Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - SPRIZA, INC. | Financial_Report.xls |
| EX-32.1 - CERTIFICATION - SPRIZA, INC. | exhibit32-1.htm |
| EX-31.2 - CERTIFICATION - SPRIZA, INC. | exhibit31-2.htm |
| EX-31.1 - CERTIFICATION - SPRIZA, INC. | exhibit31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2014
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-185669
SPRIZA, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 90-08883246 |
|
(State or other jurisdiction of incorporation of organization) |
(I.R.S. Employer Identification No.) |
|
111 Penn
Street, El Segundo, CA 90245 |
||
| (Address of principal executive offices) |
| 650-204-7903 |
| (Registrant’s telephone number) |
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 [X] NO [ ]
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 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.
| Large Accelerated Filer | [ ] | Accelerated Filer | [ ] | ||
| Non-accelerated Filer | [ ] | 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]
As of November 14, 2014, there were 67,718,934 shares of our common stock issued and outstanding.
1
SPRIZA, INC.
FORM 10-Q
INDEX
2
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements address future events and conditions concerning, among others, capital expenditures, earnings, litigation, regulatory matters, liquidity and capital resources, and accounting matters. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, results of litigation, and other circumstances affecting anticipated revenues and costs, and the risk factors set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 31, 2014.
The forward-looking statements made in this report on Form 10-Q relate only to events or information as of the date on which the statements are made in this report on Form 10-Q. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we anticipate.
Unless otherwise indicated, in this Form 10-Q, references to “we,” “our,” “us,” the “Company,” “Spriza” or the “Registrant” refer to Spriza, Inc., a Nevada corporation.
YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC’s instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2014 are not necessarily indicative of the results that can be expected for the full year.
Spriza, Inc.
Condensed Balance
Sheets
| September 30, 2014 $ |
December 31, 2013 $ |
|||||
| ASSETS | (Unaudited) | |||||
| Current Assets: | ||||||
| Cash | 27,943 | 483,539 | ||||
| Cash – restricted | 10,000 | 10,000 | ||||
| Accounts Receivable | 43,348 | - | ||||
| Total Current Assets | 81,291 | 493,539 | ||||
| Property and equipment, net of accumulated depreciation of $9,332 and $4,271, respectively (Note 4) | 24,409 | 24,638 | ||||
| Other assets | ||||||
| Intangible assets, net of accumulated amortization of $56,345 and $2,236, respectively (Note 4) | 330,591 | 284,132 | ||||
| Deposits | 2,737 | - | ||||
| Total Other Assets | 357,737 | 284,132 | ||||
| Total Assets | 439,028 | 802,309 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current Liabilities: | ||||||
| Accounts payable and accrued liabilities | 35,231 | 42,334 | ||||
| Total Current Liabilities | 35,231 | 42,334 | ||||
| Contingencies (Notes 1 and 3) | ||||||
| Stockholders’ Equity | ||||||
| Preferred Stock, 10,000,000 shares authorized, $0.0001 par value, no shares issued and outstanding | - | - | ||||
| Common Stock, 190,000,000 shares authorized, $0.0001 par value, 65,942,477 and 41,0000,000 issued and outstanding, respectively (Note 6) 67,718,934 and 65,942,477 shares issued and outstanding, respectively | 6,772 | 6,594 | ||||
| Additional Paid in Capital | 1,782,666 | 1,257,720 | ||||
| Accumulated Deficit During the Development Stage | (1,385,641 | ) | (504,339 | ) | ||
| Total Stockholders’ Equity | 403,797 | 759,975 | ||||
| Total Liabilities and Stockholders’ Equity | 439,028 | 802,309 |
(See Notes to Unaudited Condensed Financial Statements)
F-1
Spriza, Inc.
Condensed Statements of Operations
(Unaudited)
| Three Months Ended September 30, 2014 | Three Months Ended September 30, 2013 | Nine Months Ended September 30, 2014 | Nine Months Ended September 30, 2013 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenue | 46,848 | 7,000 | 46,848 | 7,000 | ||||||||
| Expenses | ||||||||||||
| Branding and marketing | 8,063 | - | 56,317 | 27,659 | ||||||||
| Consulting | 46,464 | 18,487 | 144,112 | 40,813 | ||||||||
| Consulting – related party | 18,293 | 32,157 | 93,335 | 53,373 | ||||||||
| Depreciation and amortization | 25,159 | 1,445 | 59,170 | 2,826 | ||||||||
| General and administrative | 24,257 | 3,391 | 65,324 | 10,163 | ||||||||
| Professional fees | 23,420 | 7,202 | 181,380 | 31,279 | ||||||||
| Regulatory fees | 327 | 954 | 12,439 | 15,720 | ||||||||
| Stock based compensation | 60,334 | - | 251,727 | - | ||||||||
| Travel | 10,774 | 6,889 | 64,421 | 11,363 | ||||||||
| Total Operating Expenses | (217,092 | ) | (70,525 | ) | (928,225 | ) | (193,196 | ) | ||||
| Net (Loss) before Other Expense | (170,244 | ) | (63,525 | ) | (881,377 | ) | (186,196 | ) | ||||
|
Other Income (Expense) Interest Income |
74 | - | 74 | - | ||||||||
| Interest expense | - | (4,854 | ) | - | (8,977 | ) | ||||||
| Net (Loss) | (170,170 | ) | (68,379 | ) | (881,303 | ) | (195,173 | ) | ||||
| - | ||||||||||||
| Net (Loss) Per Share – Basic and Diluted | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||
| Weighted Average Shares Outstanding – Basic and Diluted | 67,636,325 | 61,703,000 | 66,766,442 | 49,295,000 |
(See Notes to Unaudited Condensed Financial Statements)
F-2
Spriza, Inc.
