Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal quarter ended December 31, 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.)

 

149 Fifth Avenue, Suite 500, New York, New York 10010
(Address of Principal Executive Office) (Zip Code)

(213) 260-4342

Registrant’s Telephone Number Including Area Code

 

 

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		¨  (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

As of February 22, 2016, there were 400,000,000 outstanding shares of the registrant’s common stock.

 

 

 

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Table of Contents

ATRINSIC INC.

Form 10-Q Report

For the Fiscal Quarter Ended December 31, 2015

TABLE OF CONTENTS

 

		Page
Part I. Financial Information
Item 1 Financial Statements:			2
Condensed Consolidated Balance Sheets at December 31, 2015 (unaudited) and June 30, 2015			2
Condensed Consolidated Statements of Operations for the Three-month and Six-month Ended December 31, 2015 and 2014 (unaudited)			3
Condensed Consolidated Statements of Cash Flows for Six-month Ended December 31, 2015 and 2014 (unaudited)			4
Notes to Condensed Consolidated Financial Statements (unaudited)			5
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3 Quantitative and Qualitative Disclosures About Market Risk			12
Item 4 Controls and Procedures			12
Part II. Other Information
Item 6 Exhibits			13
Signatures			14

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Part I. Financial Information

Item 1. Financial Statements

ATRINSIC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except share data)

 

		December 31,				June 30,
		2015				2015
		(Unaudited)
ASSETS
Current assets
Cash		$	4			$	62
Prepaid expenses			21				70
Total current assets			25				132
Property and equipment (net of accumulated depreciation)			1				1
Total assets		$	26			$	133
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued expenses		$	192			$	168
Accrued interest expense—stockholders			35				21
Short-term convertible notes payable—due to stockholders			665				—
Total current liabilities			892				189
Long-term notes payable—due to stockholders			—				515
Total liabilities			892				704
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 December 31, 2015 and June 30, 2015; (Liquidation preference 20,700,000 as of December 31, 2015)			5				5
Common stock, $.000001 par value, 100,000,000,000 shares authorized, 400,000,000 shares issued and outstanding at December 31, 2015 and June 30, 2015			—				—
Additional paid-in capital			1,053				1,053
Accumulated deficit			(1,844	)			(1,555	)
Shareholders’ deficit attributed to Atrinsic, Inc.			(786	)			(497	)
Non-controlling interest			(80	)			(74	)
Total shareholders’ deficit			(866	)			(571	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT		$	26			$	133

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ATRINSIC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share and per share data)

 

		Three Months Ended December 31,								Six Months Ended December 31,
		2015				2014				2015				2014
Operating expenses
General and administrative		$	151			$	137			$	281			$	256
Total operating expenses			151				137				281				256
Loss from operations			(151	)			(137	)			(281	)			(256	)
Other income (expenses)
Other income			—				2				1				4
Interest expense—stockholders			(8	)			(4	)			(15	)			(6	)
Total other expenses			(8	)			(2	)			(14	)			(2	)
Net loss			(159	)			(139	)			(295	)			(258	)
Less: net loss attributable to non-controlling interest			(1	)			(6	)			(6	)			(13	)
Net loss attributable to Atrinsic		$	(158	)		$	(133	)		$	(289	)		$	(245	)
Net loss per share attributable to Atrinsic common shareholders
Basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding:
Basic and diluted			400,000,000				400,000,000				400,000,000				400,000,000

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

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ATRINSIC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

		Six Months Ended December 31,
		2015				2014
Cash flows from operating activities
Net loss attributable to Atrinsic		$	(289	)		$	(245	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss attributable to non-controlling interest in subsidiary			(6	)			(13	)
Accrued interest on convertible notes payable			14				7
Changes in operating assets and liabilities of business, net of acquisitions:
Prepaid expenses			49				34
Accounts payable and accrued expenses			24				26
Net cash used in operating activities			(208	)			(191	)
Cash flows from financing activities
Proceeds from issuance of convertible notes payable due to stockholders			150				240
Net cash provided by financing activities			150				240
Net (decrease) increase in cash			(58	)			49
Cash at beginning of period			62				101
Cash at end of period		$	4			$	150

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ATRINSIC, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

NOTE 1—NATURE OF OPERATIONS

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. Momspot is currently the Company’s business operations. The Company’s principle activities are conducted through Momspot.

