News Column

SPRIZA, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 14, 2014

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

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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.

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.

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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 will be 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 brand experience offers if customers win and a video of the winners sharing and consuming the winning brand experience.

We intend to 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 plan to earn upfront fees from the brands for the campaign, online advertising fees and 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.

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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.

Our competitors are in segments such as the following:

º Websites promoting deal of the day gift certificates;

º Large social media networks with deep distribution; and

º 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:

º we contracted a San Francisco consulting firm with development capabilities in the Philippines to develop SPRIZA™. We have completed this project and launched our site on March 18, 2014. This new version includes: contest portal, contest profiles, contest functionality, contest subscriber ability, subscriber portal, subscriber account setup and profiles, user functionality, and sharing capabilities database architecture, with querying, reporting and analytics. During the quarter ended June 30, 2014 we spent $59,032 on this project and have allocated the cost to intellectual property; we are working on: mobile device support, do-it-yourself platform and tools; º we have launched our corporate splash page in preparation of our corporate website which has been completed and is available to the public at www.spriza.com; º we have completed our SPRIZA™ rebranding project including media kit, sales and marketing packages and corporate peripherals; º we entered into a partnership with Digital marketing Philippines to serve the Philippine market with its social sharing contest marketing programs; º we have closed our Apple GoPro promotion, in which the winner was a resident of Calgary, Alberta, who won a MacBook Pro, a GoPro hero3 camera, GoPro accessories and Final Cut Pro editing software. We are currently running the "Get Fameus" Hollywood experience promotion. Upcoming promotions include a Canadian based national insurance company. 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, an electronic security company and an electronic cigarette company; and 10



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º 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. Business strategy Secure Necessary Funds



As at June 30, 2014 we had $109,844 in available cash and $10,000 in restricted cash pursuant to our merchant service agreement. 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 2014 business plan and to make strategic acquisitions.

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 June 30, 2014 and December 31, 2013 and the unaudited statements of operations and cash flows for the three and six months ended June 30, 2014.

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Results of Operations

During the six months ended June 30, 2014 we produced several contests as a proof of concept to showcase the platforms design and functionality to interested advertising parties. We did not receive revenue from these contests but did receive valuable user signups and data in the process. These contests were produced by us and prizes were sponsored by participating vendors.

Going forward we have initiated revenues in July of 2014 and we are building on increasing revenues through the second half of this fiscal year.

Results of Operations for the three months ended June 30, 2014 and 2013

The net loss for Q2-2014 was $359,532 compared to a net loss of $92,525 for Q2-2013 an increase of $267,007. 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 Q2-2014 we incurred $359,532 in operating expenses (Q2-2013 - $88,501). During Q2-2014 operating expenses consisted of: $77,851 (Q2-2013 - $Nil) of stock-based compensation due to the vesting of options granted under our 2013 Incentive Award Plan; $87,917 (Q2-2013 - $40,535) in consulting fees and salaries including $29,419 (Q2-2013 - $20,210) paid to our Chief Executive Officer; $4,683 paid to our Chief Financial Officer (Q2-2013 - $Nil); $22,668 (Q2-2013 - $20,501) in branding and marketing; $5,730 (Q2-2013 - $14,129) in regulatory fees, $84,006 (Q2-2013 - $1,121) in professional fees including legal and accounting fees, $44,959 (Q2-2013 - $4,473) in travel and $15,793 (Q2-2013 - $6,362) in general and administrative expenses. We incurred 20,608 (Q2-2013 - $1,380) in depreciation and amortization of property and equipment and $18,921 in intangible assets (Q2-2013 - $Nil). We expect that operating expenses will increase as we are able to raise capital and further our business operations.

Results of Operations for the six months ended June 30, 2014 and 2013, 1H-2014/2013

The net loss for 1H-2014 was $711,133 compared to a net loss of $126,793 for 1H-2013 an increase of $584,340. 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 1H-2014 we incurred $711,133 in operating expenses (1H-2013 - $122,669). During 1H-2014 operating expenses consisted of: $191,393 (1H-2013 - $Nil) of stock-based compensation due to the vesting of options granted under our 2013 Incentive Award Plan; $172,689 (1H-2013 - $43,541) in consulting fees and salaries including $61,393 (1H-2013 - $90,041) paid to our Chief Executive Officer; $9,171 paid to our Chief Financial Officer (1H-2013 - $Nil); $48,254 (1H-2013 - $27,659) in branding and marketing; $12,112 (1H-2013 - $14,766) in regulatory fees, $157,960 (1H-2013 - $24,077) in professional fees including legal and accounting fees, $65,224 (1H-2013 - $4,473) in travel and $29,489 (1H-2013 - $6,773) in general and administrative expenses. We incurred $34,012 (1H-2013 - $1,380) in depreciation and amortization of property and equipment and $30,638 in intangible assets (1H-2013 - $Nil). We expect that operating expenses will increase as we are able to raise capital and further our business operations.

Liquidity and Capital Resources

As at June 30, 2014, working capital was $111,819. Our available cash on hand was $109,844. During 2014 our available and restricted cash position decreased by $383,695 to $109,844. Accounts receivable at June 30, 2014 was $19,608 compared to $Nil for June 30, 2013. Subsequent to June 30, 2014, and up to August 14, 2014 we have not received any additional funding.

The following table sets forth the major sources and uses of cash for the six months ended June 30, 2014 and 2013:

2014 2013 $ $



Net cash used in operating activities (532,774 ) (123,680 ) Net cash used in investing activities (74,318 ) (59,384 ) Net cash provided by financing activities 223,397 480,000 Net increase (decrease) in cash

(383,695 ) 296,935 12



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Cash Used in Operating Activities

During 1H-2014 operating activities used $532,774 in cash (1H-2013 - $123,680). Use of cash was primarily attributable to funding the net loss of $711,133 (2013 - $126,793) offset by a non-cash charge of $34,012 (1H-2013 - $1,380) for depreciation and amortization and a non-cash charge of $191,393 for stock-based compensation (1H-2013 - $Nil).

Cash Used in Investing Activities

During 1H-2014 we spent $74,318 (2013 - $59,384) in investing activities. During 1H-2014 we spent 4,832 acquiring equipment and $59,486 developing intangible assets (2013 - $3,910 and $55,474, respectively).

Cash from Financing Activities

During 1H-2014 financing activities provided $223,397 (1H-2013 - $480,000) in cash consisting of:

º $182,700 received pursuant to our $0.25 Unit non-brokered private placement; and º $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



Need for Additional Capital

We have $109,844 in unrestricted cash at June 30, 2014 and will require $1,000,000 of additional capital to achieve our 2014 operating plan.

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.


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Source: Edgar Glimpses


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