Condensed Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended | ||||||
| September 30, 2014 | ||||||
| 2014 | 2013 | |||||
| $ | $ | |||||
| Operating Activities | ||||||
| Net loss | (881,303 | ) | (195,173 | ) | ||
| Adjustments to reconcile net loss to | ||||||
| net cash (used) by operating activities: | ||||||
| Depreciation and amortization | 59,170 | 2,826 | ||||
| Stock-based compensation | 251,727 | - | ||||
| Changes in operating assets and liabilities: | ||||||
| (Increase) in other assets | (2,737 | ) | - | |||
| (Increase) decrease in accounts receivable | (43,348 | ) | - | |||
| (Decrease) increase in accounts payable and accrued expenses | (7,103 | ) | 16,068 | |||
| Net Cash (Used) in Operating Activities | (623,593 | ) | (176,279 | ) | ||
| Investing Activities | ||||||
| Restricted cash | (10,000 | ) | - | |||
| Purchase of equipment | (4,832 | ) | (3,910 | ) | ||
| Additions to intangible assets | (100,568 | ) | (173,470 | ) | ||
| Net Cash (Used) in Investing Activities | (115,400 | ) | (177,380 | ) | ||
| Financing Activities | ||||||
| Short-term loan proceeds | - | 405,000 | ||||
| Repayment of short-term loans | - | (25,000 | ) | |||
| Proceeds from the issuance of common stock | 273,397 | 100,000 | ||||
| Net Cash Provided by Financing Activities | 273,397 | 480,000 | ||||
| (Decrease) Increase in Cash | (465,596 | ) | 126,341 | |||
| Cash - Beginning of Period | 493,539 | 2,440 | ||||
| Cash - End of Period | 27,943 | 128,781 | ||||
| Non-cash Financing and Investing Activities: | ||||||
| Short-term loans and interest settled for shares | - | - | ||||
| Acquisition of assets for common shares | - | - | ||||
| Supplemental Disclosures: | ||||||
| Interest paid | - | - | ||||
| Income taxes paid | - | - | ||||
F-3
Spriza, Inc.
Notes to Condensed Financial
Statements
(Unaudited)
| 1. | Basis of Presentation |
| The condensed interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. |
| These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the period ended December 31, 2013 and notes thereto included in the Company's Form 10-K. The Company follows the same accounting policies in the preparation of interim reports. |
| Results of operations for the interim periods are not indicative of annual results. |
| 2. | Summary of Significant Accounting Policies |
| Use of Estimates |
| The preparation of financial statements in accordance with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly evaluate estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. |
| Revenue Recognition |
| Revenue is recognized in accordance with Accounting Standard Codification (ASC) 605-10 (previously Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition). We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collection is reasonably assured. The revenues are derived from the agreements with the businesses that utilize the online contest platform developed by the Company. |
| Stock-based Compensation |
| We account for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). Stock-based payments to employees include grants of stock, grants of stock options and issuance of warrants that are recognized in the statement of operations based on their fair values at the date of grant. |
F-4
| We account for stock-based payments to non-employees in accordance with ASC 718 and Topic 505-50, “Equity-Based Payments to Non-Employees.” Stock-based payments to non-employees include grants of stock, grants of stock options and issuances of warrants that are recognized in the consolidated statement of operations based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date. |
| We calculate the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. We estimate forfeiture rates for all unvested awards when calculating the expense for the period. In estimating the forfeiture rate, we monitor both stock option and warrant exercises as well as employee termination patterns. |
| The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight-line basis over the requisite service period of the award. |
| Recent Pronouncements |
| We continually assess any new accounting pronouncements to determine their applicability to us. Where it is determined that a new accounting pronouncement affects our financial reporting, we undertake a study to determine the consequence of the change to our financial statements and assure that there are proper controls in place to ascertain that our financial statements properly reflect the change. |
| On June 10, 2014, the FASB published Accounting Standards Update No. 2014-10 “ASU No. 2014-10”, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. ASU No. 2014-10 removes the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principal operations. ASU No. 2014-10 will be applied retrospectively and will be effective for public business entities in interim and annual periods beginning after December 15, 2014. The requirements will be effective for nonpublic business entities for annual periods beginning after December 15, 2014, and interim and annual periods thereafter. However, both public and nonpublic entities will have additional time to adopt the amendments to ASC 810. Early adoption is permitted in all cases. We have applied ASU No. 2014-10 retrospectively by eliminating the inception to date column in our statements of operations and cash flows. |