Since the fourth quarter of the 2015 fiscal year, Momspot’s development plans has been suspended pending receipt of incremental funding. On February 12, 2016, the Company sold its 51% interest of Momspot to the remaining 49% interest holder through a split off agreement.

Also on February 12, 2016, the Company entered into a Merger and completed a financing and at which time the Company entered into the field of neurologic drug development. This transaction is treated as a recapitalization of the Company (‘reverse business combination’) and is further described in detail in Note 7.

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 December 31, 2015, the Company had cash of approximately $4, a working capital deficit of approximately $867 including $665 of notes payable to stockholders due August 2016, and a total shareholders’ deficit of $866. During the six months ended December 31, 2015, the Company used approximately $208 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 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 its two principal stockholders, for an aggregate of $50, each an existing secured lender to the Company. On October 30, 2015, the Company issued a new Secured Convertible Notes in the principal amount of $25 to each of its two principal stockholders, for an aggregate of $50, each an existing secured lender to the Company.

On December 9, 2015, the Company issued a new Secured Convertible Notes in the principal amount of $25 to each of its 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 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, with its two principal stockholders. The proceeds of the Secured Convertible Notes were utilized by the Company to fund its working capital needs (See Note 5).

 

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ATRINSIC, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company are unaudited and do not include all of the information and disclosures generally required for annual financial statements. In the opinion of management, the statements contain all material adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s condensed consolidated financial position as of December 31, 2015, and the condensed consolidated results of its operations for the three-month and six-month periods ended December 31, 2015 and 2014, and cash flows for the six-month periods ended December 31, 2015 and 2014. This report should be read in conjunction with the Company’s Annual Report on Form 10-K, filed with Securities and Exchange Commission on September 25, 2015, which contains the complete information and disclosure for the year ended June 30, 2015. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.

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 condensed consolidated financial statements include the accounts of all majority and wholly-owned (“Momspot”) subsidiaries and significant intercompany balances and transactions have been eliminated.

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.

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 or if-converted method.

Potential dilutive securities for the Company include outstanding convertible preferred shares, stock options and convertible debts.

Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at December 31, 2015 and December 31, 2014, because such securities are anti-dilutive, are as follows:

 

		As of December 31,
		2015				2014
Convertible preferred shares			4,600,000,000				4,600,000,000
Options to purchase common stock			275,000,000				275,000,000
Convertible notes			140,098				—
Total			4,875,140,098				4,875,000,000

 

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ATRINSIC, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Recent Accounting Pronouncements

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments”. The update requires that the acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined (not retrospectively as with prior guidance). Additionally, the acquirer must record in the same period’s financial statements the effect on earnings of changes in depreciation, amortization or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the time of acquisition. The acquiring entity is required to disclose, on the face of the financial statements or in the footnotes to the financial statements, the portion of the amount recorded in current period earnings, by financial statement line item, that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance in ASU No. 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Earlier application is permitted for financial statements that have not been issued. The Company has not yet determined the effect of the adoption of this standard and it is expected to have a material impact on the Company’s consolidated financial position and results of operations.

The FASB, the Emerging Issues Task Force and the SEC have issued certain accounting standards updates and regulations as of December 31, 2015 that will become effective in subsequent periods. However, management does not believe that any of those updates would have significantly affected our financial accounting measures or disclosures had they been in effect during 2015 and 2014 and it does not believe that any of these pronouncements will have a significant impact on the condensed consolidated financial statements at the time they become effective.

NOTE 4—STOCKHOLDERS’ EQUITY

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.

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 December 31, 2015, the weighted average exercise price of all stock options outstanding was $0.002, the remaining contractual life was 3.1 years and there was no intrinsic value.

 

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ATRINSIC, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

NOTE 4—STOCKHOLDERS’ EQUITY (Continued)

 

Series B Preferred Stock

On February 2, 2016, the Company authorized 18 million shares of Series B Preferred Stock with a par value of $0.000001. On February 3, 2016, the Company filed a Certificate of Designation with the Delaware Secretary of State pursuant to which the Company set forth the designation, powers, rights, privileges, preferences and restrictions of the Series B Preferred Stock.

