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4-Traders Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  RightsCorp Inc    RIHT

RIGHTSCORP INC (RIHT)
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RIGHTSCORP : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (form 10-Q)

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11/14/2017 | 10:21pm CET

The following discussion and analysis of the results of operations and financial condition of Rightscorp, Inc. (the "Company", "we", "us" or "our") should be read in conjunction with the financial statements of Rightscorp, Inc., and the notes to those financial statements that are included elsewhere in this Form 10-Q. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Business sections in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on April 14, 2017. Words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions are used to identify forward-looking statements.



Overview


Our company was organized under the laws of the State of Nevada on April 9, 2010, and our fiscal year end is December 31. Our company is the parent company of Rightscorp, Inc. a Delaware corporation formed on January 20, 2011 ("Rightscorp Delaware"). The acquisition of Rightscorp Delaware was treated as a reverse acquisition, and the business of Rightscorp Delaware became the business of our company.

We have developed products and intellectual property relating to providing data and analytics regarding copyright infringement via the Internet. We provide services and data to help protect the rights of holders of copyrighted digital creative works. The Company has a patent-pending, proprietary method for gathering and analyzing infringement data and for reducing copyright infringement and collecting damages from infringers by notifying illegal downloaders via notifications sent to their Internet Service Providers. The Company has closed more than 230,000 cases of copyright infringement to date.



Recent Developments



None.


Three months ended September 30, 2017 compared to three months ended September 30, 2016




Revenue



We generated copyright settlement revenues of $45,848 during the three months ended September 30, 2017, a decrease of $93,986 or 67% as compared to $139,834 for the three months ended September 30, 2016.

During the three months ended September 30, 2017, we generated revenues of $76,666 from consulting services rendered under service arrangements with prominent trade organizations. Under the agreements, the Company is providing certain data and consultation regarding copyright infringements on such organizations' respective properties. During the three months ended September 30, 2016, we had no consulting services revenue.







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Operating Expenses



Copyright Holder Fees


In return for the right to pursue copyright infringers, we pay the copyright holders a percentage of the revenue we collect, in accordance with our representation agreements with our clients entered into prior to our notices being sent to infringers. For the three months ended September 30, 2017 we accrued $22,924 due to copyright holders. For the three months ended September 30, 2016 we accrued $69,143 to copyright holders.



Sales and Marketing


Sales and marketing expenses consist primarily of advertising and marketing and consulting expenses. Sales and marketing costs were $1,357 for the three months ended September 30, 2017 compared to $337 for the three months ended September 30, 2016, an increase of $1,020.



General and administrative


General and administrative expenses consist primarily of salaries and related expenses for our management and personnel, and professional fees, such as accounting, consulting and legal. Total wage and related expenses for the three months ended September 30, 2017 were $337,355, of which $114,797 were non-cash charges related to the issuance and vesting of common stock, options and warrants issued for services. Total increase in general and administrative expenses was $174,163 over the three months ended September 30, 2016. Our total general and administrative expenses for the three months ended September 30, 2017 were $561,028.

Depreciation and Amortization

Depreciation and amortization expenses were $16,284 during the three months ended September 30, 2017, a decrease of $6,053, as compared to $22,337 for the three months ended September 30, 2016.



Interest


Interest expense totaled $779 during the three months ended September 30, 2017, compared to $17,789 in the three months ended September 30, 2016.

Change in fair value of Derivative

We had a change in the fair value of derivative liabilities income of $99,381 during the three months ended September 30, 2017, compared to $(28,796) for the three months ended September 30, 2016.







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Net loss


As a result of the foregoing, during the three months ended September 30, 2017, we recorded a net loss of $380,477 compared to net loss of $385,433 for the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016




Revenue



We generated copyright settlement revenues of $184,362 during the nine months ended September 30, 2017, a decrease of $169,798 or 48% as compared to $354,160 for the nine months ended September 30, 2016.

During the nine months ended September 30, 2017, we generated revenues of $224,998 from consulting services rendered under service arrangements with prominent trade organizations. Under the agreements, the Company is providing certain data and consultation regarding copyright infringements on such organizations' respective properties. During the nine months ended September 30, 2016, we had no consulting services revenue.



Operating Expenses



Copyright Holder Fees


In return for the right to pursue copyright infringers, we pay the copyright holders a percentage of the revenue we collect, in accordance with our representation agreements with our clients entered into prior to our notices being sent to infringers. For the nine months ended September 30, 2017 we accrued $92,181 due to copyright holders. For the nine months ended September 30, 2016 we accrued $174,878 to copyright holders.



