the foreseeable future. We intend to retain any future earnings
for use in the operation and expansion of our business. Any future decision to pay dividends on our Common Stock will be at the
discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements
and other factors our board of directors may deem relevant.
Equity Compensation Plan Information
The following table
summarizes our equity compensation plan information as of June 30, 2015:
Plan category | |
Number of securities to be issued upon exercise of outstanding options, warrants and rights | | |
Weighted-average exercise price of outstanding options, warrants and rights | | |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) | |
| |
(a) | | |
(b) | | |
(c) | |
Equity compensation plans approved by security holders | |
| N/A | | |
| N/A | | |
| N/A | |
| |
| | | |
| | | |
| | |
Equity compensation plans not approved by security holders - Stand Alone Option Grants | |
| 275,000,000 | | |
$ | .002 | | |
| N/A | |
Total | |
| 275,000,000 | | |
$ | .002 | | |
| N/A | |
The options reflected
in the table above were granted in February 2014 to our officers and directors for services and are exercisable for an aggregate
of 275,000,000 shares of our Common Stock at an exercise price of $.002 per share. All of the options immediately vested on the
date of grant and expire on the fifth anniversary of the grant date. The options were granted in reliance upon the exemption from
the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereunder.
Item 6. Selected Financial Data
We are a “smaller
reporting company” as defined by Regulation S-K and as such, is not required to provide the information contained in this
item pursuant to Regulation S-K.
Item 7. Management’s Discussion
and Analysis of Financial Condition and Plan of Operation
This Management’s
Discussion and Analysis of Financial Condition and Plan of Operation section analyzes the major elements of our consolidated balance
sheets, statement of operations and statement of cash flows. This section should be read in conjunction with our consolidated financial
statements and accompanying notes and other detailed information appearing elsewhere in this Annual Report.
Historical Background (dollars in thousands,
except per share amounts)
We were originally
incorporated under the name Millbrook Acquisition Corp., on or about February 3, 1994. In May 2007, we changed our name to New
Motion, Inc. In February 2008, we merged with Traffix, Inc., pursuant to which Traffix, Inc. became a wholly-owned subsidiary of
ours. In June 2009, we changed our name to Atrinsic, Inc. Prior to our bankruptcy filing in 2012, we were a marketer of direct-to-consumer
subscription products and an Internet search-marketing agency. We sold entertainment and lifestyle subscription products directly
to consumers, which we marketed through the Internet. We also sold Internet marketing services to our corporate and advertising
clients. However, by early 2012, we had suspended all operation of these businesses. In addition, until March 30, 2012, we were
a reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and filed periodic reports
with the Securities and Exchange Commission (“SEC”). On March 30, 2012, we filed a Form 15 with the SEC, terminating
our obligation to file periodic reports under Sections 13 and 15(d) of the Exchange Act.
On June 15, 2012,
we filed for protection under Chapter 11 of the U.S. Bankruptcy Code and terminated all remaining employees. Since then we
have been managed by several outside legal and financial professionals. In June 2013, the United States Bankruptcy Court,
Southern District of New York confirmed our Plan of Reorganization (the “Plan of Reorganization”) subject to our
acquisition of a 51% controlling equity interest in Momspot, which was completed on July 12, 2013. Pursuant to the terms of a
Membership Interest Purchase Agreement, we acquired a 51% equity interest in Momspot in exchange for our commitment to
contribute up to $165 of working capital to Momspot over a two-year period to fund its business development and operations
(none has been funded to date). Simultaneous with the acquisition, we became a party to the Momspot Operating Agreement and
the manager thereunder. Momspot is a development stage company whose goal is to be the premier specialty retail affiliate
marketing company targeting women between the ages of 24 and 45 who are either mothers or expecting their first child.
Momspot currently constitutes our only business operation.
Pursuant to the Plan
of Reorganization, all outstanding debt was converted to equity with the secured creditors receiving 4,600,000,000 shares, $0.000001
par value per share, of our Series A Convertible Preferred Stock, general unsecured creditors receiving an aggregate of 300,000,000
shares of our Common Stock, par value $0.000001 per share (“Common Stock”), and pre-bankruptcy petition common stockholders
having their pre-bankruptcy shares exchanged for an aggregate of 100,000,000 shares of Common Stock.
We adopted fresh start
accounting and reporting effective July 12, 2013 (the “Fresh Start Reporting Date”). The financial statements as of
the Fresh Start Reporting Date report the results of the Successor Company with no beginning retained earnings or accumulated deficit.
Any financial statement presentation of the Successor Company represents the financial position and results of operations of a
new reporting entity and is not comparable to prior periods presented by the Predecessor Company. The financial statements for
periods ended prior to the Fresh Start Reporting Date do not include the effect of any changes in the Predecessor Company’s
capital structure or changes in the fair value of assets and liabilities as a result of fresh start accounting. Accordingly, the
financial statements on or prior to July 12, 2013 are not comparable with the financial statements for periods after July 12, 2013.
Operating activities between July 1, 2013 and July 11, 2013 were insignificant.
Results of Operations (dollars in thousands)
Momspot, a development
stage company, currently constitutes our only business. Since the fourth quarter of the 2015 fiscal year Momspot’s development
plan has been suspended pending receipt of incremental funding. We have no revenue.
For the year ended
June 30, 2015, we incurred a loss from operations of $491, as compared to $975 for the period from July 12, 2013 to June 30, 2014.
The decrease in loss from operations can be primarily attributed to a decrease of $129 in professional expenses related to legal
services, consulting services and accounting services, and a decrease of $42 in research and development expenses related to web
design and development. During the period from July 12, 2013 to June 30, 2014, we recorded $204 of reorganization expenses related
to a post confirmation liquidation plan. During the year ended June 30, 2015, we recorded approximately $25 of net loss attributable
to non-controlling interest as compared to $49 for the period from July 12, 2013 to June 30, 2014.
Liquidity and Capital Resources (dollars
in thousands)
We continually project
anticipated cash requirements, which may include business combinations, capital expenditures, and working capital requirements.
In accordance with the Plan of Reorganization, all of our pre-bankruptcy filing accounts payable were converted into equity, which
had a favorable impact on liquidity. As of June 30, 2015, we had cash of approximately $62 and working capital deficit of approximately
$57. As of June 30, 2014, we had cash of approximately $101 and working capital of approximately $104. During the year ended June
30, 2015, we used approximately $378 of cash for operations, which included payments to legal and accounting professionals, payments
to consultants to develop our website, insurance and other administrative expenses. This accounted for the total decrease in cash
for the period.
Since the fourth quarter
of the 2015 fiscal year Momspot’s development plan has been suspended pending receipt of incremental funding. As such, we
need to raise additional capital to cover our budgeted operating and capital expenditures. At a minimum, we estimate we will need
$375 in funding to recommence development of the network and $750 over the next two years. The largest single line items in our
budget are marketing (estimated between $115 and $150 per year) and development (estimated between $80 and $130 per year), which
is essentially the cost of one to two full-time equivalent software engineers and/or programmers.
Subsequent Event (dollars in thousands,
except per share amounts)
On September 3, 2015,
we issued secured convertible promissory notes (the “Secured Convertible Notes”) in the principal amount of $25 to
each of two principal stockholders, for an aggregate of $50, each an existing secured lender and a principal stockholder. The Secured
Convertible Notes have a maturity date of August 31, 2016 and bear interest at the rate of 5.0% per annum, payable at maturity.
The outstanding principal and accrued interest of each Secured Convertible Note is convertible, subject to a 4.99% Beneficial Ownership
Cap (as defined in the Secured Convertible Notes), into shares of Common Stock at an initial conversion price of $5.00 per share
(subject to adjustment), at the option of the respective holders. Our obligations under the Secured Convertible Notes are secured
by a first priority security interest in all of our property. The proceeds of the Secured Convertible Notes will be utilized by
us to fund our working capital needs.
On September 3, 2015,
we also entered into note modification agreements, made as of July 31, 2015, with each of two principal stockholders (the “Modification
Agreements”) pursuant to which the maturity dates of the Prior Notes (as defined in the Modification Agreements) were extended
to August 31, 2016 and the Prior Notes were amended to permit conversion of the principal and accrued interest due and payable
under the Prior Notes into shares of Common Stock in accordance with the same terms and provisions of the Secured Convertible Notes.
Going Concern
We intend to finance
operating activities through:
|
• |
managing current cash on hand; and |
|
• |
seeking additional funds raised in the future. |
Our financial statements
for the year ended June 30, 2015 indicate there is substantial doubt about our ability to continue as a going concern as we are
dependent on our ability to obtain short term financing and ultimately to generate sufficient cash flow to meet our obligations
on a timely basis in order to attain profitability, as well as successfully obtain financing on favorable terms to fund our long
term plans.
We need to raise additional
capital to cover our budgeted operating and capital expenditures. If our capital raising efforts are not successful, we might not
be able to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we
not able to continue as a going concern.
Plan of Operations
Business Overview
Since emerging from
bankruptcy, we are a development stage company in the process of developing an online affiliate marketing and comparison shopping
site targeting the Mommy Market. Since the fourth quarter of the 2015 fiscal year Momspot’s development plan has been suspended
pending receipt of incremental funding. Our website, www.momspot.com, will aggregate thousands of consumer retail
products from dozens of retailers and market these products to the Mommy Market. Our website will offer basic e-commerce functionality,
including product search and browsing, product search filtering, and detailed product specifications. Users will also have the
ability to share their thoughts and impressions about the products they choose either via email or social networks of which they
are a member, and will also be able to save specified products to their customizable “My Momspot”, which they can view
or share at a later time. Users will also have the ability to cultivate a network of other Momspot users, or invite new individuals
to become members of Momspot, which provides a forum for users to interact with each other and to provide personal product recommendations
and reviews.
We are presently using
CJ Affiliate by Conversant, formerly known as Commission Junction, to build our network and to source product data from various
merchants and to manage our relationships and affiliate commissions generated from these merchants. We have already secured affiliate
relationships with approximately 29 merchants. We are also a member of a second affiliate network, although we have not yet activated
this data feed. Finally, we also plan to enhance and supplement our product database by working with an existing comparison shopping
website.
We released the first
live version of Momspot (v1.0) towww.momspot.com on March 1, 2014. We are not promoting the current live site, nor
implementing any marketing effort as this release was used primarily for testing purposes, allowing us to gauge Momspot’s
organic user acquisition capabilities in addition to allowing us to analyze the efficacy of our site design and layout by measuring
user interaction with various website elements and pages.
Despite the absence
of any promotional activity, since its release more than 1,800 users visited our website, accruing more than 4,000 page views,
clicking on 639 merchant products and conducting 12 sales transactions.
In May 2014, we released
version 2.0 of the Momspot website, which contains a newly redesigned homepage and other site functionality. Based on site testing
and user feedback, we devised a number of homepage design changes that we anticipate will improve user engagement and bring more
value to our user base. These changes include reducing the height and size of the primary homepage image and to add tabbed navigation
underneath the primary homepage image that allows for immediate product browsing and filtering. We also added new tabs that will
allow users to immediately view products that we have curated based on child age and product importance, products that are most
popular among our users, products that are on sale or have been discounted, as well as provide immediate access to the users’
My Momspot area and to our editorial and blog content.