Each share of Series B Preferred stock will immediately and automatically convert into one share of common stock upon the Company amending its certificate of incorporation to effect a 15,463.7183 to 1 reverse stock split of its common stock. Prior to the Reverse Stock Split, the Series B Preferred Stock votes together with the Company’s common stock as a single class, with each share of Series B Preferred Stock having a vote that equals to that of 15,463.7183 shares of common stock. After the Reverse Stock Split, any Series B Preferred Stock which remains outstanding as a result of the beneficial ownership limit will vote together with the common stock as a single class, with each share of Series B Preferred Stock having a number of votes equal to one share of common stock on a post-Reverse Stock Split basis. In the event of any liquidation, dissolution or winding up of the Company, the assets available for distribution to the Company’s stockholders will be distributed among the holders of the Series B Preferred Stock and the holders of the common stock, pro rata, on an as-converted-to- common stock post-Reverse Stock Split basis. The holders of the Series B Preferred Stock are entitled to dividends in the event that the Company pays cash or other dividends in property to holders the outstanding shares of the common stock, which dividends would be made pro rata, on an as-converted-to-common stock post-Reverse Stock Split basis. (See Note 6)

NOTE 5—CONVERTIBLE NOTES PAYABLE DUE TO STOCKHOLDERS

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.

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.

On September 3, 2015, the Company issued secured convertible promissory notes (the “Secured Convertible Notes”) in the principal amount of $25 to each of its two principal stockholders, for an aggregate of $50, each an existing secured lender to the Company. On October 30, 2015, the Company issued a new Secured Convertible Notes in the principal amount of $25 to each of its two principal stockholders, for an aggregate of $50, each an existing secured lender to the Company.

On December 9, 2015, the Company issued a new Secured Convertible Notes in the principal amount of $25 to each of its two principal stockholders, for an aggregate of $50, each an existing secured lender to the Company.

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, with its two principal stockholders. The proceeds of the Secured Convertible Notes will be utilized by the Company to fund its working capital needs.

On December 9, 2015, all the notes were amended to bear no interest and have a maturity date of March 1, 2016. As part of this agreement, if the Company completes a private placement of its Series B Preferred Stock prior to the maturity thereof, each lender has agreed to convert or assign all principal sums under the Amended Convertible Notes to be used as a purchase price in the Private Placement.

 

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ATRINSIC, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

NOTE 5—CONVERTIBLE NOTES PAYABLE DUE TO STOCKHOLDERS (Continued)

 

		Amount Due
Outstanding as of June 30, 2015		$	515
Issued			150
Outstanding as of December 31, 2015		$	665

During the three months ended December 31, 2015 and 2014, interest expense amounted to approximately $8 and $4, respectively. During the six months ended December 31, 2015 and 2014, interest expense amounted to approximately $15 and $6, respectively. Accrued interest as of December 31, 2015 and June 30, 2015 was approximately $35 and $21, respectively.

Subsequent to December 31, 2015, the holders of the above notes totaling $665,000 exchanged this debt for five-year warrants to purchase 295,945 shares of Series B Preferred Stock at $1.25 per share (see note 7).

On February 11, 2016, the Company issued convertible promissory notes in the principal amounts of $57 to the same lenders in the Amended Convertible Notes (for an aggregate amount of $114). The February Convertible Notes have a maturity date of March 1, 2016, bear no interest and have the same conversion terms as the December 9, 2015 Convertible Notes.

NOTE 6 – OTHER MATTERS

New York Workers’ Compensation Claim

The Company received a notice from the New York State Workers’ Compensation Board that a judgment in the amount of $62 has been filed against the Company for the failure to carry workers’ compensation insurance for the period from July 6, 2011 to May 10, 2012. As of December 31, 2015, the Company has accrued $62 which is included in accounts payable and accrued expenses in the condensed consolidated balance sheets.