Sales and Marketing


Sales and marketing expenses consist primarily of advertising and marketing and consulting expenses. Sales and marketing costs were $2,704 for the nine months ended September 30, 2017 compared to $2,371 for the nine months ended September 30, 2016, an increase of $333.



General and administrative


General and administrative expenses consist primarily of salaries and related expenses for our management and personnel, and professional fees, such as accounting, consulting and legal. Total wage and related expenses for the nine months ended September 30, 2017 were $1,136,462, of which $549,767 were non-cash charges related to the issuance and vesting of common stock, options and warrants issued for services. Total decrease in general and administrative expenses was $188,258 over the nine months ended September 30, 2016. Our total general and administrative expenses for the nine months ended September 30, 2017 were $1,751,724.

Depreciation and Amortization

Depreciation and amortization expenses were $51,111 during the nine months ended September 30, 2017, a decrease of $16,532, as compared to $67,643 for the nine months ended September 30, 2016.



Interest


Interest expense totaled $1,863 during the nine months ended September 30, 2017, compared to $17,789 in the nine months ended September 30, 2016.

Change in fair value of Derivative

We had a change in the fair value of derivative liabilities expense of $41,324 during the nine months ended September 30, 2017, compared to income of $467,805 for the nine months ended September 30, 2016.



Net loss


As a result of the foregoing, during the nine months ended September 30, 2017, we recorded a net loss of $1,448,899 compared to net loss of $1,380,698 for the nine months ended September 30, 2016.









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Liquidity and Capital Resources

During the nine months ended September 30, 2017, the Company incurred a net loss of $1,448,899, used cash in operating activities of $435,400, and at September 30, 2017, the Company had a stockholders' deficit of $2,399,702. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. In addition, the Company's independent registered public accounting firm, in its report on the Company's December 31, 2016 financial statements, has raised substantial doubt about the Company's ability to continue as a going concern.

At September 30, 2017, the Company had cash of $3,147. On October 10, 2017, the Company issued an aggregate of 2,500,000 shares of common stock to an investor for a purchase price of $50,000. Management believes that the Company will need an additional $250,000 to $500,000 in 2017 to fund operations based on our current operating plans. Management's plans to continue as a going concern include raising additional capital through borrowings and/or the sale of common stock. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stock holders, in case of an equity financing.



Operating Activities


During the nine months ended September 30, 2017, we used $435,400 of cash in operating activities. Non-cash adjustments included $51,111 related to depreciation and amortization, $442,685 related to shares issued for services, $213,582 for stock compensation expense, $41,324 related change in fair value of derivative liabilities, and net changes in operating assets and liabilities of $307,446.

During the nine months ended September 30, 2016, we used $802,161 of cash in operating activities. Non-cash adjustments included $67,643 related to depreciation and amortization, $429,255 related to shares issued for services, $16,691 related to warrants issued for note payable, $467,805 related to gain on derivative liabilities, and net changes in operating assets and liabilities of $523,754.




Financing Activities



During the nine months ended September 30, 2017, we received $433,500 in proceeds from issuance of common stock and exercise of warrants for cash.

During the nine months ended September 30, 2016, we received $615,800 in proceeds from issuance of common stock, notes payable and exercise of warrants for cash.

Critical Accounting Policies and Estimates

The Company prepared its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's condensed consolidated financial statements.



Revenue



Copyright settlement revenue



The Company provides a service to copyright owners under which copyright owners retain the Company to identify and collect settlement payments from Internet users who have infringed on their copyrights. Revenue is recognized when the Company collects a fee from an infringer which acts as a settlement of the infringement liability. Generally, the Company has agreed to remit 50% of such collections to the copyright holder. The Company also provides services to copyright holders. Service fee revenue is recognized when the service has been provided.









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Consulting revenue



Revenue is recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured.



Stock-Based Compensation


The Company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option and stock warrant grants to employees based on the authoritative guidance provided by the Financial Accounting Standards Board where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and stock warrant grants to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option or warrant grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

The fair value of the Company's common stock option and warrant grants is estimated using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company uses a probability weighted average Black-Scholes-Merton model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Recent Accounting Pronouncements

See Footnote 1 of the condensed consolidated financial statements for a discussion of recently issued accounting standards.

© Edgar Online, source Glimpses

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Managers
NameTitle
Cecil Bond Kyte Chairman, Chief Executive & Financial Officer
Christopher Sabec President & Director
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