Reading through the below, where did the money go from the securities they sold but did not register? Did they just blow it all, and these shares were then dumped on the market? So many unknowns.
Third Quarter 2011 Financial Results
Revenues for the third quarter of 2011 increased 34% to $12.3 million compared to $9.2 million in the same period last year. Subscription revenue decreased from $4.3 million to $2.5 million compared to the third quarter of 2010. Subscription revenue is primarily generated from the Company’s core Kazaa digital music subscription service. The decrease in subscription revenue was due to a reduction in total subscribers compared to the year-ago period, with most of the decrease coming from our non-Kazaa subscription products, reflecting our primary focus on Kazaa and the reduction or the de-emphasis of our non-core legacy subscription products.
Transactional Services revenue increased $4.9 million to $9.8 million from $4.9 million for the third quarter of 2011 compared to the third quarter of 2010. The increase in transactional revenue was primarily related to a sales volume improvement from existing clients in SEM (Search Engine Marketing) as well the acquisition of new clients. In addition, SEO (Search Engine Optimization) revenue increased 80% from third quarter of 2010. Transactional services also benefited from the addition of both large retail and lead generation advertisers to the Atrinsic Affiliate Network. The Company does not anticipate similar growth it its Transactional Services business in the fourth quarter of 2011.
As of September 30, 2011, the Company had approximately 55,000 Kazaa subscribers compared to approximately 65,000 as of September 30, 2010 and 77,000 at December 31, 2010. The Company expects to experience a modest decline in this subscriber base over the next several months as we reposition and introduce new marketing activities.
Operating expenses for the third quarter of 2011 increased 35% to $17.3 million compared to $12.8 million for the same period last year. The increase is primarily attributable to an increase in the cost of third party media which resulted from increased Transactional Services activity. The Company is also reporting a non-cash impairment of intangibles assets charge of $1.4 million which is due to the significant decline in the non-Kazaa subscription business. General, administrative, and other operating expenses decreased 27%. The decrease in G&A is a result of the Company’s efforts to streamline and eliminate certain activities and to better position the business for long-term growth.
Third quarter Adjusted EBITDA was a loss of ($3.3) million compared to a loss of ($3.1) million for the third quarter of 2010. The Company reported a net loss for the third quarter of ($4.5) million, or a net loss of ($0.72) per diluted share compared to a net loss of ($3.6) million, or ($0.70) loss per diluted share for the third quarter of 2010. Excluding the previously mentioned non-cash impairment charge in the third quarter of 2011, the Company would have reported a net loss of ($3.1) million, or a net loss of ($0.49) per diluted share.
Balance Sheet/Cash Flow Highlights
As of September 30, 2011, the Company had $2.0 million of cash and cash equivalents compared to $6.3 million as of December 31, 2010. The Company spent $0.9 million on capitalized application and software development for Kazaa and Atrinsic Interactive year-to-date. In May 2011 the Company issued $5.8 million of 12-month original issue discount convertible notes with warrants, at conversion or strike prices between $2.90 and $2.97, subject to adjustment under certain conditions. The offering generated proceeds before financing costs and adjustments of $5.3 million. As of September 30, 2011, the Company had a $9.8 million working capital deficit.
In order to fund operations, the Company intends to make an offering of securities not registered under the Securities Act of 1933, as amended (the “Securities Act”). The securities to be offered will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. At this time, the title, amount and basic terms of the securities to be offered and the amount and timing of the offering are not known, but the Company anticipates that the terms of the offering may be substantially similar to the financing transaction the Company completed in May 2011, as reported in the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission on June 1, 2011 and October 27, 2011. The proceeds of the offering will be used for general working capital purposes, including to fund Atrinsic’s Kazaa digital music subscription business. The Company intends for this notice to comply with Rule 135(c) of the general rules and regulations promulgated under the Securities Act, and accordingly, this notice is not intended to and does not constitute an offer to sell nor a solicitation for an offer to purchase any securities of the Company.