IRS Claim

The Company has received from the Internal Revenue Service a notice that it owes approximately $31 in penalties and interest for failure to file its Form 5471 for our tax years ended December 31, 2011, December 31, 2012 and June 30, 2014. As of December 31, 2015, the Company has accrued $31 which is included in accounts payable and accrued expenses in the condensed consolidated balance sheets.

NOTE 7—SUBSEQUENT EVENTS

The Merger

On February 12, 2016, the Company, Protagenic Therapeutics, Inc. (“Protagenic”), and the Company’s newly-formed subsidiary Protagenic Acquisition Corp. (Acquisition Corp.) entered into a Merger Agreement and completed the Merger. Before their entry into the Merger Agreement, no material relationship existed between the Company (or its Acquisition Corp. subsidiary) and Protagenic.

Pursuant to the Merger Agreement, Protagenic Acquisition Corp., a wholly-owned subsidiary of the Company, merged with and into Protagenic Therapeutics, Inc., with Protagenic Therapeutics, Inc. remaining as the surviving entity. The Company acquired the business of Protagenic Therapeutics, Inc. pursuant to the Merger and will continue the existing business operations of Protagenic Therapeutics, Inc. as a wholly-owned subsidiary.

Simultaneously with the Merger, on February 12, 2016, all of the issued and outstanding shares of Protagenic common stock converted, on a 1 for 1 basis, into shares of the Company’s Series B Preferred Stock, par value $0.000001 per share (assuming no exercise of dissenters’ rights by any former Protagenic stockholder). Also on the Closing Date, all of the issued and outstanding options to purchase shares of Protagenic common stock, and all of the issued and outstanding warrants to purchase shares of Protagenic common stock, converted, on a 1 for 1 basis, into options (the “New Options”) and new warrants (the “New Warrants”) respectively, to purchase shares of the Company’s Series B Preferred Stock. The New Options will be administered under Protagenic’s 2006 Employee, Director and Consultant Stock Plan (the “2006 Plan”), which the Company assumed and adopted on the Closing Date in connection with the Merger.

 

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ATRINSIC, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

NOTE 7—SUBSEQUENT EVENTS (Continued)

 

The Merger (Continued)

On the Closing Date, (i) the former Protagenic common stock was exchanged for the right to receive 6,612,838 shares of Series B Preferred Stock (assuming no exercise of dissenters’ rights by any former Protagenic stockholder); (ii) New Options to purchase 1,707,744 shares of Series B Preferred granted under the 2006 Plan, having an average exercise price of approximately $0.66 per share, were issued to optionees pursuant to the assumption of the 2006 Plan; (iii) the holders of options to purchase the Company’s common stock were issued options (“Predecessor Options”) to purchase 17,784 shares of Series B Preferred Stock at $1.25 per share; (iv) New Warrants to purchase 3,403,367 shares of Series B Preferred Stock at an average exercise price of approximately $1.01 per share were issued to holders of Protagenic warrants; and (iv) 2,775,000 shares of Series B Preferred Stock were issued to investors at a purchase price of $1.25 per share in the Private Offering, as defined below.

Upon the effectiveness of the Merger, the holders of the Predecessor’s Series A Preferred Stock exchanged all of the issued and outstanding Series A Preferred Stock for an aggregate of 297,468 shares of Series B Preferred Stock (which would become 297,468 shares of Common Stock upon the effectiveness of the Reverse Split).

In addition, warrants (“Predecessor Warrants”) to purchase 295,945 shares of Series B Preferred Stock at $1.25 per share were issued to Strategic Bio Partners, LLC, the designee (the “Designee”) of the holders of the Predecessor’s debt in consideration of the cancellation of such debt, and Placement Agent Warrants, to purchase 295,945 shares of Series B Preferred shares.

On February 12, 2016, immediately after the closing of the Merger, the Company split off all of its equity interest in 29 wholly-owned subsidiaries. The split-off was accomplished through the sale of all equity interests in these wholly-owned subsidiaries to Quintel Holdings, Inc.

The Private Offering

At the time of the Merger, a private placement offering closed, whereby 2,775,000 shares of Series B Preferred Stock were sold at a purchase price of $1.25 per share, for the gross consideration of $3,468.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Historical Background

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 $165,000 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. 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.