| 3. | Going Concern |
| The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have begun operations but have not generated significant revenue to date. These conditions give rise to doubt about our ability to continue as a going concern. These financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to obtain additional financing and to generate profits and positive cash flow. We will require a cash injection of $1,000,000 over the next twelve months to continue to grow our business. F-5 |
F-5
| 4. | Property and Equipment and Intangible Assets |
| On October 17, 2012, we entered into an Asset Purchase Agreement with Raptify Marketing Systems Ltd. (“Raptify”), whereby we acquired certain assets from Raptify in exchange for 5,000,000 shares of our common stock, 3,000,000 shares of which were received by Raptify and 2,000,000 shares of which were received by certain other stakeholders of Raptify. The fair value of the assets acquired was $25,000 which was allocated to identifiable assets as follows: intellectual property $1 and computer systems, $24,999. |
| On May 15, 2013 we contracted a San Francisco consulting firm with technology development capabilities in the Philippines to complete the redevelopment of our technology platform. On December 1, 2013 we completed SPRIZA™ and on March 18, 2014 unveiled it to the public with real-time contests being run. SPRIZA™ includes: subscriber portal, mobile device support, do-it-yourself platform and tools allowing us to develop a database of concurrent customers and users. During the nine months ended September 30, 2014 we spent $101,107 on completion of this project and have allocated the cost to intellectual property. |
| 5. | Common Stock |
| During the third quarter of 2014 the Company issued 100,000 common shares for proceeds of $50,000 from a non-brokered private placement. |
| 6. | Warrants |
| As at September 30, 2014 we had 3,308,634 common share purchase warrants outstanding having an average exercise price of $0.30 per common share and having an average expiration date of 2.86 years. |
| 7. | Stock-based Compensation |
| On October 29, 2013, we granted 4,550,000 stock options to directors, officers and employees to acquire 4,550,000 common shares at $0.15 per share having an option life of five years. A total of 25% vested on April 30, 2014, with a further 25% vesting on each of October 31, 2014, April 30, 2015 and October 31, 2015. During Q3-2014 we recorded stock-based compensation of $60,334 (Q3-2013 - $nil). |
| The following table summarizes the continuity of our stock options: |
|
Number of Options |
Weighted Average Exercise Price |
Weighted-Average Remaining Contractual Term (years) |
Aggregate Intrinsic Value |
||
| $ | $ | ||||
| Outstanding, December 31, 2013 | 4,550,000 | 0.15 | |||
| Granted | - | - | |||
| Outstanding, September 30, 2014 | 4,550,000 | 0.15 | 4.34 | 2,684,500 | |
| Exercisable, September 30, 2014 | 2,275,000 | 0.15 | - | - |
| A summary of the changes of the Company’s non-vested stock options is presented below: |
F-6
|
Number of Options |
Weighted Average Grant Date Fair Value |
||
| $ | |||
| Non-vested at December 31, 2013 | 3,412,500 | 0.10 | |
| Granted | - | - | |
| Vested | 1,137,500 | - | |
| Non-vested at September 30, 2014 | 2,275,000 | 0.10 |
| As at September 30, 2014, there was $112,227 of unrecognized compensation cost related to non-vested stock options expected to be recognized over a weighted average period of 1.25 years. |
| 8. | Related Party Transactions |
| The President and Chief Executive Officer of the Company was paid a total of $18,320 during the three months ended September 30, 2014 and $79,713 during the nine months ended September 30, 2014, (2013 -Q3 - $32,157 and $53,373 for the nine month period). The Chief Financial Officer of the Company was paid a total of $4,451 during Q3 - 2014 and $13,622 for the nine months ended September 30, 2014, (2013 -$Nil). |
| 9. | Subsequent Events |
| We have evaluated all subsequent events through the date these financial statements were issued and determined that there are no subsequent events to record or to disclose. |
F-7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
On September 17, 2012 we were incorporated as Level20 Inc. in the State of Nevada. On October 25, 2013 we changed our name to Spriza, Inc.
On October 17, 2012, we entered into an Asset Purchase Agreement with Raptify Marketing Systems Ltd. (“Raptify”), whereby we acquired certain assets from Raptify in exchange for 5,000,000 shares of our common stock, 3,000,000 shares of which were received by Raptify and 2,000,000 shares of which were received by certain other stakeholders of Raptify.