Simultaneously with
the release of Version 2.0, we activated our marketing strategy to maximize the site publicity and public awareness of this new
release. These strategies include:
1. Activating
Momspot’s four main social networks on Facebook, Twitter, Pinterest and Google+ through frequent posts of products and content
that all link to the Momspot website;
2. Paid
Search, also referred to as Search Engine Marketing (SEM), via the major search engines Google and Bing;
3. Activating
paid advertising via social media channels;
4. Hiring
a public relations firm to help us get placed in popular magazines and other publications;
5. Sponsoring
local and national events and trade shows, such as the Biggest Baby Shower in NYC, MommyCon, Brooklyn Baby Expo, etc.;
6. Sponsoring
contests that are marketed to Momspot users for which prizes may include a paid baby shower or baby reveal party; and
7. Encouraging
the Momspot user network to share products and make posts on their social networks, as well as to host Momspot-sponsored events.
We anticipate significant
growth in users and increased revenues as a result of the release of Version 2.0. However, with this increase in site usage, we
will require the support of additional resources to ensure consistent operational readiness of the website.
Development Milestones
Upcoming
development milestones include:
· |
Devise development strategy for release 3.0. We are also in the process of devising a development strategy for building out the components to be included in the next version of the website (release 3.0), which include the following four initiatives: |
1. Partnering
with an existing comparison shopping company in order to leverage their merchant product database, product attribution and taxonomy.
We are in advanced discussions with a number of comparison shopping engines, including PriceGrabber, Shopping.com, and Pronto.com,
to use their existing product database to enhance and supplement our existing product database that is currently procured through
our integration with CJ Affiliate by Conversant. This will require the development of a new back-end data solution that will integrate
with the comparison shopping site we select, as well as a tool to administer an additional layer of intelligence that allows us
to assign additional product attributes and display logic to products procured from this new source. This new data back-end would
allow us to provide our users highly curated buying guides that recommend products users may need given their life circumstances,
motherhood stage, and age of children.
2. Seamlessly
integrating a blog and editorial area into the website. We plan to add a new blog section onto our website that will seamlessly
integrate a Wordpress blog via a link from the Momspot website. The design of the blog will mimic the Momspot style guidelines,
and will include email integration such that users who have opted in receive email notifications of new blog posts. This initiative
includes the identification of potential content partners and bloggers with whom Momspot will work in order to procure content.
This may take the form of either a syndication partnership, where we will wither pay specific bloggers or content sites in order
to syndicate specific posts on the Momspot website or a freelance agreement with specific bloggers to write exclusive content for
Momspot.
· |
Version 3.0 Development and Testing. Development of release 3.0 initiatives will be done by a different web development resource than the one that worked on version 1.0. As with version 1.0 and 2.0, there will be extensive development testing to ensure functionality has been built properly and data is being presented properly. Moreover, there will be user acceptance testing (UAT) performed by real users in order to determine the efficacy and usability of site features. Possible feature and functionality changes may occur as a result of this testing. |
Human Resources
Momspot has only one
professional - Barry Eisenberg - who serves as its chief executive officer. Mr. Eisenberg is responsible for the day-to-day management
of all aspects of Momspot, which includes identifying and hiring contractors, managing our financial matters, devising and implementing
the marketing strategy, procuring and managing affiliate relationships, conducting market research and focus group testing, website
testing, communicating with investors, and overseeing contractors work including design and development of the website.
Third-party contractors
are utilized to assume the following critical roles:
1. |
Defining user experience and functional requirements |
2. |
User interface and brand design |
3. |
Front and back-end web development |
4. |
Legal |
5. |
Accounting |
Eventually, we hope
to hire full-time individuals to assume these critical roles.
· |
Human Resources. Our most urgent need at the moment is to hire a full-time technical resource that has full-stack website development experience and can both develop website code as well as manage other development resources. It is preferable that this person be located in New York City where we are currently located. Until this individual is hired, development and deployment of new website releases is at risk of being significantly delayed. At this time, we do not have the financial resources to hire this type of individual. |
· |
Ongoing Site Support and Maintenance. In addition to performing and managing larger development projects, we require a technical resource who can provide on-going technical support and site maintenance to ensure operational readiness at all times. As is common with websites, minor issues may arise that require someone with technical expertise to resolve. Having an individual with technical skills available to the company 24x7, with an expectation of quick turnaround, will be essential to ensure the uninterrupted operation of our website. In the near-term, if we cannot hire a full-time resource, this role will be outsourced to a third party service provider. |
Financing - Capital
Needs (dollars in thousands)
Momspot was initially
capitalized with $165 of which approximately $153 has been used by Momspot through June 30, 2015 for website design and development,
website infrastructure and hosting services, management compensation and legal and accounting fees. Although www.momspot.com
went live in March 2014, to date we have had no meaningful revenues.
Since the fourth quarter
of the 2015 fiscal year Momspot’s development plan has been suspended pending receipt of incremental funding. As such, we
need to raise additional capital to cover our budgeted operating and capital expenditures. At a minimum, we estimate we will need
$375 in funding to recommence development of the network and $750 over the next two years in order to achieve profitability. The
largest single line items in our budget are marketing (estimated between $115 and $150 per year) and development (estimated between
$80 and $130 per year), which is essentially the cost of one to two full-time equivalent software engineers and/or programmers.
During the fiscal
year ended 2015, in order to enable us to continue to sustain our operations, we consummated the following debt financing activities:
on August 15, 2014, we raised gross proceeds of $90 from our two principal stockholders, and issued secured promissory notes in
the principal amount of $45 to each of them; on December 18, 2014, we raised additional gross proceeds of $150 from our two principal
stockholders, and issued secured promissory notes in the principal amount of $75 to each of them; on May 15, 2015, we raised additional
gross proceeds of $100 from our two principal stockholders, and issued secured promissory notes in the principal amount of $50
to each of them. Each loan was evidenced by a secured promissory note bearing interest at the rate of 5.0% per annum. The aggregate
principal amounts of all the notes and all accrued and unpaid interest thereon were due and payable on July 31, 2015. In September
2015, the maturity dates of these notes were extended to August 31, 2016 pursuant to the Modification Agreements. We have recently
begun to explore additional financing options.
We need to raise additional
capital to cover our budgeted operating and capital expenditures. If the capital raising efforts are not successful, we might not
be able to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we
not be able to continue as a going concern.
Data Analytics
As with all commercial
websites, understanding users’ behaviors and interaction with the site is important to know in order to optimize the site
layout and design to ensure maximum user engagement and conversion rates. Conversions include any ‘high-value’ actions
made by users on the site - e.g. clicking the “Shop Now” button, sharing products via social networks, etc. We have
created a detailed measurement plan to regularly track and collect site data and user interactions in order to make recommendations
for site enhancements in order to optimize user interaction. We plan to leverage Google Analytics as the platform and tool by which
we will collect and analyze this data.
This plan focuses
on the analyzing the number of unique visitors per month, page views per visit, visit duration, bounce rate, and defined user conversions.
Presently, we have defined the following as user conversions:
· |
User registration |
· |
“Shop Now” button click |
· |
Product share via social button |
· |
Product share via email |
· |
User profile completion |
· |
Product save |
· |
Product review |
· |
Price alert setup |
We will implement
a regular process by which we analyze the data collected through this data measurement plan, and then make recommendations for
site tweaks/enhancements based on this analysis. We may conduct A/B testing as a result of these recommendations, or simply make
the changes directly to a single instance of the production environment and then analyze the data of the modified site against
the previous results.
Contractual Arrangements
We do not have any
material contractual relationships.
Off Balance Sheet Arrangements
We have no material
off-balance sheet arrangements that are likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
Significant Accounting Policies
We have identified
significant accounting principles that affect our consolidated financial statements by considering accounting policies that involve
the most complex or subjective decisions or assessments as well as considering newly adopted principals. They are:
Fresh Start Accounting.
Effective July 12, 2013 (the “Effective Date”), we adopted fresh start accounting and reporting in accordance with
FASB ASC 852. We are required to apply the provisions of fresh start reporting to our financial statements, as the holders of our
voting shares pre-bankruptcy received less than 50% of our voting shares post-bankruptcy and the reorganization value of our assets
immediately before the date of confirmation was less than the post-petition liabilities and allowed claims. We determined that
our fair value on the Effective Date was zero. Fresh start reporting generally requires resetting the historical net book value
of assets and liabilities to fair value as of the effective date by allocating the entity’s enterprise value as set forth
in the Reorganization Plan to its assets and liabilities pursuant to accounting guidance related to business combinations. The
financial statements as of the Effective Date report our results with no beginning retained earnings or accumulated deficit. Thus,
any presentation after the Effective Date represents the financial position and results of operations of a new reporting entity
and is not comparable to prior periods. The unaudited condensed consolidated financial statements for periods ended prior to the
Effective Date do not include the effect of any changes in capital structure or changes in the fair value of assets and liabilities
as a result of fresh start accounting. In accordance with FASB ASC 852, our pre-emergence charges to earnings of $778,000, recorded
as reorganization items result from certain costs and expenses relating to the Reorganization Plan becoming effective, including
the cancellation of certain debt upon issuance of new equity.
Principles of Consolidation.
The consolidated financial statements include the accounts of all majority and wholly-owned subsidiaries and significant intercompany
balances and transactions have been eliminated. The ownership of more than 50% of the voting stock of an entity creates a subsidiary.
The financial statements of the parent and subsidiary are consolidated for reporting purposes.
Use of Estimates.
The preparation of financial statements in conformity with U.S. Generally Accepted Audit Principles (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well
as the disclosure of contingent assets and liabilities. Management continually evaluates its estimates and judgments including
those related to allowances for doubtful accounts, useful lives of property, plant and equipment, fair value of stock options granted,
forfeiture rate of equity based compensation grants, probable losses associated with pre-acquisition contingencies, income taxes
and other contingencies. Management bases its estimates and judgments on historical experience and other factors that are believed
to be reasonable in the circumstances. Actual results may differ from those estimates. Macroeconomic conditions may directly, or
indirectly through our business partners and vendors, impact our financial performance and available resources. Such conditions
may, in turn, impact the aforementioned estimates and assumptions.
Cash and Cash Equivalents.
We consider all highly liquid instruments with a maturity of less than three months when purchased to be cash equivalents. The
carrying amount of cash equivalents approximates fair value because of the short-term maturity of these instruments.
Fair Value Measurement.
The fair value of Momspot was determined based on valuation performed by management, which took into consideration, where applicable,
cash received , market participant inputs, estimated cash flows based on entity specific criteria, purchase multiples paid in other
comparable third-party transactions, market conditions, liquidity, operating results and other qualitative and quantitative factors.
Stock-Based Compensation.
We record stock based compensation in accordance with ASC 718. In estimating the grant date fair value of stock option awards and
performance based restricted stock, we use the Black Scholes option pricing model and other binomial pricing models where appropriate.
The key assumptions for these models to derive fair value include expected term, rate of risk free returns and volatility.
