# Intelligent Protection Management Corp.: Form 10-Q for the period ended Jun 30, 2010 - Company: [Intelligent Protection Management Corp.](/companies/ipm.md) (CIK 1355839) - Form: 10-Q - Filed: 2010-08-16 - Accepted by EDGAR: Aug 16, 2010, 10:29 ET - Period: 2010-06-30 - Accession: 0001213900-10-003243 - Inline XBRL: no - Main document: https://www.sec.gov/Archives/edgar/data/1355839/000121390010003243/f10q0610_snap.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1355839/000121390010003243/ ## Management's discussion and analysis As filed, 21,853 characters. ### Overview We were incorporated under the laws of the State of Delaware on July 19, 2005. Clifford Lerner is our sole officer and director, as well as our controlling stockholder. We currently have fifteen other employees. On December 30, 2005, we obtained all of the shares of eTwine, Inc. a New York Corporation incorporated in May 2004, pursuant to a Stock Purchase Agreement and Share Exchange between eTwine, Inc. and us in consideration for the issuance of 24,681,000 shares to the eTwine, Inc. shareholders. Clifford Lerner remained our sole officer and director after the agreement and pursuant to the agreement eTwine, Inc. became our wholly owned subsidiary. Now we own and operate dating applications on social networking websites as well as an online dating website. The purpose of this merger was to create a holding company in the event we decide to acquire other entities in this industry in the future. In addition, the purpose was for the public entity to be a Delaware corporation which has provisions of its laws that are more favorable to our shareholders than New York laws. We launched an online dating website called IamFreeTonight.com in November 2006 offering several unique features for singles including Group Dating & Dating by Schedule. In 2007 we began building dating applications on Facebook Platform. As a result of our initial traffic growth with these applications we shifted our business model away from IamFreeTonight.com, which is no longer active, and towards building dating applications on social networking platforms. In June 2007 we launched our first application on Facebook called Meet New People. Meet New People, which was significantly upgraded in December 2007, allows users to flirt with each other by messaging online and post when they are free to hang out. Meet New People has in excess of 4 Million installations. In August 2007 we launched our second application on Facebook.com called Are You Interested. Since its launch, Are You Interested has consistently been one of the leading pure-dating applications on Facebook as defined by most Daily Active Users and most Monthly Active Users. Are You Interested allows users to view pictures of other members and indicate if they are “interested” in them by clicking “yes” on the picture. We notify members when there is a mutual match. Users are also able to send messages and exchange virtual gifts on the application. Are You Interested has in excess of 15 Million installations on Facebook. In December 2007 we changed our name from eTwine Holdings, Inc. to Snap Interactive, Inc. to reflect the company’s shifting focus toward producing dating applications for Social Networking websites. At that time our stock ticker symbol also change from ETWI to STVI. In March 2008 we launched two applications on MySpace Developer Platform: Are You Interested and a new brand called Flirt With Me. Flirt With Me is a dating application that allows users to send funny flirts to each other as well as exchange virtual gifts and messages. In April 2008 we launched two applications on Hi5 Developer Platform: Are You Interested and Flirt With Me. We subsequently launched Are You Interested and Flirt With Me on Bebo Developer Platform. In March 2009 ‘Are You Interested?’ was launched on the iPhone – representing our first mobile dating application. On May 4, 2009 we announced the beta-launch of AreYouInterested.com, our new stand-alone online dating website. AreYouInterested.com represents an expanded version of our Are You Interested Facebook application and incorporates a Facebook Connect integration. On June 10, 2009 we incorporated SNAP Mobile Limited, a United Kingdom Corporation as a wholly-owned subsidiary. In the fourth quarter of 2009 we completed our transition from an advertising model to a subscription-based model for revenue generation on our Are You Interested application on Facebook as well as on AreYouInterested.com. Collectively we have approximately ten applications across four social networking platforms (Facebook, MySpace, Hi5, & Bebo) along with the Are You Interested iPhone mobile application platform for mobile dating and AreYouInterested.com, a stand-alone online dating website. Our three primary application brands are Are You Interested, Meet New People, & Flirt With Me. As of June 30, 2010 we have in excess of 20 Million total installations of our applications. ### Our Products ARE YOU INTERESTED: Are You Interested was launched on Facebook Platform (R) in August 2007. Since