Our principal executive offices are located at 111 Penn Street, El Segundo, CA 90245, and our telephone number at this address is (650) 204-7903. Our website is www.spriza.com. Information contained on our website is not a part of this Quarterly Report on Form 10-Q. We completed our initial public offering on June 12, 2013. On November 4, 2013, our common stock was quoted under the symbol “SPRZ” on the OTC BB operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”).
Our Business and Intellectual Property
We own and operate the patent-pending proprietary SPRIZA™ contest marketing platform. We filed the US Patents, filing No. 12753864 and submitted the Canadian filings, No. 2261/P1551CA00. We acquired these assets through an Asset Purchase Agreement and we currently hold patent pending status for both jurisdictions.
Trademarks pertaining to SPRIZA™ and its Star Icon logo as well as our tagline “Win, Laugh, Live” have been applied for in the United States and Canada. Currently all trademarks listed above are in a pending status.
Our intellectual property is a fully developed, commercially operational incentive contest marketing system and platform that builds brand awareness and generates qualified targeted leads for any size of business through a patent-pending online contest marketing solution trademarked as “SPRIZA™”. SPRIZA™ taps into the power of shared interests and personal relationships within targeted markets producing traceable and quantifiable results at every stage of the contest. It provides deep, real-time analytics and reporting, through robust tools that measure marketing and advertising budgets for real time return on investment analysis and demographic profiling. SPRIZA™ leverages social media strategies based on business objectives enabling our clients “Branders” to measure results of marketing efforts. The result is a network of subscribers that participate in contest promotions centered around their personal and shared interests. SPRIZA™ produces quantifiable and verifiable participant data results, which can be used for ongoing marketing purposes with targeted demographics. SPRIZA™ data results assess how many consumers responded, whom they shared the contest with, the level of engagement, how many other contest participants were influenced and sales value generated. SPRIZA™ is designed to work with most social media engines including Facebook, Twitter and Pinterest and offers full mobile capability to engage popular mobile applications including iPhone, Android, Blackberry and Windows mobile operating systems.
We seek patent protection for those inventions and technologies for which we believe such protection is suitable and is likely to provide a competitive advantage to us. Because patent applications in the United States are maintained in secrecy until either the patent application is published or a patent is issued, we may not be aware of third-party patents, patent applications and other intellectual property relevant to our products that may block our use of our intellectual property or may be used in third-party products that compete with our products and processes. In the event a competitor or other party successfully challenges our products, processes, patents or licenses or claims that we have infringed upon their intellectual property, we could incur substantial litigation costs defending against such claims, be required to pay royalties, license fees or other damages or be barred from using the intellectual property at issue, any of which could have a material adverse effect on our business, operating results and financial condition.
We also rely substantially on trade secrets, proprietary technology, nondisclosure and other contractual agreements, and technical measures to protect our technology, application, design, and manufacturing know-how, and work actively to foster continuing technological innovation to maintain and protect our competitive position. We cannot assure you that steps taken by us to protect our intellectual property and other contractual agreements for our business will be adequate, that our competitors will not independently develop or patent substantially equivalent or superior technologies or be able to design around patents that we may receive, or that our intellectual property will not be misappropriated.
4
Spriza.com – Contest Portal
Delivery and distribution to the consumer of all contest offerings will be based upon user profile by location, interests and other preferences. Our web site www.spriza.com aggregates all contests, while segmenting distribution based upon the means of client submission and their branding strategy to specifically determine which offerings are available nationally and regionally. Post marketing opportunities will occur within this platform to drive affiliate revenue and secondary sales.
Small/Medium Business Contest Creation Tool
We offer a low cost entry platform targeting small to mid-sized businesses wishing to promote themselves through self-directed contests on a local or regional level. This portal offers a comprehensive toolkit and tutorials to initiate, register and administer a fully-compliant contest or sweepstake, providing basic templates and customization options to uniquely brand their efforts and monitor their results using fundamental reporting tools. This option may not require or include any third-party party intervention but does provide limited access to support and assistance through our administration team.
Advertising Agency Contest Creation Tool
Our enterprise solution is a backend system providing every available tool and customization option to those agencies and marketing firms wishing to offer our products to their corporate clients in a closed loop campaign as a standalone offering or as integration to existing programs and marketing efforts. This option is expected to provide full support and assistance to the agency behind the scenes. We anticipate that utilities and reporting tools will be comprehensive and customizable, allowing for white-labeling to their own client base. We expect that this solution will be best suited to major national brands rolling out a complete North American campaign.
International Licensing & Site Mirrors
For international expansion we anticipate that international licensed affiliates wishing to duplicate our offerings in foreign countries will have the opportunity to acquire exclusive licensing through our international release of mirror programs, enabling them to tailor a solution to their local market’s culture, currency, language and compliance to legal requirements. We have finalized our international licensing model and we are currently identifying licensees for international expansion in Asia, Europe and South America.