On February 12, 2016, the Company entered into a merger and completed a financing that fundamentally changed the nature of its business, entering the field of neurologic drug development. This transaction is described in detail in Note 7 below, and greater detail in the Form 8-K flied with the SEC on that date.

Results of Operations

Three months ended December 31, 2015 compared to the three months ended December 31, 2014 (dollars in thousands)

During the three months ended December 31, 2015, we incurred a loss from operations of approximately $151 as compared to $137 for three months ended December 31, 2014. The increase in loss from operations can be primarily attributed to an increase of $18 in professional expenses related to accounting, legal and other consulting expenses. During the three months ended December 31, 2015, we recorded approximately $1 of net loss attributable to non-controlling interest as compared to $6 for the same period in 2014.

Six months ended December 31, 2015 compared to the six months ended December 31, 2014 (dollars in thousands)

During the six months ended December 31, 2015, we incurred a loss from operations of approximately $281 as compared to $256 for six months ended December 31, 2014. The increase in loss from operations can be primarily attributed to an increase of $31 in professional expenses related to accounting, legal and other consulting expenses. During the six months ended December 31, 2015, we recorded approximately $6 of net loss attributable to non-controlling interest as compared to $13 for six months ended December 31, 2014.

Liquidity and Going Concern (dollars in thousands)

We continually project anticipated cash requirements, which may include business combinations, capital expenditures, and working capital requirements. As of December 31, 2015, we had cash of approximately $4 and working capital deficiency of approximately $867.

Our existing liquidity is not sufficient to fund our operations, anticipated capital expenditures and working capital for the foreseeable future. Absent generation of sufficient revenue from the execution of our business plan, we will need to obtain additional debt or equity financing.

 

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Operating activities used $208 and $191 in cash for the six months ended December 31, 2015 and 2014, respectively. The sources of cash from operating activities during the six months ended December 31, 2015, primarily comprised of $289 net loss, a $24 increase of accounts payable and accrued expenses, which included payments to tax penalties, legal and accounting professionals, payments to consultants, and other administrative expenses, and a $49 decrease of prepaid insurance expenses.

We do not have investing activities for the six months ended December 31, 2015 and 2014.

Our financing activities provided cash of $150 for the six months ended December 31, 2015. On September 3, 2015, we raised gross proceeds, in a debt financing transaction, of $50 from our two principal stockholders, and issued secured convertible promissory notes in the principal amount of $25 to each of them. On October 30, 2015, we raised gross proceeds, in a debt financing transaction, of $50 from our two principal stockholders, and issued secured convertible promissory notes in the principal amount of $25 to each of them. On December 9, 2015, we raised gross proceeds, in a debt financing transaction, of $50 from our two principal stockholders, and issued secured convertible promissory notes in the principal amount of $25 to each of them. The notes are secured by all of our assets.

Our financial statements for the six months ended December 31, 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 operating and capital expenditures. If the capital raising efforts are not successful, we might not be able to continue as a going concern.

Item 3. 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 4. 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 December 31, 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 Quarterly Report on Form 10-Q, 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 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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the quarter covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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Part II. Other Information

Item 6. Exhibits

 

Exhibits		Description
4.1		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 Master Fund Ltd. (“Iroquois”) (1)
4.2		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 Bay Master Fund Ltd.(“Hudson”) (1)
10.1		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 (1)
10.2		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 (1)
10.3		Note Modification Agreement, made as of July 31, 2015, between the Company and Iroquois (1)
10.4		Note Modification Agreement, made as of July 31, 2015, between the Company and Hudson (1)
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 herewith.

(*)	- Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.

(1)	- Filed on September 9, 2015 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.

 

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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.

 

				ATRINSIC, INC.
Date: March 11, 2016				By:		/s/ Garo H. Armen
				Name: Garo H. Armen, PhD
				Title: Executive Chairman
				(Principal Executive Officer)
Date: March 11, 2016				By:		/s/ Alexander K. Arrow
				Name: Alexander K. Arrow, MD, CFA
				Title: Chief Financial Officer
				(Principal Financial Officer)

 

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