its launch, Are You Interested has consistently been one of the leading pure-dating applications on Facebook as defined by Most Daily Active Users and Most Monthly Active Users, as well as Total Users. Are You Interested allows users to view pictures of other members and indicate if they are “interested” by clicking “yes” on the picture. We notify members when there is a mutual match. Users are also able to exchange messages and virtual gifts on the application. In March 2008 we launched Are You Interested on MySpace, in April 2008 we launched Are You Interested on Hi5 and later in 2008 we launched Are You Interested on Bebo. Are You Interested now has in excess of 15 Million total installs on Facebook. On March 18, 2009 we launched Are You Interested on the iPhone. This application represents our first mobile dating application. Are You Interested is now available for download on iTunes as well as in the iPhone Apps Store. On May 4, 2009 we announced the beta-launch of AreYouInterested.com, our new stand-alone online dating website. AreYouInterested.com represents an expanded version of our Are You Interested Facebook application and incorporates a Facebook Connect integration. In the fourth quarter of 2009 we completed our transition from an advertising model to a subscription-based model for revenue generation on our Are You Interested application on Facebook as well as on AreYouInterested.com. MEET NEW PEOPLE: Meet New People was launched on Facebook Platform (R) in June 2007 and substantially revamped in December 2007. Meet New People allows users to flirt with each other by messaging online and post when they are free to hang out. Meet New People has in excess of 4 Million total installs and is also one of the largest pure dating applications on Facebook by total installs. FLIRT WITH ME: Flirt With Me was launched on MySpace in March 2008, on Hi5 in April 2008, and recently on Bebo. Flirt With Me is a fun dating application that allows users to exchange flirts with each other and also integrates a "Flirt With Me" profile box onto a user's profiles to allow anyone who visits their profile the ability to send funny flirt messages. As of June 30, 2010, Flirt With Me had approximately 1 Million total installs. In the coming months we will continue to enhance our current applications and products as well as consider building additional dating application on Facebook and other large social networking platforms. ### How We Generate Revenue In the fourth quarter of 2009 we implemented a subscription-based pay model into our Are You Interested application on Facebook in order to generate additional revenue. By December 2009 the subscription fees received became our primary source of revenue. We are currently working on inserting subscription-based models into several of our other products. The timing of implementing a subscription model is dependent upon a number of factors including, but not limited to, our available resources to allocate to the project, our payment processing capabilities, as well as the evaluation of our corporate objectives in weighing the relative benefits of prioritizing revenue versus growth. We recognize revenue from monthly premium subscription fees in the month in which the services are used. Revenues are presented net of refunds, credits and known credit card chargebacks. Our subscriptions are currently offered in durations of varying length from one month to six months – generally in one, three, and six month terms. Long-term plans with durations longer than one month are generally available at discounted monthly rates. Revenues from these long-term plans are recognized pro-rata over the subscription term. Pursuant to our terms of service, most subscriptions renew automatically for subsequent periods of the same length until subscribers terminate them. We recognize revenue from the direct sale of "points" over two months. Points can be used in exchange for certain premium features on our products. Determining whether and when some of the criteria for spending points have been satisfied often involves assumptions and management judgments that can have an impact on the timing and amount of revenue we report in each period. At this time we believe that our assessment is fair and we will continue to monitor these activities in order to determine if there are significant changes in usage patterns. We currently offer several payment options and are pursuing relationships with multiple payment processors in order to diversify our risk and reliance on a single payment processor, ensure competitive rates, and offer our users as many payment options as possible. We will continue to research and explore additional opportunities in this area. ### Our Business Objectives - Continue to upgrade our existing applications and products and continue development on new projects - Promotion and expansion of our various products including our social networking applications, our iPhone application, and our AreYouInterested.com online dating website. - Consider building new applications