Sales and Marketing
Our SPRIZA™ technology is designed to integrate seamlessly within existing social media platforms. We expect to grow our revenues through multiple streams including contest revenue, lead generation, ecommerce conversion and ongoing marketing initiatives.
Traditional marketing efforts to promote contests or corporate promotional giveaways have included direct mail, newspaper, radio, television and some have included online efforts but they have generally not successfully leveraged the viral nature of social media such as Facebook or Twitter. Our patent-pending solution rewards a company with a competition advantage based on its ability to drive viral distribution and participation towards sales and lead generation. There are other online contesting companies such as Strutta and WildfireApp that are more focused on driving interest to social pages. This brand engagement dies at the closing of that promotional offer and usually only incentivizes a limited amount of the participants.
Our patent-pending method of contest distribution uses incentive based, viral marketing where participants are rewarded for sharing the contest with like-minded family, friends and associates. Participants’ odds improve the more people they invite as do their chances of sharing in that winning experience with that chain of winners. This incentive based marketing creates a new and proprietary way for brands to attract and identify customers, brand influencers and ambassadors to sell goods and services.
The contest subscriber website is www.spriza.com where users are able to create an account, set personal preferences, link to their social media profiles and consume, share and engage in branded contests throughout North America. This site has three main sections: open contests they are participating in, closed contests they previously participated in and current and available contests that can be searched or screen based on personal preferences. Within each section individuals will be served promotional materials, deals, and advertising relevant to that brand and personal preference. Each section will likely contain short videos on the brand experience, to explain what the
5
brand experience offers if customers win and a video of the winners sharing and consuming the winning brand experience.
We email our www.Spriza.com subscribers contest offers that are
targeted by location and personal preferences. Consumers can also access our
contests directly through our website and mobile applications. We expect that
new subscribers will be driven to Spriza™ through all digital advertising
efforts such as paid, search, social, mobile, location, email and, where
essential, traditional methods. All contests will initially be seeded
throughout our database of subscribers but also promoted through our client’s
social media assets and client lists thus driving up our total subscribers.
A typical contest might offer an all-inclusive weekend at a brand name hotel in Las Vegas and a set of brand name golf clubs. Contests would immediately be pushed out and shared by golf lovers and enthusiasts from one personal contact to another. The advantage of our SPRIZA™ platform is that each contestant in the winning referral chain is a winner and in this example goes on the trip and all share the experience together. We anticipate that this experience will be documented and distributed through social media to all the contestants that participated as a further means of advertising for our clients. We believe that seeing winning participants consume the incentive adds further validation and credibility to our SPRIZA™ platform and capabilities and allows our clients to further leverage their media assets. We earn upfront fees from the brands for the campaign, online advertising fees and on some contests we can also earn additional affiliate revenue by promoting “after-campaign” deals and incentives to this group throughout the year.
Regardless if we are running a contest for a national brand throughout North America or a local merchant within a single city, they all must strictly adhere to the rules, regulatory and compliance specified by the government and governing bodies in each jurisdiction. Age, eligibility, terms and conditions, bonding, insurance and many other finite details are part of our core competencies and our commitment when delivering campaigns to our clients. We anticipate SPRIZA™ evolving to include a campaign creation toolbox that allows for dynamic contest creation, where an agency, brand manager or our employee can map out a campaign quickly with proper terms conditions, contracts, approval sign off and a compliance checklist.
Competition
The digital and mobile technology business is highly fragmented and extremely competitive and subject to rapid change. The market for customers is intensely competitive and such competition is expected to continue to increase. We believe that our ability to compete depends upon many factors within and beyond our control, including the timing and market acceptance of new solutions and enhancements to existing businesses developed by us, our competitors, and their advisers. SPRIZA™ is an online contest platform that utilizes digital media and technology to distribute and feature local and national branded promotional campaigns. Many consumers maintain simultaneous relationships with multiple digital brands and products and can easily shift consumption from one provider to another.
Our SPRIZA™ contest platform is both promotional “Promotional Platform” and social “Social Platform”.
Our principal competitors, when comparing “Promotional Platforms” are: Wildfire by Google, Strutta, Prizelogic, HelloWorld (formerly ePrize), and Prizeo. Our SPRIZA™ contest platform differs, in most part, from these competitors by seamlessly integrating our promotion platform and the social experience into a channel that can provide both the brand/cause experience to drive engagement and link that activity directly to online and offline commerce. Through our SPRIZA™ platform, we build a referral network of like-minded consumers who actively participate with the brands they love and it allows us to retarget and entertain our subscribers based on their specific preferences and activity.
Our principal competitors, when comparing “Social Platforms” are: Pinterest, Twitter, Facebook, WhatsApp and Groupon. Our SPRIZA™ contest platform differs, in most part, from these competitors by establishing a unique referral network that has the means to engage, reward, remarket and incentivize its user base to foster new connections and ongoing commerce activity.