Earnings (Loss)
Per Share. Basic earnings per share (“EPS”) is computed by dividing reported earnings by the weighted average number
of shares of common stock outstanding for the period. Diluted EPS includes the effect, if any, of the potential issuance of additional
shares of common stock as a result of the exercise or conversion of dilutive securities, using the treasury stock method. Potential
dilutive securities include outstanding stock options and warrants.
Recently Issued Accounting Pronouncements
In June 2014, the
FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an
Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance
target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition.
As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further
clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will
be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already
been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning
after December 15, 2015. Earlier adoption is permitted. This ASU will have no impact on us until we begin to grant performance
awards.
In August 2014, the
FASB issued ASU 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) - Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s
responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or
to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended
to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s
ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing
standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every
reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s
plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s
plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment
for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in
this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted.
We have elected to early adopt the provisions of ASU 2014-15 in connection with the issuance of the consolidated financial statements
included in this Annual Report. Management’s evaluations regarding the events and conditions that raise substantial doubt
regarding our ability to continue as a going concern have been disclosed in Note 2 to the consolidated financial statements included
in this Annual Report.
Item 7A. Quantitative and Qualitative
Disclosures about Market Risk
We are a “smaller
reporting company” as defined by Regulation S-K and as such, is not required to provide the information contained in this
item pursuant to Regulation S-K.
Item 8. Financial Statements
Our consolidated financial
statements required by this item are set forth beginning on page F-1.
Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Evaluation of disclosure controls and
procedures
Under the supervision
and with the participation of our management, including our principal executive officer and principal financial officer, we conducted
an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated
under the Exchange Act, as of June 30, 2015. Based on this evaluation, our principal executive officer and principal financial
officers have concluded that our disclosure controls and procedures are not effective to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange Act, including this Annual Report on Form 10-K, is recorded,
processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that our disclosure
and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
A control system,
no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control
system are met. The design of any system of controls also is based in part on certain assumptions regarding the likelihood of certain
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Given these and other inherent limitations of control systems, these are only reasonable assurance that our controls will succeed
in achieving their stated goals under all potential future conditions.
Management's
Report on Internal Control over Financial Reporting
Management is responsible
for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange
Act. Our internal control over financial reporting is designed to provide reasonable assurance to management and the board of directors
regarding the preparation and fair presentation of published financial statements in accordance with United States generally accepted
accounting principles (US GAAP), including those policies and procedures that: (i) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
US GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of
the company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.
Management conducted
an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment
included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness
of our internal control over financial reporting. Based on this assessment, our management concluded that we did not maintain effective
internal control over financial reporting as of June 30, 2015 and identified the following material weaknesses in our internal
control over financial reporting:
| · | A system of internal controls (including policies and procedures)
has neither been designed nor implemented; |
| · | A formal, internal accounting system has not been implemented;
and |
| · | Segregation of duties in the handling of cash, cash receipts,
and cash disbursements has not been formalized and, as a result, we have relied heavily on management review controls to lessen
the issue of segregation of duties. |
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
An internal control
material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the
risk that material misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal
course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a
misstatement of the financial statements that is more than consequential.
Changes in Internal Control
over Financial Reporting
There were no changes
in our internal controls over financial reporting that occurred during the last fiscal quarter covered by this Annual Report that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers
and Corporate Governance
The following table
contains information with respect to our directors and executive officers as of September 25, 2015. To the best of our knowledge,
none our directors or executive officers have an arrangement or understanding with any other person pursuant to which he was selected
as a director or officer. There are no family relationships between any of our directors or executive officers. Our executive officers
are appointed by and serve at the pleasure of the board of directors.
Name |
|
Age |
|
|
Position |
|
|
|
|
|
|
Edward Gildea |
|
|
64 |
|
|
Chief Executive Officer and Director |
Jonathan Schechter |
|
|
41 |
|
|
Director |
Barry Eisenberg |
|
|
37 |
|
|
Chief Executive Officer of Momspot, LLC |
David Horin |
|
|
47 |
|
|
Chief Financial Officer |
Edward Gildea.
Mr. Gildea was appointed as a director in February 2014 and as our Chief Executive Officer since March 1, 2014. From January 2006
until June 2013, Mr. Gildea was the CEO, President, and Chairman of the Board Of Directors of Converted Organics Inc., a publicly
held company that manufactures organic fertilizer by recycling food waste. He is currently a member of the board of directors of
WPCS International Inc. (NASDAQ:WPCS) (wireless communications and Bitcoin exchange) and Worlds Inc. (QTCBB:WDDD) (Intellectual
Property gaming software). Mr. Gildea is a practicing attorney. He received his undergraduate degree from The College of the Holy
Cross and his law degree from Suffolk University. Mr. Gildea contributes expertise in areas of mergers & acquisitions, strategic
planning, funding, business development and executive leadership to the board of directors.
Jonathan Schechter.
Mr. Schechter was appointed as a director in February 2014. He currently serves as Director of Investment Banking at Chardan Capital
Markets, LLC, a middle-market full-service investment banking and brokerage firm. During his time at Chardan, Mr. Schechter has
been lead investment banker in a wide variety of transactions including public stock offerings, private placements and mergers
and acquisitions. Mr. Schechter joined Chardan Capital Markets, LLC in 1998. Beginning in 1999, Mr. Schechter worked as a corporate
associate for Brian Cave LLP where he specialized in representing investors and investment banks in capital market transactions.
Mr. Schechter also represented and advised numerous public companies in all aspects of corporate law. From 2005-2007 Mr. Schechter
served as general counsel to a hedge fund. Mr. Schechter graduated from Duke University, cum laude, with an AB in political science
and graduated from Fordham Law School with a JD and is licensed to practice in the State of New York. Mr. Schechter contributes
expertise in areas of corporate governance, mergers and acquisitions and investment banking to the board of directors.
Barry Eisenberg.
Mr. Eisenberg is the founder of Momspot and has served as its Chief Executive Officer since July 2012. From October 2008 through
July 2012, Mr. Eisenberg was a vice president in the Acquisitions and Investment Management unit of Mubadala Development Company,
a prestigious sovereign wealth fund and strategic investment firm of the Government of Abu Dhabi, with more than $50bn AUM. In
this role, Mr. Eisenberg was responsible for the acquisition and investment management of private equity assets that deliver both
financial returns and long-term social benefits to the Emirate of Abu Dhabi. Mr. Eisenberg was also the Head of the firm’s
Portfolio Analytics group, responsible overseeing the development of the investment and portfolio performance analytics and reporting
capabilities for the entire firm. From January 2004 through August 2007, Mr. Eisenberg was a product manager in the Equity Research
group at Morgan Stanley, working as part of team responsible for developing an analytic platform to institutionalize a proprietary
accounting and valuation framework across the firm’s businesses. Mr. Eisenberg received an M.B.A. in Finance and International
Business from the Lawrence Zicklin School of Business at City University New York, and an Honors B.A. in Managerial Economics in
2008 and B.S. minor in Computer Science from Union College in Schenectady, NY.
David Horin.
Mr. Horin was appointed our Chief Financial Officer in March 2014. Mr. Horin is a Managing Partner and Founder of Chord Advisors,
LLC, an advisory firm that provides targeted financial solutions to public companies, which he founded in 2012. From March 2008
to June 2012, Mr. Horin was the Chief Financial Officer of Direct Markets Holdings Corp. (f/k/a Rodman & Renshaw Capital Group,
Inc.), a full-service investment bank dedicated to providing corporate finance, strategic advisory, sales and trading and related
services to public and private companies across multiple sectors and regions. From March 2003 through March 2008, Mr. Horin was
the Managing Director of Accounting Policy and Financial Reporting at Jefferies Group, Inc, a full-service global investment bank
and institutional securities firm focused on growth and middle-market companies and their investors. Prior to his employment at
Jefferies Group, Inc., from 2000 to 2003, Mr. Horin was a Senior Manager in KPMG’s Department of Professional Practice in
New York, where he advised firm members and clients on technical accounting and risk management matters for a variety of public,
international and early growth stage entities. Mr. Horin has a Bachelor of Science degree in Accounting from Baruch College at
the City University of New York. Mr. Horin is also a certified public accountant.
None of the directors
or executive officers are related by blood, marriage or adoption.
CORPORATE GOVERNANCE AND BOARD COMMITTEES
Director Independence
As a non-listed company,
we are not subject to the rules regarding director independence. Nevertheless, the board of directors has determined that Jonathan
Schechter is independent as that term is defined in the listing standards of the NASDAQ. Generally, a director is considered independent
as long as he or she does not have a relationship with us or management that would interfere with the exercise of independent judgment
in carrying out the director’s responsibilities.
In determining director
independence, the board of directors considered the compensation paid to Mr. Schechter for the year ended June 30, 2015, disclosed
in “Director Compensation” below, and determined that such compensation was for services rendered to the board of directors
and therefore did not impact his ability to continue to serve as independent directors.
Board Committees
Our board of directors
has the authority to appoint committees to perform certain management and administrative functions. As of the date of this Annual
Report, given the limited number of directors, our board of directors has not yet re-established any committees. However, we expect
that our board of directors will appoint new directors in the future and once the board of directors has been expanded, we anticipate
that the board of directors will again establish separate audit, compensation and nominating and corporate governance committees
and may, from time to time, establish other committees it deems appropriate.
Code of Ethics
We have adopted a
Code of Ethics (the “Code of Ethics”), which applies to all directors, officers and employees. A copy of the Code of
Ethics is available on our web site under the heading “Investor Quick Facts.” We intend to make available on our web
site any future amendments or waivers to our Code of Ethics within four business days after any such amendments or waivers.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
The table below sets
forth the compensation earned by our Chief Executive Officer for the fiscal years ended June 30, 2015 and 2014 (the “named
executive officer”). None of our executive officers’ total compensation exceeded $100,000 for the fiscal year ended
June 30, 2015.
| |
| | |
| | |
| | |
Stock | | |
Option | | |
All Other | | |
| |
Name and Principal Position | |
Year | | |
Salary ($) | | |
Bonus ($) | | |
Awards ($) | | |
Awards ($) (2) | | |
Compensation ($) | | |
Total ($) | |
Edward Gildea, | |
| 2015 | | |
| 42,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 42,000 | |
Chief Executive Officer (1) | |
| 2014 | | |
| 14,000 | | |
| - | | |
| - | | |
| 99,959 | | |
| - | | |
| 113,959 | |
(1) | Mr. Gildea was appointed Chief Executive Officer effective
March 1, 2014 |
(2) | Reflects the value of stock options that was charged to
income as reported in our financial statements and calculated using the provisions of FASB ASC 718 “Share-based Payments.”
The assumptions underlying the valuation of equity awards are set forth in Note 4 of our financial statements, included elsewhere
in this report. |
As of the date of
this Report, we were not aware of any pledges of Common Stock which may at a subsequent date result in a change in control of the
Company.
Employment Contracts
We are not a party
to any employment agreements.