on social networking platforms and further development and exploration of mobile platforms and products. - Considering launching additional applications and websites that expand beyond online dating based upon our identification of industries and markets that we believe represent profitable opportunities. - Continue to focus on building out our premium subscription service, marketing tools, and virtual goods platform in order to continue growing our subscription model on Are You Interested. - Identify & explore new opportunities that emerge in our rapidly evolving industry ### Results of Operations for the Quarter ended June 30, 2010 Compared to the Quarter ended June 30, 2009 ### Revenues Revenue increased from $784,242 for the three months ended June 30, 2009 to $ 1,243,082 for the three months ended June 30, 2010, an increase of $458,840. Revenues increased from $1,553,214 for the six months ended June 30, 2009 to $2,170,518 for the six months ended June 30, 2010, an increase of $617,303. These revenues are primarily generated from subscription fees for subscriptions to Are You Interested as well as access to premium features on our products. The increase in revenue for the three months ended June 30, 2010 was primarily due to the implementation of subscriptions on our Are You Interested brand which took place in late 2009. ### Cost of Revenue Cost of revenue increased from $298,857 for the three months ended June 30, 2009 to $383,662 for the three months ended June 30, 2010, an increase of $84,805. Cost of revenue increased from $606,897 for the six months ended June 30, 2009 to $758, 877 for the six months ended June 30, 2010, an increase of $151,980. The increase in cost of revenue is primarily attributable to the overall expansion of our operations as compared to the previous year. Our hosting costs increased as did other costs associated with the programming, design, and maintenance of our products. ### Operating Expenses Operating Expenses for the three months ended June 30, 2010 increased to $931,332 from $354,350 for the three months ended June 30, 2009, representing an increase of $576,982. Operating expenses for the six months ended June 30, 2010 increased to $2,299,579 from $658,709 for the six months ended June 30, 2009, representing an increase of $1,640,870. The increase in operating expenses is primarily attributable to an increase in advertising and marketing expense. Advertising and marketing expense for the three months ended June 30, 2010 was $512,772. Advertising and marketing expense for the six months ended June 30, 2010 was $1,342,188. These expenses were minimal for the three months and six months ended June 30, 2009 and were not recognized independently. The increase in advertising and marketing expense is primarily due to the shift to a subscription based model and the associated user acquisition costs. Compensation expense for the three months ended June 30, 2010 decreased to $168,932 from $175,363 for the three months ended June 30, 2009, representing a decrease of $6,431. Compensation expense for the six months ended June 30, 2010 increased to $326,459 from $318, 113 for the six months ended June 30, 2009 representing an increase of $8,346. General and administrative expenses for the three months ended June 30, 2010 increased to $220,893 from $146,074 for the three months ended June 30, 2009, representing an increase of $74,819. General and administrative expenses for the six months ended June 30, 2010 increased to $553,104 from $258,396 for the six months ended June 30, 2009 representing an increase of $294,708. The increase in general and administrative expense is due to the overall expansion of our operations as compared to last year. Professional fees for the three months ended June 30, 2010 decreased to $28,735 from $32,913 for the three months ended June 30, 2009, representing a decrease of $4,178. Professional fees for the six months ended June 30, 2010 decreased to $77,828 from $82,200 for the six months ended June 30, 2009 representing a decrease of $4,372. ### Net Income Net income decreased to a net loss of $68,861 for the three months ended June 30, 2010 from net income of $46,430 for the three months ended June 30, 2009, a decrease of $115,291. Net income decreased to a net loss of $872,311 for the six months ended June 30, 2010 from net income of $112,902 for the six months ended June 30, 2009, a decrease of $985,213. The decrease in net income and shift to a net loss was primarily due to the revenue recognition impact of our shift to a subscription model in which revenue is recognized on a deferred basis when subscriptions occur over more than a single month as well as increased user acquisition costs associated with the shift to a subscription model on the Are You Interested brand. ### Liquidity and Capital Resources We are currently financing our operations primarily through cash generated by its operating activities and revenues derived from advertisements placed on our various applications as well as premium features placed on our applications. As