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Our competitors are in segments such as the following:
- Websites promoting deal of the day gift certificates;
- Large social media networks with deep distribution; and
- Innovative search websites with local and national advertisers.
In addition, new competitors may be able to launch new businesses at relatively low cost. In addition, either existing or new competitors may develop new technologies, and our existing and potential customers may shift their mass branding campaigns to these new technologies. Therefore, we cannot assure you that we will be able to successfully implement our business strategy in the face of such competition.
Business goals and milestones
We have completed or advanced, over the past few months, the following business goals and milestones:
- We have made several improvements to the current version of the platform including a new contest portal, contest profiles, contest functionality, contest modules, subscriber portal, subscriber account setup and profiles, user functionality, Group Sharing, Spriza rewards tracking, aggregate contest functionality, database architecture, with querying, reporting and analytics.
- We continue to develop the mobile device support, do-it-yourself platform and tools. Our corporate page is located at www.spriza.com; we have completed our SPRIZA trademark for the US and have started the trademark process throughout Canada.
- Recently Closed Contests - Apple Go-Pro promotion. - Get Fameus Hollywood Experience - "Ultimate Stampede Experience", MembersCanada.com (Cash & Condo), Moms Awesome (cheeseanything.com).
- During this quarter we launched Rock and Roll Fantasy Camp Canada in partnership with Mantaray Creative & World Wide Music Ventures. Gene Simmons is the featured RockStar at the event. We have also launched many large brands through our aggregate platform. Brands include the UFC, NFL and Sandals Resort. We now have the ability to serve contests from all over the world. Also this quarter we have signed a Statement of Work with Double Down Interactive LLC in conjunction with The Hard Rock Resort.
- Current contests: T-Link Golf Experience, Rock n Roll Fantasy Camp, and the upcoming Double Down Interactive contest.
- We are completing discussions with a large Philippines based advertising agency that represents industry Leading brands such as Disney, GM, American Express, Adidas & Maserati to name a few.
- Since last quarter we have been in discussions with several mobile gaming companies in the US. These discussions continue to evolve.
- We are engaged in ongoing sales activity with clients that include a team in the National Hockey League, a film and television production studio, a 3D printing company and an electronic security company. We are in the final stages of completing a North American wide marketing campaign, which will focus on driving the participation of prospective Fortune 500 companies and large corporate sponsorship to the contest platform.
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Business strategy
Secure Necessary Funds
As at September 30, 2014 we had $27,943 in available cash and $10,000 in restricted cash pursuant to our merchant service agreement. We also have $43,348 in accounts receivable as at September 30, 2014. We will require $1,000,000 of additional funds during the remainder of fiscal 2014 to continue to aggressively grow our business and execute our 2015 business plan and to make strategic acquisitions. During the three month period ended September 30, 2014 the Company conducted a private placement and received $50,000 by issuing 100,000 common shares to two accredited investors.
Drive client growth and revenue through contest campaigns
To drive client growth, we plan to expand the number of ways in which subscribers can discover contests through our marketplace. As revenue is recognized we plan to continue to make investments in our sales force and partnership networks to further client relationships and acquire local expertise. Retention will be focused on providing our clients with a positive campaign experience and offering targeted placement of their contest campaigns to our subscribers, tools to manage these campaigns more effectively and superior customer service. Current efforts are focused on developing a sponsorship campaign that is centered on the 18-25 year old demographic offering four year college tuitions as the contest incentive. We are also in negotiations with Fortune 500 companies to run online contests. The sponsorship fees associated with a contest driven advertising campaign of this size is estimated at $1.5 million with 70% of this amount to be campaign costs, and 30% would be our profit. Additionally, securing contracts directly with brands and established advertising agencies will be necessary to achieve desired growth. We are establishing the go-to-market strategy and digital marketing initiatives essential to engage with prospective clients to secure contracts and achieve this milestone.
Drive the growth of our subscriber base
We plan to invest significant effort to acquire subscribers through online marketing initiatives. Our goal will be to retain existing and acquire new subscribers by providing preference driven and targeted contests, quality subscriber service and expanding the number of contest offerings through both local and national brands. Activity has commenced on the development and release of our digital marketing strategy to encourage subscriber sign up and generate brand participation.
Expand affiliate and business development partnerships
We intend to establish an online reseller network of commissioned agents and strategic partners. We hope to sign partnership agreements with online companies such as Google, Microsoft, Yahoo! and Facebook. These intended partners could display, promote and distribute our contests to their users in exchange for a share of the revenue generated from our campaigns. We currently have no such agreements or arrangements with Google, Microsoft, Yahoo! or Facebook. We intend to maintain ongoing efforts to expand our business with strategic affiliates and business development partnerships.
