Protagenic Therapeutics Inc. (PTIX)

[Wakinyan_Pale_Raptor]

Atrinsic & BD splitting net Profit from Kasaa.

http://www.otcbb.com/asp/Info_Center.asp

From page #9 of last 10-Q

Also in accordance with the original Marketing Service Agreement and Master Service Agreement, Atrinsic and Brilliant Digital were to share equally in the “Net Profit” generated by the Kazaa music subscription service after all of the Company’s costs and expenses have been recouped. For the nine months ended September 30, 2011 and 2010, the Company has included in its statement of operations, Kazaa revenue of $7.1 million, net of deferred revenue, and Kazaa revenue of $8.4 million, respectively, and expenses incurred for the Kazaa music service of $12.7 million and $11.5 million, respectively, net of reimbursements from Brilliant Digital. Kazaa revenue and expenses are recorded as part of subscription services segment.




Effective January, 2011, in order to more accurately report revenue based upon the effective date of customer subscriptions, the Company began recognizing subscription revenue related to the Kazaa business, net of deferred revenue.




On October 13, 2010, Atrinsic entered into amendments to its existing Marketing Services Agreement and Master Services Agreement with Brilliant Digital and entered into an agreement with Brilliant Digital to acquire all of the assets of Brilliant Digital that relate to its Kazaa subscription based music service business.




Among other things, the amendments extend the term of each of the Marketing Services Agreement and Master Services Agreement from three years to thirty years, provide Atrinsic with an exclusive license to the Kazaa trademark in connection with Atrinsic’s services under the agreements, and modify the Kazaa digital music service profit share payable to Atrinsic under the agreements from 50% to 80%. In addition, the amendments remove Brilliant Digital’s obligation to repay up to $2.5 million of Atrinsic’s advances and expenditures which are not otherwise recovered from Kazaa generated revenues and remove the $5.0 million cap on expenditures that Atrinsic was required to advance in relation to the operation of the Kazaa business. As consideration for entering into the amendments, Atrinsic issued 1,040,358 unregistered shares of its common stock to Brilliant Digital on October 13, 2010. The issuance of these shares resulted in the Company recording an intangible asset of $1.4 million which is being amortized over 10 years.




The amendments to the Marketing Services Agreement and Master Services Agreement are part of a broader transaction between Atrinsic and Brilliant Digital pursuant to which Atrinsic will acquire all of the assets of Brilliant Digital that relate to its Kazaa digital music service business in accordance with the terms of an asset purchase agreement entered into between the parties. The purchase price for the acquired assets includes the issuance by Atrinsic of an additional 1,781,416 shares of its common stock at the closing of the transactions contemplated by the asset purchase agreement as well as the assumption of certain liabilities related to the Kazaa business. The closing of the transactions contemplated by the asset purchase agreement will occur when all of the assets associated with the Kazaa business, including the Kazaa trademark and associated intellectual property, as well as Brilliant Digital’s content management, delivery and customer service platforms and licenses with third parties, have been transferred to Atrinsic. The closing of the transactions contemplated by the asset purchase agreement is subject to receipt of all necessary third party consents as well as other customary closing conditions. At the closing of the transactions contemplated by the asset purchase agreement, Atrinsic has agreed to appoint two individuals to be selected by Brilliant Digital to serve on Atrinsic’s Board of Directors. In addition, at the closing, each of the Marketing Services Agreement and Master Services Agreement will terminate.


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