Outstanding Equity Awards at Fiscal Year-End
The following table
sets forth information concerning outstanding equity awards held by the named executive officer as of June 30, 2015.
| |
| | |
Number of Securities | | |
| | |
|
| |
| | |
Underlying Unexercised | | |
Option Exercise | | |
Option Expiration |
Name and Principal Position | |
Year | | |
Options (#) Exercisable | | |
Price ($) | | |
Date |
Edward Gildea, | |
| 2015 | | |
| 50,000,000 | (2) | |
| 0.002 | | |
February 11, 2019 |
Chief Executive Officer (1) | |
| | | |
| 50,000,000 | (3) | |
| 0.002 | | |
February 28, 2019 |
(1) Mr. Gildea was appointed Chief Executive officer
effective March 1, 2014.
(2) Awarded on February 11, 2014.
(3) Awarded on February 28, 2014.
Compensation of Directors
The following table
provides compensation information for the year ended June 30, 2015 for each of the independent members of the board of directors.
Name | |
Fees Earned or Paid in Cash | | |
Option Awards | | |
| |
(a) | |
($) | | |
($) | | |
Total ($) | |
Jonathan Schechter(1) | |
| - | | |
| - | | |
| - | |
| (1) | At June 30, 2015, Mr. Schechter held a stock option to
purchase 50,000,000 shares of our Common Stock at an exercise price of $0.002 per share. |
Item 12. Security Ownership of Certain
Beneficial Owners and Management
The following table
presents information regarding the beneficial ownership of our Common Stock as of September 25, 2015. The number of shares in the
table represents the number of shares of Common Stock owned by:
• |
each person who is known to us to be the beneficial owner of more than 5% of our outstanding Common Stock; |
• |
each of our directors; |
• |
each of our named executive officers; and |
• |
all of our directors and executive officers as a group. |
Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange Commission that deem shares to be beneficially owned
by any person who has or shares voting or investment power with respect to such shares. Shares of Common Stock under outstanding
shares of Series A Preferred Stock, warrants, convertible notes or options currently exercisable or exercisable within 60 days
of September 25, 2015 are deemed outstanding for purposes of computing the percentage ownership of the person holding such preferred
stock, warrants, convertible notes or options but are not deemed outstanding for computing the percentage ownership of any other
person. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the
person’s actual ownership or voting power with respect to the number of shares of Common Stock actually outstanding at September
25, 2015. Unless otherwise indicated, the persons named in this table have sole voting and sole investment power with respect to
all shares shown as beneficially owned, subject to community property laws where applicable.
The information presented
in this table is based on 400,000,000 shares of our Common Stock outstanding on September 25, 2015. Unless otherwise indicated,
the address of each of the named executive officers and directors and 5% or more stockholders named below is c/o Atrinsic, Inc.,
65 Atlantic Avenue, Boston, Massachusetts 02110.
Name of Beneficial Owner | |
Number of Shares Beneficially Owned | | |
Percent of Class | |
| |
| | |
| |
Edward Gildea, Chief Executive Officer and Director | |
| 100,000,000 | (1) | |
| 20.00 | % |
Jonathan Schechter, Director | |
| 50,000,000 | (2) | |
| 11.11 | % |
All directors and executive officers as a group (2 persons) | |
| 150,000,000 | (3) | |
| 27.27 | % |
| |
| | | |
| | |
5% Stockholders: | |
| | | |
| | |
Sebastian Giordano | |
| 125,000,000 | (4) | |
| 23.81 | % |
Hudson Bay Capital Management LP. (5)(7) | |
| 44,395,067 | (7) | |
| 9.99 | % |
Iroquois Capital Management LLC (6)(7) | |
| 44,395,067 | (7) | |
| 9.99 | % |
469 Holdings LLC (8) | |
| 22,693,437 | | |
| 5.67 | % |
Brilliant Digital Entertainment Altent, Inc.(9) | |
| 62,519,414 | | |
| 15.63 | % |
Google, Inc.(10) | |
| 100,047,815 | | |
| 25.01 | % |
MediaNet Digital, Inc. (11) | |
| 20,071,696 | | |
| 5.02 | % |
Yahoo, Inc. (12) | |
| 20,029,560 | | |
| 5.01 | % |
(1) |
Consists of 100,000,000 shares of Common Stock issuable under currently outstanding options. |
(2) |
Consists of 50,000,000 shares of Common Stock issuable under currently outstanding options. |
(3) |
Consists of an aggregate of 150,000,000 shares of Common Stock issuable under currently outstanding options. |
(4) |
Consists of 125,000,000 shares of Common Stock issuable under currently outstanding options. Mr. Giordano resigned as chief executive officer effective March 1, 2014. |
(5) |
Hudson Bay Capital Management LP (the “Investment Manager”) serves as the investment manager to Hudson Bay Master Fund Ltd. (the “HB Fund”), in whose name the reported securities are held, and may be deemed to be the beneficial owner of all shares of Common Stock held by the HB Fund. The principal business address of the Investment Manager and the HB Fund is 777 Third Avenue, 30th Floor, New York, New York 10017. |
(6) |
Iroquois Capital Management LLC, a Delaware limited liability company (“Iroquois”) serves as the investment adviser that provides investment advisory services to Iroquois Master Fund Ltd. (the “Iroquois Fund”), in whose name the reported securities are held, may be deemed to be the beneficial owner of all shares of Common Stock held by the Iroquois Fund. The principal business address of Iroquois in 205 East 42nd Street, 20 th Floor, New York, New York 10017. |
(7) |
Consists of shares of Common Stock issuable upon conversion of shares of Series A Convertible Preferred Stock held by such stockholder. Hudson Bay Capital Management L.P. owns 2,312,834,301 shares of the Series A Convertible Preferred Stock and Iroquois Capital Management LLC owns 2,287,165,699 shares of the Series A Convertible Preferred Stock. Excludes the number of shares of Common Stock issuable upon conversion of all the shares of Series A Preferred Stock held by the stockholder in excess of 44,395,067 because of the “Beneficial Ownership Cap” limitation applicable to all shares of Series A Preferred Stock pursuant to which the holder thereof does not have the right to convert shares of Series A Preferred Stock to the extent that such conversion would result in beneficial ownership by the holder thereof, or any of its affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the holder’s for purposes of Section 13(d) of the Exchange Act, of more than 9.99% of the total number of shares of Common Stock issued and outstanding immediately after giving effect to such conversion. |
(8) |
The address of 469 Holdings LLC is: c/o Belkin Burden Wenig & Goldman, Attn: S. Stewart Smith, Esq. 270 Madison Avenue, New York, NY 10016. |
(9) |
The address of Brilliant Digital Entertainment Altent, Inc. is: 12711 Ventura Blvd., Suite 210, Studio City, CA 91604. |
(10) |
The address of Google, Inc. is: PO Box 39000, San Francisco, CA 94139. |
(11) |
The address of MediaNet Digital, Inc. is: 1697 Broadway, 10th Floor, New York, NY 10019. |
(12) |
The address of Yahoo, Inc. is: 701 1st Ave, Sunnyvale, CA 94089. |
Item 13. Certain Relationships and Related
Transactions and Director Independence
Policies and Corporate Governance
The board of directors
has adopted a resolution that, in the future, any transactions between us and another person or entity who is deemed to be an “affiliate”
or a related party must be approved by a majority of our disinterested directors.
Transactions with Related Persons
Pursuant to the
terms of a Membership Interest Purchase Agreement dated July, 2013, we acquired a 51% equity interest in Momspot in exchange
for our commitment to contribute up to $165,000 of working capital to Momspot over a two-year period to fund its business
development and operations (none has been funded to date). Simultaneous with the acquisition, we became a party to the
Momspot, LLC Operating Agreement and the manager thereunder. B.E. Global LLC, an entity controlled by Barry Eisenberg, owns
the remaining 49% of the equity interest in Momspot.
Pursuant to a Letter
of Agreement dated August 1, 2013 with Chord Advisors, LLC (“Chord”) we engaged Chord to provide us with accounting
policy and financial reporting and bookkeeping services. Further, as of July 1, 2014, David Horin, one of the principals of Chord,
assumed the role of our principal accounting officer. The Letter of Agreement has a term of twelve months and provides for us to
pay to Chord: (i) $500 per month for our basic accounting functionality and $500 per month for Momspot’s basic accounting
functionality; (ii) a flat fee of $7,500 for services rendered in connection with the preparation of our Registration Statement
on Form 10 filed July 2, 2014; and (iii) $6,000 per month upon the commencing September 1, 2014, the effective date of the Form
10 Registration Statement.
Item 14. Principal Accountant Fees and
Services
The aggregate fees
billed by our principal accounting firm, Marcum, LLP (“Marcum”), for the fiscal years ended June 30, 2015 and 2014
are as follows:
2015
The aggregate fees
billed during fiscal 2015 by Marcum were $63,282, covering the audit of our annual financial statements and the review of our
financial statements for the nine months ended March 31, 2015
2014
The aggregate fees
billed during fiscal 2014 by Marcum were $51,000, covering the audit of our annual financial statements and the review of our
financial statements for the nine months ended March 31, 2014
There were no audit-related
fees billed by Marcum during fiscal 2015 and 2014.
2015
The aggregate tax
fee billed by Marcum during fiscal 2015 was $38,000.
2014
There was no tax fee
billed by Marcum during fiscal 2014.
No other fees, beyond
those disclosed in this Item 14, were billed during fiscal 2015 and 2014.
Audit Committee
Pre-Approval, Policies and Procedures
Our Audit Committee
approved the engagement with Marcum, LLP, our principal accountant, in advance. In addition the Audit Committee approved tax services
(as described above) provided by Marcum, LLP. These services were pre-approved by our Audit Committee to assure that such services
do not impair the auditor’s independence from us.
The percentage of
hours expended on audit by persons other than our principal accountant’s full time, permanent employees, did not exceed 50%.