Increase our product offering through innovation
We intend to develop new versions and product releases to increase the number of subscribers and clients that transact business through our SPRIZA™ online contest marketing platform. We believe our network of subscribers will be a focal point for companies to promote their brands and showcase all of their contests. Expansion from an online presence into all mobile, tablet and operating systems is an essential step in our development.
Establish our presence in the marketplace as the leading Online Contesting Platform
All efforts will be made to firmly establish us as the leader in the delivery, fulfillment and distribution of brand driven online contests to a subscriber base. In addition to the traditional and digital marketing efforts it is not uncommon for these efforts to be supported by viral sharing and word of mouth marketing that is prevalent with many online subscriber based communities. This behavior is often encouraged through referral or loyalty incentives.
The discussion that follows is derived from our unaudited balance sheets as of September 30, 2014 and December 31, 2013 and the unaudited statements of operations and cash flows for the three and nine months ended September 30, 2014 and December 31, 2013.
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Results of Operations
During the nine months ended September 30, 2014 we produced several contests as a proof of concept to showcase the platform’s design and functionality to interested advertising parties. We generated $46,848 in revenues during the third quarter of which $43,348 is booked to accounts receivable. We were also focused on proving our platform and received valuable user signups and data in the process. These contests were produced by us and prizes were sponsored and paid for by the participating vendors.
One notable client has initiated a contest hosted and branded by Spriza in October of 2014; Mantaray Creative and World Wide Music Ventures are producing the first Ultimate Rock n Roll Fantasy Camp Contest in Canada.
Results of Operations for the three months ended September 30, 2014 and 2013
The net loss for the third quarter of 2014 was $170,170 compared to a net loss of $68,379 for Q3-2013 an increase of $101,791. This increase was due to the development and growth of the Company in the current fiscal year as compared to incurring only professional fees to organize our Company and obtain a public listing in 2013.
In Q3-2014 we incurred $217,092 in operating expenses (Q3-2013 - $70,525). During Q3-2014 operating expenses consisted of: $60,334 (Q3-2013 - $Nil) of stock-based compensation due to the vesting of options granted under our 2013 Incentive Award Plan; $64,757 (Q3-2013 - $50,644) in consulting fees and salaries including $18,320 (Q3-2013 - $32,157) paid to our Chief Executive Officer; $4,451 paid to our Chief Financial Officer (Q3-2013 - $Nil); $8,063 (Q3-2013 - $Nil) in branding and marketing; $327 (Q3-2013 - $954) in regulatory fees, $23,420 (Q3-2013 - $7,202) in professional fees including legal and accounting fees, $10,774 (Q3-2013 - $6,889) in travel and $24,257 (Q3-2013 - $3,391) in general and administrative expenses. We incurred 25,159 (Q3-2013 - $1,445) in depreciation and amortization of property and equipment and $11,248 in intangible assets (Q3-2013 - $Nil). We expect that our administrative and operating expenses will continue to increase as we further our business operations.
Results of Operations for the nine months ended September 30, 2014 and 2013, 9 Month-2014/2013
The net loss for the nine months ended September 30, 2014 was $881,303 compared to a net loss of $195,173 for 9 Month-2013 an increase of $686,130. This increase was due to the development and growth of the Company over the comparative twelve months as 2013 was an organizational year incurring only professional fees to organize our Company and obtain a public listing in 2013.
In 9 Month-2014 we incurred a net loss of $881,303 (9 Month-2013 - $195,173). During 9 Month-2014 total operating expenses consisted of: $928,225 (9 Month-2013 - $193,196), $251,727 (9 Month-2013 - $Nil) of stock-based compensation due to the vesting of options granted under our 2013 Incentive Award Plan; $237,447 (9 Month-2013 - $94,186) in consulting fees and salaries including $79,713 (9 Month-2013 - $53,373) paid to our Chief Executive Officer; $13,622 paid to our Chief Financial Officer (9 Month-2013 - $Nil); $56,317 (9 Month-2013 - $27,659) in branding and marketing; $12,439 (9 Month-2013 - $15,720) in regulatory fees, $181,380 (9 Month-2013 - $31,279) in professional fees including legal and accounting fees, $64,421 (9 Month-2013 - $11,363) in travel and $65,324 (9 Month-2013 - $10,163) in general and administrative expenses. We incurred $59,170 (9 Month-2013 - $2,826) in depreciation and amortization of property and equipment and $101,107 in intangible assets (9 Month-2013 - $Nil). We expect that operating expenses will continue to increase as we expand our business operations.
Liquidity and Capital Resources
As at September 30, 2014, working capital was $46,060. Our available cash on hand was $27,943. During 2014 our available and restricted cash position decreased by $465,596 to $37,943. Accounts receivable at September 30, 2014 was $43,348 compared to $Nil for September 30, 2013. We will require $1,000,000 of additional funds during the remainder of fiscal 2014 to continue to aggressively grow our business and execute our 2015 business plan and to make strategic acquisitions.