of June 30, 2010, we had $1,408,756 in cash. Our cash declined from December 31, 2009 by $486,693 due to our increased advertising and marketing expense. Historically, our principal working capital needs have been met through continuing operations. As we grow and expand our operations, the need for working capital will increase. We expect to finance our internal growth with cash provided from operations, borrowings, debt or equity offerings, or some combination thereof. Our net loss for the six months ended June 30, 2010 was $872,311. Net cash used by the operating activities was $480,241 during the six months ended June 30, 2010 as compared to cash provided by operating activities of $185,186 for the six months ended June 30, 2009. The Company’s net loss for the six months ended June 30, 2010 was $872,311. Net cash used in operating activities was $480,241 during the six months ended June 30, 2010 as compared to cash provided by operating activities of $185,186 for the six months ended June 30, 2009. Cash used in operating activities mainly consisted of a net loss of $872,311 and an increase in prepaid expenses of $18,118, an increase in deferred revenue of $441,817, an increase in stock based compensation of $92,169 and an increase in our credit card holdback of $89,374 offset by a decrease in accrued expenses of $354,612 and a decrease in accounts receivable of $294,442. The Company intends to use its cash to continue to fund its operations going forward. ### Critical Accounting Pronouncements Our significant accounting policies are summarized in Note 1 of our financial statements. We account for income taxes under the FASB Accounting Standards Codification No. 740, *Income Taxes*. Under FASB Accounting Standards Codification No. 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We value property and equipment at cost and depreciate these assets using the straight-line method over their expected useful life. We use a three year life for software and five year life for computer equipment. In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, *Compensation – Stock Compensation*. Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Effective January 1, 2006, the Company has fully adopted the provisions of FASB Accounting Standards Codification No. 718. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively. Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505, *Equity Based Payments to Non-Employees* defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification No. 505. We have adopted the provisions of FASB Accounting Standards Codification No. 350, *Intangibles – Goodwill and Other.* Costs incurred in the planning stage of a website are expensed as research and development while costs incurred in the development stage are capitalized and amortized over the life of the asset, estimated to be five years. Expenses subsequent to the launch have been expensed as research and development expenses. We recognize revenue on arrangements in accordance with FASB Accounting Standards Codification No. 605, *Revenue Recognition*. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. The Company recognizes revenue as earned on a click-through, impression, and registration/subscription basis. When a user clicks an advertisement (“CPC basis”), views an advertisement impression (“CPM basis”), or registers for an external website via an advertisement clicked on through the Company’s applications (“CPA basis”), or purchases “points” or completes an offer to subscribe to premium features on the Company’s applications, the contract amount is recognized as revenue. The Company recognizes revenue from monthly premium subscription fees in the month in which the services are used. Revenues are presented net of refunds, credits and known credit card chargebacks. Subscriptions are currently offered in durations of varying length from one month to six months. The Company recognizes revenue from the direct sale of "points" over two months. Points can be used in exchange for premium features on products. ### Recent Accounting Pronouncements In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) No. 2009-13, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. The ASU significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The ASU will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted, provided that the guidance is retroactively applied to the beginning of the year of adoption. The Company does not expect the adoption of ASU No. 2009-13 to have any effect on its financial statements upon its required adoption on January 1, 2011. ### Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs). ## Controls and procedures As filed, 1,438 characters. a) *Evaluation of Disclosure Controls.* Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. (b) *Changes in internal control over financial reporting.* There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Filed Aug 16, 2010. Source: SEC EDGAR, the filing index for accession 0001213900-10-003243. 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