Item 15. Financial Statements and Schedules
and Exhibits
|
(a) |
1. Financial Statements - See the Index to Consolidated Financial Statements below, beginning on page F-1. |
|
|
2. Financial Statement Schedules - See (c) below. |
|
|
3. Exhibits - See (b) below. |
|
|
|
|
(b) |
Exhibits |
Exhibit Numbers |
|
Description |
2.1 |
|
Second Amended Plan of Reorganization, dated March 7, 2013† |
2.2 |
|
Order Confirming Second Amended Plan of Reorganization, dated June 26, 2013† |
3.1(a) |
|
Amended and Restated Certificate of Incorporation filed on July 9, 2013† |
3.1(b) |
|
Certificate of Designations, Series A Convertible Preferred Stock filed on July 9, 2013† |
3.1(c) |
|
Certificate of Correction of Certificate of Designations of Series A Convertible Preferred Stock filed on October 29, 2013 † |
3.2 |
|
By-Laws(1) |
4.1 |
|
Amended and Restated Promissory Note dated February 11, 2014 issued by the Company to Hudson Bay Master Fund Ltd. † |
4.2 |
|
Amended and Restated Promissory Note dated February 11, 2014 issued by the Company to Iroquois Master Fund Ltd. † |
4.3 |
|
Promissory Note dated August 15, 2014 issued by the Company to Hudson Bay Master Fund Ltd. † |
4.4 |
|
Promissory Note dated August 15, 2014 issued by the Company to Iroquois Master Fund Ltd. † |
4.5 |
|
Secured Note, dated December 18, 2014, in the principal amount of $75,000, bearing interest at the rate of 5.0% per annum issued by the Company to Iroquois (2) |
4.6 |
|
Secured Note, dated December 18, 2014, in the principal amount of $75,000, bearing interest at the rate of 5.0% per annum issued by the Company to Hudson (2) |
4.7 |
|
Secured Note, dated May 15, 2015, in the principal amount of $50,000, bearing interest at the rate of 5.0% per annum issued by the Company to Hudson (3) |
4.8 |
|
Secured Note, dated May 15, 2015, in the principal amount of $50,000, bearing interest at the rate of 5.0% per annum issued by the Company to Iroquois(3) |
4.9 |
|
Secured Convertible Note, dated September 3, 2015, in the principal amount of $25,000, bearing interest at the rate of 5.0% per annum issued by the Company to Iroquois (4) |
4.10 |
|
Secured Convertible Note, dated September 3, 2015, in the principal amount of $25,000, bearing interest at the rate of 5.0% per annum issued by the Company to Hudson (4) |
10.1 |
|
Form of Option Agreement between the Company and each of Edward Gildea, Sebastian Giordano, and Jonathan Schechter† |
10.2** |
|
Consulting Agreement between the Company and Chord Advisors LLC† |
10.3 |
|
Momspot Membership Interest Purchase Agreement entered into as of July 12, 2013† |
10.4 |
|
Momspot Operating Agreement entered into as of July 12, 2013† |
10.5 |
|
Momspot Contribution Agreement entered into as of July 12, 2013† |
10.6 |
|
Lock-up Agreement among Atrinsic, Inc. and each of the holders of the Series A Preferred Stock, effective as of July 12, 2013 † |
10.7 |
|
Form of Indemnification Agreement† |
10.8 |
|
Security Agreement dated February 11, 2014 by and among the Company, Iroquois Master Fund Ltd, and Hudson Bay Master Fund Ltd. † |
10.9 |
|
Final Form of the First Amended and Restated Security Agreement among the Company Iroquois and Hudson dated as of December 18, 2014 (2) |
10.10 |
|
Letter agreement, dated May 15, 2015, between the Company and Iroquois amending the First Amended and Restated Security Agreement among the Company Iroquois and Hudson dated as of December 18, 2014 (3) |
10.11 |
|
Letter agreement, dated May 15, 2015, between the Company and Hudson amending the First Amended and Restated Security Agreement among the Company Iroquois and Hudson dated as of December 18, 2014 (3) |
10.12 |
|
Letter agreement, dated September 3, 2015, between the Company and Iroquois amending the First Amended and Restated Security Agreement among the Company Iroquois and Hudson dated as of December 18, 2014, as amended on May 15, 2015 (4) |
10.13 |
|
Letter agreement, dated September 3, 2015, between the Company and Hudson amending the First Amended and Restated Security Agreement among the Company Iroquois and Hudson dated as of December 18, 2014, as amended on May 15, 2015 (4) |
10.14 |
|
Note Modification Agreement, made as of July 31, 2015, between the Company and Iroquois (4) |
10.15 |
|
Note Modification Agreement, made as of July 31, 2015, between the Company and Hudson (4) |
31.1 |
|
Chief Executive Officer Certification as required under section 302 of the Sarbanes Oxley Act (*€) |
31.2 |
|
Chief Financial Officer Certification as required under section 302 of the Sarbanes Oxley Act (*€) |
32.1* |
|
Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes Oxley Act * |
101.INS |
|
XBRL Instance Document (*€) |
101.CAL |
|
XBRL Taxonomy Extension Schema Document (*€) |
101.SCH |
|
XBRL Taxonomy Extension Calculation Linkbase Document (*€) |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document (*€) |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document (*€) |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document (*€) |
† Filed as an Exhibit to our Registration
Statement on Form 10, dated July 2, 2014 and as amended August 18, 2014, and incorporated hereunder by reference.
* Furnished, not filed, in accordance with
item 601(32)(ii) of Regulation S-K.
** This exhibit is a management contract
or compensatory plan or arrangement.
*€ Filed herewith.
(1) Filed on June 10, 2005 as Exhibit 3.4
to the Registration Statement on Form 10-SB and incorporated herein by reference.
(2) Filed on December 22, 2014 as an exhibit
to our Current Report on Form 8-K and incorporated herein by reference.
(3) Filed on May 20, 2015 as an exhibit
to our Current Report on Form 8-K and incorporated herein by reference.
(4) Filed on September 9, 2015 as an exhibit
to our Current Report on Form 8-K and incorporated herein by reference.
|
(c) |
Financial Statement Schedules - No financial statement schedules are included because the information is either provided in the financial statements or is not required under the related instructions or is inapplicable and such schedules therefore have been omitted. |
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
ATRINSIC, INC. |
|
|
|
Date: September 25, 2015 |
By: |
/s/ EDWARD GILDEA |
|
Name: |
Edward Gildea |
|
Title: |
Chief Executive Officer |
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ EDWARD GILDEA |
|
Chief Executive Officer and Director, |
|
September 25, 2015 |
Edward Gildea |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ DAVID HORIN |
|
Chief Financial Officer |
|
September 25, 2015 |
David Horin |
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
/s/ JONATHAN SCHECHTER |
|
Director |
|
September 25, 2015 |
Jonathan Schechter |
|
|
|
|
INDEX TO FINANCIAL STATEMENTS
Atrinsic, Inc.
Years Ended June 30, 2015 and 2014 (audited)
|
Page |
Report of Independent Registered Public Accounting Firm |
F-2 |
Consolidated Financial Statements: |
|
Consolidated Balance Sheets - June 30, 2015 and 2014 (Successor Company) |
F-3 |
Consolidated Statements of Operations for the year ended June 30, 2015 (Successor Company), the periods from July 12, 2013 to June 30, 2014 (Successor Company), and Eleven Days ended July 11, 2013 (Predecessor Company) |
F-4 |
Consolidated Statements of Stockholders’ (Deficit) Equity for the year ended June 30, 2015 (Successor Company), the periods from July 12, 2013 to June 30, 2014 (Successor Company) and Eleven Days ended July 11, 2013 (Predecessor Company) |
F-5 |
Consolidated Statements of Cash Flows for the year ended June 30, 2015 (Successor Company), the periods from July 12, 2013 to June 30, 2014 (Successor Company), and Eleven Days ended July 11, 2013 (Predecessor Company) |
F-6 |
Notes to Consolidated Financial Statements |
F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Atrinsic, Inc.
We have audited the accompanying consolidated
balance sheets of Atrinsic, Inc. (the “Company”) as of June 30, 2015 and 2014(Successor Company), and the related consolidated
statements of operations, changes in stockholders’ deficiency and cash flows for the year ended June 30, 2015 (Successor
Company), periods from July 12, 2013 to June 30, 2014 (Successor Company), eleven days ended July 11, 2013 (Predecessor Company).
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Atrinsic, Inc. as of June 30, 2015 and 2014(Successor
Company), and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the
year ended June 30, 2015 (Successor Company), periods from July 12, 2013 to June 30, 2014 (Successor Company), eleven days ended
July 11, 2013 (Predecessor Company) in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, on
June 26, 2013, the Company emerged from Chapter 11 and on July 12, 2013 adopted fresh start accounting. The Company has continued
to incur net losses through June 30, 2015 and have yet to establish profitable operations. These factors among others create a
substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not
include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
/s/ Marcum LLP
Marcum llp
New York, NY
September 25, 2015
ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data)
| |
As of June 30, | |
| |
2015 | | |
2014 | |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 62 | | |
$ | 101 | |
Prepaid expenses | |
| 70 | | |
| 144 | |
Total current assets | |
| 132 | | |
| 245 | |
| |
| | | |
| | |
Property and equipment (net of accumulated depreciation of $1 and $0, respectively) | |
| 1 | | |
| 1 | |
Total assets | |
$ | 133 | | |
$ | 246 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS' DEFICIT | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 168 | | |
$ | 138 | |
Accrued interest expense - stockholders | |
| 21 | | |
| 3 | |
Total current liabilities | |
| 189 | | |
| 141 | |
Long-term notes payable - due to stockholders | |
| 515 | | |
| 175 | |
Total liabilities | |
| 704 | | |
| 316 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
Shareholders' deficit: | |
| | | |
| | |
Series A convertible preferred stock, $0.000001 par value, 5,000,000,000 shares authorized, 4,600,000,000 shares issued and outstanding at June 30, 2015 and 2014; (Liquidation preference 20,700,000 as of June 30, 2015) | |
| 5 | | |
| 5 | |
Common stock, $.000001 par value, 100,000,000,000 shares authorized, 400,000,000 shares issued and outstanding at June 30, 2015 and 2014 | |
| - | | |
| - | |
Additional paid-in capital | |
| 1,053 | | |
| 1,053 | |
Accumulated deficit | |
| (1,555 | ) | |
| (1,079 | ) |
Shareholders' deficit attributed to Atrinsic, Inc. | |
| (497 | ) | |
| (21 | ) |
| |
| | | |
| | |
Non-controlling interest | |
| (74 | ) | |
| (49 | ) |
Total shareholders' deficit | |
| (571 | ) | |
| (70 | ) |
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT | |
$ | 133 | | |
$ | 246 | |
The accompanying notes are an integral part
of these consolidated statements.
ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and
per share data)
| |
Successor Company | | |
Predecessor Company | |
| |
For the year ended | | |
For the period from
July 12, 2013 to | | |
For the period from
July 1, 2013 to | |
| |
June 30, | | |
June 30, | | |
July 11, | |
| |
2015 | | |
2014 | | |
2013 | |
Operating expenses | |
| | | |
| | | |
| | |
General and administrative | |
$ | 491 | | |
$ | 975 | | |
$ | - | |
Total operating expenses | |
| 491 | | |
| 975 | | |
| - | |
Loss from operations | |
| (491 | ) | |
| (975 | ) | |
| - | |
| |
| | | |
| | | |
| | |
Other income (expenses) | |
| | | |
| | | |
| | |
Other income | |
| 8 | | |
| 59 | | |
| - | |
Other expenses | |
| - | | |
| (5 | ) | |
| - | |
Interest expenses - stockholders | |
| (18 | ) | |
| (3 | ) | |
| - | |
Total other income (expenses) | |
| (10 | ) | |
| 51 | | |
| - | |
Net loss before reorganization items | |
| (501 | ) | |
| (924 | ) | |
| - | |
| |
| | | |
| | | |
| | |
Reorganization items | |
| | | |
| | | |
| | |
Gain on reorganization, net | |
| - | | |
| - | | |
| 778 | |
Legal and professional fees | |
| - | | |
| (204 | ) | |
| - | |
Total reorganization items | |
| - | | |
| (204 | ) | |
| 778 | |
Net (loss) income | |
| (501 | ) | |
| (1,128 | ) | |
| 778 | |
| |
| | | |
| | | |
| | |
Less: net loss attributable to non-controlling interest | |
| (25 | ) | |
| (49 | ) | |
| - | |
Net (loss) income attributable to Atrinsic | |
$ | (476 | ) | |
$ | (1,079 | ) | |
$ | 778 | |
| |
| | | |
| | | |
| | |
Net (loss) income per share attributable to Atrinsic common shareholders | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | 0.01 | |
| |
| | | |
| | | |
| | |
Weighted average shares outstanding: | |
| | | |
| | | |
| | |
Basic and diluted | |
| 400,000,000 | | |
| 400,000,000 | | |
| 100,000,000 | |
The accompanying
notes are an integral part of these consolidated statements.
ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
DEFICIT
(Dollars in thousands, except share data)
| |
Convertible | | |
| | |
Additional | | |
| | |
| | |
| | |
| |
| |
Preferred
Stock | | |
Common
Stock | | |
Paid-In | | |
Accumulated | | |
Treasury
Stock | | |
Noncontrolling | | |
Total | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Shares | | |
Amount | | |
Interest | | |
(Deficit)
Equity | |
Balance at June 30, 2013
(Predecessor Company) | |
| - | | |
$ | - | | |
| 100,000,000 | | |
$ | 1,000 | | |
$ | 182,281 | | |
$ | - | | |
| 681,509 | | |
$ | (4,981 | ) | |
$ | - | | |
$ | 178,300 | |
Cancellation of predecessor company common stock | |
| - | | |
| - | | |
| (100,000,000 | ) | |
| (1,000 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,000 | ) |
Elimination of predecessor company capital in
excess of par | |
| - | | |
| - | | |
| - | | |
| - | | |
| (182,281 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (182,281 | ) |
Elimination of predecessor company accumulated
deficit | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Elimination of predecessor company treasury stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (681,509 | ) | |
| 4,981 | | |
| - | | |
| 4,981 | |
Issuance of predecessor company convertible preferred
stock | |
| 4,600,000,000 | | |
| 5 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5 | |
Issuance of predecessor company common stock | |
| - | | |
| - | | |
| 400,000,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Gain from reorganization | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 778 | | |
| - | | |
| - | | |
| - | | |
| 778 | |
Elimination of predecessor
company accumulated deficit | |
| - | | |
| - | | |
| - | | |
| - | | |
| 778 | | |
| (778 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
Balance at July 11, 2013 (Predecessor
Company) | |
| 4,600,000,000 | | |
$ | 5 | | |
| 400,000,000 | | |
$ | - | | |
$ | 778 | | |
$ | - | | |
| - | | |
$ | - | | |
$ | - | | |
$ | 783 | |
Net loss attributable to non-controlling interest | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (49 | ) | |
| (49 | ) |
Net loss attributable to Atrinsic | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,079 | ) | |
| - | | |
| - | | |
| - | | |
| (1,079 | ) |
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 275 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 275 | |
Balance at June 30, 2014 (Successor
Company) | |
| 4,600,000,000 | | |
$ | 5 | | |
| 400,000,000 | | |
$ | - | | |
$ | 1,053 | | |
$ | (1,079 | ) | |
| - | | |
$ | - | | |
$ | (49 | ) | |
$ | (70 | ) |
Net loss attributable to non-controlling interest | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| | | |
| (25 | ) | |
| (25 | ) |
Net loss attributable to
Atrinsic | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (476 | ) | |
| | | |
| | | |
| - | | |
| (476 | ) |
Balance at June
30, 2015 (Successor Company) | |
| 4,600,000,000 | | |
$ | 5 | | |
| 400,000,000 | | |
$ | - | | |
$ | 1,053 | | |
$ | (1,555 | ) | |
| - | | |
$ | - | | |
$ | (74 | ) | |
$ | (571 | ) |
The accompanying notes are an integral part
of these consolidated statements.
ATRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| |
Successor Company | | |
Predecessor Company | |
| |
For the year
ended | | |
For the period
from July 12,
2013 to | | |
For the period from
July 1, 2013 to | |
| |
June 30, | | |
June 30, | | |
July 11, | |
| |
2015 | | |
2014 | | |
2013 | |
Cash flows from operating activities | |
| | | |
| | | |
| | |
Net (loss) income attributable to Atrinsic | |
$ | (476 | ) | |
$ | (1,079 | ) | |
$ | 778 | |
| |
| | | |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | | |
| | |
Net loss attributable to non-controlling interest in subsidiary | |
| (25 | ) | |
| (49 | ) | |
| - | |
Non-cash reorganization items | |
| - | | |
| - | | |
| (778 | ) |
Depreciation expenses | |
| 1 | | |
| - | | |
| - | |
Stock-based compensation | |
| - | | |
| 275 | | |
| - | |
Accrued interest on notes payable | |
| 18 | | |
| 3 | | |
| - | |
Changes in operating assets and liabilities of business, net of acquisitions: | |
| | | |
| | | |
| | |
Prepaid expenses | |
| 74 | | |
| 93 | | |
| - | |
Accounts payable, excluding reorganization items | |
| 30 | | |
| (33 | ) | |
| - | |
Net cash used in operating activities | |
| (378 | ) | |
| (790 | ) | |
| - | |
| |
| | | |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | | |
| | |
Purchase of property and equipment | |
| (1 | ) | |
| (1 | ) | |
| - | |
Net cash used in investing activities | |
| (1 | ) | |
| (1 | ) | |
| - | |
| |
| | | |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | | |
| | |
Proceeds from issuance of notes payable due to stockholders | |
| 340 | | |
| 175 | | |
| - | |
Net cash provided by financing activities | |
| 340 | | |
| 175 | | |
| - | |
| |
| | | |
| | | |
| | |
Net decrease in cash | |
| (39 | ) | |
| (616 | ) | |
| - | |
Cash at beginning of period | |
| 101 | | |
| 717 | | |
| 717 | |
Cash at end of period | |
$ | 62 | | |
$ | 101 | | |
$ | 717 | |
| |
| | | |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Interest expense paid | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | |
Income taxes paid | |
$ | - | | |
$ | - | | |
$ | - | |
The accompanying
notes are an integral part of these consolidated statements.
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
NOTE 1 - NATURE OF OPERATIONS
Prior to filing Chapter 11 on June 15,
2012, the Company was a direct marketing company based in the United States. The Company had two main service offerings: (i) transactional
services; and (ii) subscription services. Transactional services offered full service online marketing and distribution services
which were targeted and measurable online campaigns and programs for marketing partners, corporate advertisers, or their agencies,
generating qualified customer leads, online responses and activities, or increased brand recognition. Subscription services offered
a portfolio of subscription based content applications direct to users working with wireless carriers and other distributors.
On June 15, 2012, the Company filed Chapter
11 in the United States Bankruptcy Court in Southern District of New York (Case No. 12-12553). As of that date, the Company terminated
all remaining employees and ceased its normal business operations.
The Company emerged from Chapter 11 on
June 26, 2013, at which time the Plan of Reorganization was conditionally confirmed by the United States Bankruptcy Court, Southern
District of New York. The confirmation was subject to the consummation of the Company’s acquisition of a 51% controlling
interest in Momspot LLC (“Momspot”), which was subsequently completed on July 12, 2013 (“Emergence Date”).
Momspot’s goal is to be the premier specialty retail affiliate marketing company targeting women between the ages of 24 and
45 who are either mothers or expecting their first child. The Emergence Date was the date the Company adopted fresh start accounting
in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 852. The adoption of fresh-start accounting resulted in the Company becoming a new entity for financial reporting purposes.
Accordingly, the financial statements on or prior to July 12, 2013 are not comparable with the financial statements for periods
after July 12, 2013.
Since the fourth quarter of the 2015 fiscal
year Momspot’s development plans has been suspended pending receipt of incremental funding.
NOTE 2 - LIQUIDITY AND GOING CONCERN
The Company intends to finance its activities
through:
· |
Managing current cash on hand; and |
· |
Seeking additional funds raised in the future. |
The Company has experienced recurring losses
and negative cash flow from operations since emerging from bankruptcy. There is substantial doubt about the Company’s ability
to continue as a going concern as it is dependent on its ability to obtain short term financing and ultimately to generate sufficient
cash flow to meet its obligations on a timely basis in order to attain profitability, as well as successfully obtain financing
on favorable terms to fund the Company’s long term plans. The Company continually projects anticipated cash requirements,
which may include business combinations, capital expenditures, and working capital requirements. As of June 30, 2015, the Company
had cash of approximately $62, a working capital deficit of approximately $57, and a total shareholders’ deficit of $571.
During the year ended June 30, 2015, the Company used approximately $378 of cash for operations. The Company’s existing liquidity
is not sufficient to fund its operations, anticipated capital expenditures, working capital and other financing requirements for
the foreseeable future.
The Company needs to raise additional capital
to cover its budgeted operating and capital expenditures. If the capital raising efforts are not successful, the Company might
not be able to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary
should the Company not be able to continue as a going concern. These factors among others create a substantial doubt about the
Company’s ability to continue as a going concern.
On September 3, 2015, the Company issued
secured convertible promissory notes (the “Secured Convertible Notes”) in the principal amount of $25 to each of two
principal stockholders, for an aggregate of $50, each an existing secured lender to the Company. The Secured Convertible Notes
have a maturity date of August 31, 2016 and bear interest at the rate of 5.0% per annum, payable at maturity. The outstanding principal
and accrued interest of each Secured Convertible Note is convertible, subject to a 4.99% Beneficial Ownership Cap (as defined in
the Secured Convertible Notes), into shares of the Company’s common stock at an initial conversion price of $5.00 per share
(subject to adjustment), at the option of the respective holders.
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
The obligations of the Company under the
Secured Convertible Notes are secured by a first priority security interest in all of the property of the Company pursuant to letter
agreements, dated September 3, 2015, with each of Iroquois and Hudson, respectively. The proceeds of the Secured Convertible Notes
will be utilized by the Company to fund its working capital needs. (See Note 9).
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The ownership of more than 50% of the voting
stock of an entity creates a subsidiary. The financial statements of the parent and subsidiary are consolidated for reporting purposes.
The accompanying consolidated financial
statements of the Company include the accounts of all majority and wholly-owned (“Momspot”) subsidiaries and significant
intercompany balances and transactions have been eliminated.
Reclassification
Certain reclassifications have been made
to prior year amounts to conform to the current year presentation. The reclassifications had no effect on net loss.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses
as well as the disclosure of contingent assets and liabilities. Management continually evaluates its estimates and judgments including
those related to fair value of stock options granted and income taxes. Management bases its estimates and judgments on historical
experience and other factors that are believed to be reasonable in the circumstances. Actual results may differ from those estimates.
Macroeconomic conditions may directly, or indirectly through the Company’s business partners and vendors, impact the Company’s
financial performance and available resources. Such conditions may, in turn, impact the aforementioned estimates and assumptions.
Cash
For the purposes of reporting cash flows,
the Company considers all cash accounts which are not subject to withdrawal restrictions or penalties, and highly liquid investments
with original maturities of 90 days or less when purchased to be cash.
Property and Equipment
Property and equipment consist of computer
hardware, software and office equipment as of June 30, 2015. Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives of the respective assets. The estimated useful lives range from three to five years.