The following table sets forth the major sources and uses of cash for the nine months ended September 30, 2014 and 2013:
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|
2014 $ |
2013 $ |
|||||
| Net cash used in operating activities | (623,593 | ) | (176,279 | ) | ||
| Net cash used in investing activities | (115,400 | ) | (177,380 | ) | ||
| Net cash provided by financing activities | 273,397 | 480,000 | ||||
| Net increase (decrease) in cash | (465,596 | ) | 126,341 |
Cash Used in Operating Activities
During 9 Month-2014 operating activities used $623,593 in cash (9 Month-2013 - $176,279). Use of cash was primarily attributable to funding the net loss of $881,303 (9 Month-2013 - $195,173) offset by a non-cash charge of $59,170 (9 Month-2013 - $2,826) for depreciation and amortization and a non-cash charge of $251,727 for stock-based compensation (9 Month-2013 - $Nil).
Cash Used in Investing Activities
During 9 Month-2014 we spent $115,400 (2013 - $177,380) in investing activities. During 9 Month-2014 we spent $4,832 acquiring equipment and $100,568 developing intangible assets (2013 - $3,910 and $173,470, respectively).
Cash from Financing Activities
During 9 Month-2014 financing activities provided $273,397 (9 Month-2013 - $480,000) in cash consisting of:
- $182,700 received pursuant to our $0.25 Unit non-brokered private placement; and
- $40,697 of which $36,820 was
received from the exercise of 135,657 warrants at $0.30 per
warrant share, with a balance due of $3,877 - $50,000 received pursuant to our $0.50 Unit non-brokered private placement.
Need for Additional Capital
We have $27,943 in unrestricted cash at September 30, 2014 and we will require $1,000,000 of additional funds during the remainder of fiscal 2014 to continue to aggressively grow our business and execute our 2015 business plan and to make strategic acquisitions.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We do not believe that any accounting policies applicable to our company currently fit this definition.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
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Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2014. This evaluation 7was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2014, our disclosure controls and procedures were not effective due to the presence of material weaknesses in our internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of September 30, 2014, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Remediation Plan to Address the Material Weaknesses in Internal Control over Financial ReportingLimitations on the Effectiveness of Controls: Our Board of Directors and management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. Controls, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Further, we believe that the design of prudent controls must reflect appropriate resource constraints, such that the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all controls, there can be no absolute assurance that all control issues and instances of fraud, if any, applicable to us have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some individuals, by collusion of more than one person, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Evaluation: An evaluation was performed under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. Based upon that evaluation, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, concluded that, at September 30, 2014, the Company’s disclosure controls and procedures were effective at the reasonable assurance level in ensuring that information required to be disclosed in Company reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We plan to take steps to enhance and improve the design of our internal control over financial reporting. Additionally we plan to continually adopt sufficient written policies and procedures for accounting and financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 2014 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A. Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine month period ended September 30, 2014 financing activities provided $273,397 (9 Month-2013 - $480,000) in cash consisting of:
- $182,700 received pursuant to our $0.25 Unit non-brokered private placement; and
- $40,697 of which $36,820 was
received from the exercise of 135,657 warrants at $0.30 per warrant
share, with a balance due of $3,877 - $50,000 received pursuant to our $0.50 Unit non-brokered private placement.
These funds were used for general working capital.
Item 3.
Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
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Item 6. Exhibits
| Exhibit No. | Description of Exhibit |
| 2.1 | Asset Purchase Agreement dated October 17, 2012 (1) |
| 3.1 | Articles of Incorporation (2) |
| 3.2 | Certificate of Amendment to Articles of Incorporation (3) |
| 3.3 | Bylaws (2) |
| 10.1 | 2013 Incentive Award Plan (4) |
| 31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)* |
| 31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)* |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350** |
| 101 .INS | XBRL Instance Document* |
| 101 .SCH | XBRL Taxonomy Extension Schema Document* |
| 101 .CAL | XBRL Taxonomy Calculation Linkbase Document* |
| 101 .DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
| 101 .LAB | XBRL Taxonomy Label Linkbase Document* |
| 101 .PRE | XBRL Taxonomy Presentation Linkbase Document* |
| 1. | Incorporated herein by reference to the Registration Statement on Form S-1/A filed on February 14, 2013. |
| 2. | Incorporated herein by reference to the Registration Statement on Form S-1 filed on December 24, 2012. |
| 3. | Incorporated herein by reference to the Current Report on Form 8-K filed on October 29, 2013. |
| 4. | Incorporated herein by reference to the Annual Report on Form 10-K filed on March 31, 2014. |
* Filed herewith
**Furnished herewith
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SIGNATURES
Pursuant to the requirements 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.
| Spriza, Inc. | |
| Date: | November 14, 2014 |
| By: | /s/ Rob Danard |
| Rob Danard | |
| Title: | Chief Executive Officer and Director |
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