Stock-Based Compensation
The Company records stock based compensation in accordance with
ASC 718. In estimating the grant date fair value of stock option awards and performance based restricted stock, the Company uses
the Black Scholes option pricing model and other binomial pricing models where appropriate. The key assumptions for these models
to derive fair value include expected term, rate of risk free returns and volatility. Information about the Company’s specific
award plans can be found in Note 5.
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
Fair Value Measurement
The fair value of Momspot, which was not
material, was determined based on valuation performed by Management, which took into consideration, where applicable, cash received
, market participant inputs, estimated cash flows based on entity specific criteria, purchase multiples paid in other comparable
third-party transactions, market conditions, liquidity, operating results and other qualitative and quantitative factors.
Preferred Stock
The Company applies the accounting standards
for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred
shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable
preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as
temporary equity. Therefore, preferred shares are classified as stockholders’ equity. The preferred shares are not mandatorily
redeemable and have no conditional redemption features.
Research and Development Costs
Research and development costs are charged
to operations as incurred.
Earnings per Share
Basic earnings per share (“EPS”) is computed by
dividing reported earnings by the weighted average number of shares of common stock outstanding for the period. Diluted EPS includes
the effect, if any, of the potential issuance of additional shares of common stock as a result of the exercise or conversion of
dilutive securities, using the treasury stock method.
Potential dilutive securities for the Company include outstanding
convertible preferred shares and stock options.
Securities that could potentially dilute loss per share in the
future that were not included in the computation of diluted loss per share at June 30, 2015 and June 30, 2014, because such securities
are anti-dilutive, are as follows:
| |
As of June 30, | |
| |
2015 | | |
2014 | |
Convertible preferred shares | |
| 4,600,000,000 | | |
| 4,600,000,000 | |
Options to purchase common stock | |
| 275,000,000 | | |
| 275,000,000 | |
Total | |
| 4,875,000,000 | | |
| 4,875,000,000 | |
Income Taxes
The Company accounts for income taxes pursuant
to ASC 740. Under ASC 740, deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
The Company adopted an
accounting standard which clarifies the accounting for uncertainty in income taxes recognized in financial statements. This standard
provides guidance on recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that
a company has taken or expects to take on a tax return.
Concentrations of Credit Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash. The Company reduces credit risk by placing its
cash with major financial institutions. At times, such amounts may exceed federally insured limits.
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
Recent Accounting Pronouncements
In June 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation - Stock Compensation
(Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved
after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved
after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected
in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized
in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost
attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective
for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted.
This ASU will have no impact on the Company until it begin to grant performance awards.
In August 2014, the FASB issued ASU 2014-15
on “Presentation of Financial Statements Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility
to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related
footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity
in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue
as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically,
the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including
interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain
disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express
statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year
after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for
public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company has elected
to early adopt the provisions of ASU 2014-15 in connection with the issuance of these consolidated financial statements. Management’s
evaluations regarding the events and conditions that raise substantial doubt regarding the Company’s ability to continue
as a going concern have been disclosed in Note 2.
NOTE 4 - FRESH START ACCOUNTING
On July 12, 2013, the Company adopted fresh
start accounting and reporting in accordance with Topic ASC 852. The Company was required to apply the provisions of fresh start
reporting to its financial statements, as the holders of existing voting shares of the Predecessor Company received less than 50%
of the voting shares of the emerging entity and the reorganization value of the Predecessor Company’s assets immediately
before the date of confirmation was less than the post-petition liabilities and allowed claims.
Fresh start accounting and reporting generally
requires resetting the historical net book value of assets and liabilities to fair value as of the Effective Date by allocating
the entity’s enterprise value as set forth in the Reorganization Plan to its assets and liabilities pursuant to accounting
guidance related to business combinations. The financial statements as of the Effective Date report the results of the Successor
Company with no beginning retained earnings or accumulated deficit. Any presentation of the Successor Company represents the financial
position and results of operations of a new reporting entity and is not comparable to prior periods. The unaudited condensed consolidated
financial statements for periods ended prior to the Effective Date do not include the effect of any changes in capital structure
or changes in the fair value of assets and liabilities as a result of fresh start accounting.
In accordance with ASC Topic 852, the Predecessor
Company’s pre-emergence charges to earnings of $778, recorded as reorganization items result from certain costs and expenses
relating to the Reorganization Plan becoming effective, including the cancellation of certain debt upon issuance of new equity.
Methodology, Analysis and Assumptions
The Company determined that the fair value
of the Company (“Reorganization Value”) on the Effective date to be minimal.
The Company’s valuation was based
upon a discounted cash flow methodology, which included a calculation of the present value of expected un-levered after-tax free
cash flows reflected in the Company’s long-term financial projections, including the calculation of the present value of
the terminal value of cash flows, and supporting analysis that included a comparison of selected financial data of the Company
with similar data of other publicly held companies comparable to ours in terms of end markets, operational characteristics, growth
prospects and geographical footprint. The Company also considered precedent transaction analysis but ultimately determined there
was insufficient data for a meaningful analysis.
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
| |
July 12, 2013 | |
| |
Predecessor Company | | |
Reorganization Adjustments | | |
Successor Company | |
ASSETS | |
| | | |
| | | |
| | |
Current assets | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
$ | 717 | | |
$ | - | | |
$ | 717 | |
Prepaid expenses and other current assets | |
| 237 | | |
| | | |
| 237 | |
Total current assets | |
| 954 | | |
| - | | |
| 954 | |
TOTAL ASSETS | |
$ | 954 | | |
$ | - | | |
$ | 954 | |
| |
| | | |
| | | |
| | |
LIABILITIES AND EQUITY | |
| | | |
| | | |
| | |
Current liabilities | |
| | | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 15,566 | | |
$ | (15,395 | )(2) | |
$ | 171 | |
Note payable | |
| 2,614 | | |
| (2,614 | )(3) | |
| - | |
Total current liabilities | |
| 18,180 | | |
| (18,009 | ) | |
| 171 | |
TOTAL LIABILITIES | |
| 18,180 | | |
| (18,009 | ) | |
| 171 | |
| |
| | | |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | |
SHAREHOLDERS' (DEFICIT) EQUITY | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Convertible preferred stock - par value $.000001, 5,000,000,000 shares authorized, 4,600,000,000 shares issued and outstanding at July 11, 2013; no shares authorized, issued or outstanding at June 30, 2013 | |
| - | | |
| 5 | (3) | |
| 5 | |
| |
| | | |
| | | |
| | |
Common stock - par value $.000001, 100,000,000,000 shares authorized, 400,000,000 shares issued and outstanding at July 11, 2013; par value $.01, 100,000,000 authorized and outstanding at June 30, 2013. | |
| 1,000 | | |
| (1,000 | )(1) | |
| - | |
Additional paid-in capital | |
| 182,281 | | |
| (182,281 | )(4) | |
| - | |
| |
| | | |
| 778 | (5) | |
| 778 | |
Common stock, held in treasury, at cost, 0 and 681,509 shares at July 11, 2013 and June 30, 2013, respectively. | |
| (4,981 | ) | |
| 4,981 | (4) | |
| - | |
Accumulated income (deficit) | |
| (195,526 | ) | |
| 195,526 | (1) | |
| - | |
| |
| | | |
| | | |
| | |
TOTAL SHAREHOLDERS' (DEFICIT) EQUITY | |
| (17,226 | ) | |
| 18,009 | | |
| 783 | |
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY | |
$ | 954 | | |
$ | - | | |
$ | 954 | |
1) To reduce the total par value of
stock held by the pre-petition stockholders to $100, in accordance with the new post-bankruptcy capital structure
2) To record conversion of pre-petition Accounts Payable to
300,000,000, $0.000001 par value common shares, in accordance with the new post-bankruptcy capital structure
3) To record conversion of note payable to 4,600,000,000, $0.000001
par value shares of convertible preferred stock, in accordance with the new post-bankruptcy petition capital structure
4) To eliminate Treasury Stock. APIC and Accumulated Deficit
as of July 11, 2013
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
5) Elimination of Predecessor Company accumulated deficit July
1, 2013 to July 11, 2013
NOTE 5 - SHAREHOLDERS’ (DEFICIT)
EQUITY
On July 12, 2013, the Company established
a new capital structure, in accordance with the Plan of Reorganization.
Accordingly, 100,000,000,000 shares of
$0.000001 par value common stock were authorized. The Company exchanged the 100,000,000 outstanding shares held by the pre-bankruptcy
petition stockholders for 100,000,000 $0.000001 par value shares in the reorganized Company. The Company also issued 300,000,000
of the authorized shares to the unsecured creditors of the Company subsequent to the filing bankruptcy. The 400,000,000
aggregate shares issued were outstanding at the time of filing bankruptcy. The 400,000,000 aggregate shares issued were outstanding
at June 30, 2015 and 2014.
In addition, the Company authorized 5,000,000,000
shares of $0.000001 par value preferred stock. The Company applies the accounting standards for distinguishing liabilities from
equity when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption
are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred
shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred
shares are classified as stockholders’ equity. 4,600,000,000 shares of Series A Preferred Stock were issued to the Company’s
secured creditors in exchange for the Convertible Notes that were previously issued to them in May 2011. The 4,600,000,000 shares
issued were outstanding as of June 30, 2015 and 2014. Each share of Convertible Preferred stock is convertible into one share of
common stock.
As of June 30, 2015, 4,600,000,000 shares
of the Series A Preferred Stock were issued and outstanding, and are held of record by two holders. The holders of the Series A
Preferred Stock each have the right at any time, at the holder’s option, to convert any or all of his shares of Series A
Preferred Stock into such number of fully paid and non-assessable shares of common stock to the extent that such conversion would
not result in beneficial ownership by the holder of more than 9.99% of the total number of shares of common stock issued and outstanding
immediately after giving effect to such conversion (the “Beneficial Ownership Cap”). Subject to the Beneficial Ownership
Cap, the holders of the Series A Preferred Stock are entitled to vote on an as-converted basis together with the holders of the
Company’s common stock as a class on all matters submitted to a vote of stockholders. Holders of the Series A Preferred Stock
do not have cumulative voting rights. On an as-converted basis, the holders are entitled to any dividends that may be declared
on the Company’s common stock by the board of directors without regard to the Beneficial Ownership Cap. Upon the Company’s
dissolution, liquidation or winding up, after payment or provision for all liabilities and any preferential liquidation rights
of any shares of a more senior class of the preferred stock that the Company may issue in the future, the holders of the Series
A Preferred Stock shall have priority with respect to the distribution of the Company’s net assets over the holders of its
common stock. All outstanding shares of the Series A Preferred Stock are fully paid and non-assessable. From July 12, 2013 through
July 12, 2014, each Holder of the Series A Preferred Stock is prohibited from selling or otherwise transferring more than 2.5%
of the Company’s outstanding common stock, calculated on a fully diluted basis, per 90-day period.
Stock Options
On February 11, 2014, the Company issued options with a term
of five (5) years and an exercise price of $0.002 to the individuals below for the number of shares of common stock:
The Company granted to Sebastian Giordano, for services
as Chief Restructuring Officer and Acting Chief Executive Officer, an option to purchase 125,000,000 shares of the Company’s
Common Stock.
The Company granted to each of Edward Gildea and
Jonathan Schechter, for services as directors of the Company, an option to purchase 50,000,000 shares of the Company’s Common
Stock.
On February 28, 2014, the Company granted
to Edward Gildea, for services to be rendered as Acting Chief Executive Officer, an option to purchase 50,000,000 shares of the
Company’s Common Stock with a term of five (5) years and an exercise price of $0.002.
All of the shares covered by these options immediately vested
on the grant date.
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
The grant date fair value of stock options
granted was approximately $275. The fair value of the Company’s common stock was based upon the publicly quoted price on
the date of grant. The expected term for stock options granted with service conditions represents the average period the stock
options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities
and Exchange Commission's Staff Accounting Bulletin No. 110 for “plain vanilla” options. The Company obtained the risk
free interest rate from publicly available data published by the Federal Reserve. The volatility rate was computed based on a comparison
of average volatility rates of similar companies. The fair value of the options was determined using the Black-Scholes model with
the following assumptions: risk free interest rate - 0.69% to 0.71%, volatility - 84.40%, expected term - 2.5 years, expected dividends-
N/A.
As of June 30, 2015, the weighted average
exercise price of all stock options outstanding was $0.002, the remaining contractual life was 3.7 years and there was no intrinsic
value.
NOTE 6 - NOTES PAYABLE DUE TO STOCKHOLDERS
On February 11, 2014, the Company issued
notes payable with two principal stockholders, each such note in the principal amount of $87.5 with the interest thereon at the
rate of 5% per annum (the “February 2014 Notes”). The principal amount and all accrued interest of the February 2014
Notes were due on July 31, 2015 (the “Maturity Date”). Any amounts that remain unpaid until due shall thereafter bear
interest at the rate of twelve percent (12%) per annum. Interest as aforesaid shall be calculated on the basis of actual number
of days elapsed over a year of 360 days. The notes are secured by all the assets of the Company.
On August 15, 2014, the Company raised
gross proceeds, in a debt financing transaction, of $90 from its two principal stockholders, and issued secured promissory notes
in the principal amount of $45 to each of them (the “August 2014 Notes”). On December 18, 2014, the Company raised
gross proceeds, in a debt financing transaction, of $150 from its two principal stockholders, and issued secured promissory notes
in the principal amount of $75 to each of them (the “December 2014 Notes”). On May 15, 2015, the Company raised gross
proceeds, in a debt financing transaction, of $100 from its two principal stockholders, and issued secured promissory notes in
the principal amount of $50 to each of them (the “May 2015 Notes”). The notes had a Maturity Date of July 31, 2015
and bear interest at the rate of 5.0% per annum, payable at maturity. Any amounts that remain unpaid after July 31, 2015, shall
thereafter bear interest at the rate of twelve percent (12%) per annum. Interest is calculated on the basis of actual number of
days elapsed over a year of 360 days. The notes are secured by all the assets of the Company.
| |
Amount Due | |
Outstanding as of June 30, 2014 | |
$ | 175 | |
Issued | |
| 340 | |
Outstanding as of June 30, 2015 | |
$ | 515 | |
On September 3, 2015, effective as of July
31, 2015, the maturity dates of the February 2014 Notes, the August 2014 Notes, the December 2014 Notes and the May 2015 Notes
(collectively, the “Prior Notes”), in the aggregate principal amount of $515, were extended to August 31, 2016 and
the Prior Notes were amended to permit conversion of the principal and accrued interest due and payable under the Prior Notes into
shares of the Company’s common stock (see Note 9). Due to the extension of terms, the Company recorded Prior Notes in long-term
notes payable – due to stockholders on the Consolidated Balance Sheets.
During the year ended June 30, 2015 and
2014, interest expense amounted to approximately $18 and $3. Accrued interest as of June 30, 2015 was approximately $21.
NOTE 7 - BUSINESS COMBINATIONS
The Momspot Acquisition
Pursuant to the terms of a Membership Interest
Purchase Agreement, dated July, 2013, the Company acquired a 51% equity interest in Momspot LLC, (“Momspot”) in exchange
for the Company’s commitment to contribute up to $165 of working capital to Momspot over a two-year period to fund its business
development and operations (none has been funded to date). Simultaneous with the acquisition the Company became a party to
the Momspot Operating Agreement and the manager thereunder. Momspot meets the definition of a “business” in accordance
with ASC Topic 805.
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
Momspot is a start-up company. Momspot’s
goal is to be the premier specialty retail affiliate marketing company targeting women between the ages of 24 and 45 who are either
mothers or expecting their first child (“Moms”).
The results for Momspot for the period
ended June 30, 2015 are consolidated in the consolidated financial statements within this document.
The fair value of the purchase consideration was allocated to
fair value of the net tangible assets acquired, with the resulting excess allocated to separately identifiable intangibles, and
the remainder recorded as goodwill, if any.
The purchase price was allocated as follows:
Purchase Consideration:
Fair value of Momspot (1) | |
$ | - | |
| |
| | |
Tangible assets acquired | |
| - | |
|
(1) |
Fair value, which was not material, was based upon the fair value of the cash consideration paid by the Company for the acquisition of Momspot ($0 consideration received) and a discounted cash flow analysis, including the calculation of the present value of the terminal value of cash flows, and supporting analysis that included a comparison of selected financial data of the Company with similar data of other publicly held companies comparable to ours in terms of end markets, operational characteristics, growth prospects and geographical footprint. |
The following table presents the unaudited pro-forma financial
results, as if the acquisition of Momspot had been completed as of July 1, 2013:
| |
For the year ended
June 30, | |
| |
2014 | |
Revenues | |
$ | - | |
Net loss | |
| (1,079 | ) |
Loss per share - basic and diluted | |
$ | (0.00 | ) |
The unaudited pro-forma results of operations
are not intended to present actual results that would have been attained had the acquisition been completed as of July 1, 2013
or to project potential operating results as of any future date or for any future periods.
NOTE 8 - INCOME TAXES
During both 2015 and 2014, the Company
incurred a net loss and therefore had no tax liability. The Company does not have any material uncertain income tax positions.
As a result of significant losses and uncertainty of future profit, the net deferred tax asset has been fully reserved.
As of June 30, 2015, the valuation allowance increased by $171. The cumulative net operating loss carryforward is approximately
$48.1 million and $47.7 million at June 30, 2015 and 2014, respectively, and will start expiring in the year ended 2030.
The Company has not performed a detailed analysis to determine whether an ownership change under Section 382 of the IRC has occurred.
The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss (“NOL”)
carryforwards attributable to periods before the change. Any limitation may result in expiration of a portion of the NOL before
utilization.
The tax effects of temporary differences
and tax loss carry forwards that give rise to significant portions of deferred tax assets at June 30, 2015 and 2014 are comprised
of the following:
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
| |
As of June 30, | |
| |
2015 | | |
2014 | |
Deferred tax asset | |
| | | |
| | |
Net operating loss carryovers | |
$ | 21,869 | | |
$ | 21,698 | |
Stock based compensation | |
| 125 | | |
| 125 | |
Total deferred tax assets | |
| 21,994 | | |
| 21,823 | |
Valuation Allowance | |
| (21,994 | ) | |
| (21,823 | ) |
Deferred tax asset, net of allowance | |
$ | - | | |
$ | - | |
The expected tax expense (benefit) based
on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:
| |
As of June 30, | |
| |
2015 | | |
2014 | |
Statutory federal income tax rate | |
| -34.0 | % | |
| -34.0 | % |
State income tax, net of federal benefit | |
| -9.1 | % | |
| -11.5 | % |
Other | |
| 7.1 | % | |
| 0.0 | % |
Valuation Allowance | |
| 36.0 | % | |
| 45.5 | % |
Income tax provision (benefit) | |
| 0.0 | % | |
| 0.0 | % |
The income tax provision consists of the following:
| |
As of June 30, | |
| |
2015 | | |
2014 | |
Federal | |
| | | |
| | |
Current | |
$ | - | | |
$ | - | |
Deferred | |
| (128 | ) | |
| 451 | |
State | |
| | | |
| | |
Current | |
| - | | |
| - | |
Deferred | |
| (43 | ) | |
| 153 | |
Change in valuation allowance | |
| 171 | | |
| (604 | ) |
Income tax provision (benefit) | |
$ | - | | |
$ | - | |
NOTE 9 - SUBSEQUENT EVENTS
On September 3, 2015, the Company issued
secured convertible promissory notes (the “Secured Convertible Notes”) in the principal amount of $25 to each of two
principal stockholders, for an aggregate of $50, each an existing secured lender to the Company. The Secured Convertible Notes
have a maturity date of August 31, 2016 and bear interest at the rate of 5.0% per annum, payable at maturity. The outstanding principal
and accrued interest of each Secured Convertible Note is convertible, subject to a 4.99% Beneficial Ownership Cap (as defined in
the Secured Convertible Notes), into shares of the Company’s common stock at an initial conversion price of $5.00 per share
(subject to adjustment), at the option of the respective holders.
The obligations of the Company under the
Secured Convertible Notes are secured by a first priority security interest in all of the property of the Company pursuant to letter
agreements, dated September 3, 2015, with each of Iroquois and Hudson, respectively. The proceeds of the Secured Convertible Notes
will be utilized by the Company to fund its working capital needs.
On September 3, 2015, the Company also
entered into note modification agreements, made as of July 31, 2015, with each of two principal stockholders pursuant to which
the maturity dates of the Prior Notes were extended to August 31, 2016 and the Prior Notes were amended to permit conversion of
the principal and accrued interest due and payable under the Prior Notes into shares of the Company’s common stock in accordance
with the same terms and provisions of the Secured Convertible Notes.
ATRINSIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and
per share data)
The Company has evaluated the period after
the balance sheet date up through the date that the consolidated financial statements were issued, and determined that other than
noted above, there were no subsequent events or transactions that required recognition or disclosure in the consolidated financial
statements.
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES OXLEY ACT OF 2002
I, Edward Gildea, certify that:
1) I have reviewed this Annual Report on
Form 10-K of Atrinsic, Inc.;
2) Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act
Rules 13a-15(e) and 15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this
report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: September 25, 2015 |
By: |
/s/ Edward Gildea |
|
|
Edward Gildea |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES OXLEY ACT OF 2002
I, David Horin, certify that:
1) I have reviewed this Annual Report on
Form 10-K of Atrinsic, Inc.;
2) Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act
Rules 13a-15(e) and 15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this
report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether
or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: September 25, 2015 |
By: |
/s/ David Horin |
|
|
David Horin |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES OXLEY ACT OF 2002
In connection with the
Annual Report of Atrinsic, Inc. (the “Company”) on Form 10-K for the year ended June 30, 2015 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), we, Edward Gildea, Chief Executive Officer, and David Horin,
Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley
Act of 2002 that:
(1) The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this certification
has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or
its staff upon request.
Date: September 25, 2015 |
By: |
/s/ Edward Gildea |
|
|
Edward Gildea |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
Date: September 25, 2015 |
By: |
/s/ David Horin |
|
|
David Horin |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |