# Intelligent Protection Management Corp.: Form 10-Q for the period ended Jun 30, 2011

- Company: [Intelligent Protection Management Corp.](/companies/ipm.md) (CIK 1355839)
- Form: 10-Q
- Filed: 2011-08-09
- Accepted by EDGAR: Aug 9, 2011, 16:00 ET
- Period: 2011-06-30
- Accession: 0001213900-11-004116
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1355839/000121390011004116/f10q0611_snap.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1355839/000121390011004116/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2011-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2011-04-01 to 2011-06-30 | $4.8m | us-gaap:Revenues |
| Revenue | 6 months, 2011-01-01 to 2011-06-30 | $8.6m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2011-04-01 to 2011-06-30 | $606.3k | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2011-01-01 to 2011-06-30 | $1.1m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2011-04-01 to 2011-06-30 | −$639.2k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2011-01-01 to 2011-06-30 | −$1.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2011-04-01 to 2011-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2011-01-01 to 2011-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2011-04-01 to 2011-06-30 | −$632.9k | us-gaap:ProfitLoss |
| Net income | 6 months, 2011-01-01 to 2011-06-30 | −$1.6m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2011-04-01 to 2011-06-30 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2011-01-01 to 2011-06-30 | −$0.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2011-04-01 to 2011-06-30 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2011-01-01 to 2011-06-30 | −$0.04 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2011-04-01 to 2011-06-30 | 37,680,591 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2011-01-01 to 2011-06-30 | 37,365,065 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2011-01-01 to 2011-06-30 | −$1.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2011-01-01 to 2011-06-30 | $41.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2011-06-30 | $3.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2011-06-30 | $8.0m | us-gaap:AssetsCurrent |
| Total assets | at 2011-06-30 | $10.9m | us-gaap:Assets |
| Current liabilities | at 2011-06-30 | $3.7m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2011-06-30 | $7.2m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 40,420 characters.

*In this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” or “Snap Interactive” refer to Snap Interactive, Inc. and its subsidiaries on a consolidated basis.*

The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three and six months ended June 30, 2011, and with our consolidated financial statements and notes thereto for the year ended December 31, 2010 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2011 (our “Annual Report”), and (ii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report.

### Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” made under the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates, forecasts and assumptions and are subject to risks and uncertainties. Words such as “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” and variations of such words and similar expressions are intended to identify such forward-looking statements. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to certain factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

- our ability to obtain additional financing to implement our long-term growth strategy;
- our ability to effectively manage our growth;
- our ability to anticipate and respond to changing consumer trends and preferences;
- reliance on our sole officer and director and our ability to attract and hire key personnel;
- our reliance on a very limited number of third party platforms to run our applications and the ability of third party platforms to take action against these applications, including the ability to restrict access to platform functionality, to remove an application from the platform, to force us to use their method of payment or to restrict the methods of collecting payments through their platform;
- the intense competition in the online dating marketplace;
- our ability to establish and maintain brand recognition;
- our ability to develop and support successful applications for mobile platforms;
- our ability to advertise our products through a variety of advertising media;
- the possibility that our members and subscribers may be harmed following interaction with other members and subscribers;
- the risk that we are deemed a dating service provider under applicable law rather than an online personal services provider;
- our ability to develop and market new technologies to respond to rapid technological changes;
- our ability to protect our intellectual property;
- the potential impact of a finding that we have infringed on intellectual property rights of others;
- our ability to create and maintain secure websites and protect our technology from hackers;
- the risk of disruption or restriction on our email deliverability;
- the risk of programming errors or flaws in our products;
- our dependence on a single vendor to host the majority of our application traffic;
- increased governmental regulation of the online dating, social networking or Internet industries;
- reliance upon credit card processors and related merchant account approvals; and
- other circumstances that could disrupt the functioning of our applications and websites.

For a more detailed discussion of these and other factors that may affect our business, see the discussion under the caption “Risk Factors” set forth in Item 1A of our Annual Report, the discussion under the caption “Risk Factors” set forth in Item 1A of Part II below and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Quarterly Report on Form 10-Q, except to the extent required by federal securities laws.

### Overview

We develop, own and operate dating and social networking software applications that can be accessed by users on social networking websites and platforms, such as Facebook, and iPhone users, as well as an online dating website and a location-based social networking application and website. Application brands that we have created and maintain include *AreYouInterested.com* and *WhoIsNear.com.* Our portfolio of applications is designed to appeal to a broad base of Internet and iPhone users. We transitioned our leading application *AreYouInterested.com* from an advertising-based revenue model to a subscription-based revenue model in late 2009, and in 2010 and through the second quarter of 2011, we have primarily generated revenue from subscription fees on our *AreYouInterested.com* Facebook application and our *AreYouInterested.com* Internet website. *WhoIsNear.com* does not generate revenue at this point in time as we have prioritized increasing our share of the location-based services market and in building a best-in-class product ahead of any immediate revenue generation. As of August 5, 2011, we had in excess of 49 million total installations across our *AreYouInterested.com* and *WhoIsNear.com* brands.

Our key operating performance highlights for the second quarter of 2011 include more than 10 million new installations of the *AreYouInterested.com* Facebook application, more than 640,000 new installations of the *WhoIsNear.com* beta Facebook application and more than 370,000 new downloads of the *AreYouInterested.com* iPhone mobile dating application.

During the second quarter of 2011, we ended our technological support of our *Meet New People* and *Flirt With Me* dating applications on all platforms. We do not consider the *Meet New People* and *Flirt With Me* dating applications to be material to our business, and we do not expect the discontinuation of support for these applications to have a material adverse effect on our business, results of operations or financial condition.

We typically purchase advertising from a wide variety of sources on the Internet, third-party platforms and applications that run on such platforms on a daily basis. Because of the dynamic nature of the social networking industry, and the Internet in general, our ability to buy media exposure changes rapidly, and sellers of advertising space can become unavailable to us for a variety of reasons, including unattractive pricing or diminished advertising capacity. We experienced a decline in active users of our *AreYouInterested.com* Facebook application during the end of June 2011 and the beginning of July 2011. We believe the decline in active users is not reflective of a decrease in engagement by existing users but rather resulted from what we believe was a temporary decrease in the available media inventory that we have historically used to acquire new users. Nevertheless, our revenues for July 2011 were on par with our revenues for June 2011, with June 2011 being our highest recorded revenue month as of the end of the second quarter of 2011. We have seen available inventory as well as active user totals begin to increase again recently and are continuing to pursue new channels for user acquisition campaigns. While our overall advertising and marketing expenses decreased in June 2011 and July 2011 relative to recent prior months, we used this opportunity to redirect certain of those marketing resources toward acquiring users on other platforms including mobile. We also began dedicating additional resources toward improving the user experience on *AreYouInterested.com* including initiatives targeted at achieving more re-engagement from existing users and a further integration between its web and mobile experiences. We intend to increase user acquisition campaigns as additional inventory becomes available through existing sources or as we continue to identify and pursue new avenues for user acquisition campaigns.

Expanding our presence on mobile platforms is a core objective for us moving forward. Although revenue opportunities on our mobile products are not currently significant, we are investing heavily in our mobile products on the engineering and user acquisition fronts while mobile platforms are still in the early stages of development and user acquisition costs are inexpensive. We believe that mobile dating applications and location-based services applications will offer significant opportunities in the future and have increased the resources allocated to these products with the goal of positioning us as a leading provider of these products. We expect revenue opportunities to continue to emerge in the future, however, we do not expect significant revenue opportunities from our mobile products in the near-term. A primary component of our mobile initiatives is to continue creating a seamless experience for users on our products across multiple platforms. We believe that this forward-thinking approach will better position us to be a leading provider of these mobile products in the future as more and more web browsing and web activity shifts to smart phones and other mobile devices.

Our key financial highlights for the second quarter of 2011 include:

- Revenue increased 288% to $4,826,783 for the second quarter of 2011 compared to $1,243,082 for the second quarter of 2010; and
- Deferred revenue at June 30, 2011 increased 46% to $2,823,714 compared to $1,937,915 at December 31, 2010.

### Key Performance Indicators

Management believes that the following financial and operating measurements are key indicators of the strength of our business:

- Subscription sales and revenue;
- Subscriber retention rate; and
- Website and application traffic.

### How We Generate Revenue

In the fourth quarter of 2009, we implemented a subscription-based revenue model into our *AreYouInterested.com* Facebook application as well as *AreYouInterested.com* in order to generate additional revenue. We had previously generated the majority of our revenue through advertisements placed on our products. Since the beginning of 2010, subscription fees and premium sales have been our primary sources of revenue. For 2011, subscription fees have been the overwhelming majority of our revenue. Our subscription-based offering on the *AreYouInterested.com* brand provides users with unlimited messaging, unlimited access to communicate with their matches, the ability to see who viewed their profile, the ability to send an unlimited number of premium virtual gifts, and access to several other premium features. Our *WhoIsNear.com* brand does not generate revenue at this point in time as we have prioritized increasing our share of the location-based services market and in building a best-in-class product ahead of any immediate revenue generation.

Currently, most of our revenue comes from subscriptions on the *AreYouInterested.com* Facebook dating application. However, despite the growth in subscription revenue over the last several quarters, we remain very focused on our mobile products and plan to continue investing heavily in development of our mobile products and user acquisition on mobile platforms. While growing the subscription base of *AreYouInterested.com* on the web remains an objective, our priority for *AreYouInterested.com* and *WhoIsNear.com* will continue to be focused on developing these mobile products. Although revenue opportunities on our mobile products are not currently as prevalent as they are on our web-based products, we are pursuing this course of action because we have a long-term view for our product roadmap and believe this will better position our products for long-term success.

We recognize revenue from monthly premium subscription fees in the month in which the services are provided. Revenues are presented net of refunds, credits and known and estimated credit card chargebacks. Our subscriptions are currently offered in durations of one-, three- and six-month terms. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates. All subscription fees, however, are collected at the time of purchase regardless of the length of the subscription term. Revenues from longer-term plans are recognized pro-rata over the subscription term. Pursuant to our terms of service, most subscriptions automatically renew for periods of the same length as the original subscription term until subscribers terminate them.

We also recognize revenue from the direct sale of “points” over two months. Members can either purchase or earn points by performing activities, such as by browsing profiles, that can be used in exchange for accessing certain premium features on our applications. Determining whether the criteria for spending points has been satisfied often involves management making assumptions and judgments that may have an impact on the timing and amount of revenue we recognize in each period. At this time, we believe that our assumptions and judgments are fair and we will continue to monitor them in order to determine if there are significant changes in usage patterns.

We currently offer several different payment method options and maintain relationships with multiple payment processors in order to: (i) diversify our risk and reliance on a single payment processor, (ii) ensure competitive rates and (iii) offer our users as many payment options as possible. We intend to continue testing and implementing additional payment methods as opportunities arise and resources permit.

### Our Business Objectives

During 2011, our business objectives include:

- Upgrading and developing our *AreYouInterested.com* and *WhoIsNear.com* products with new features, enhancements and optimizations;
- Continuing to integrate and expand the overall product offering between the *AreYouInterested.com* Facebook application, *AreYouInterested.com* website and *AreYouInterested.com* iPhone application for an enhanced user experience across all platforms;
- Increasing the amount of resources devoted to mobile initiatives and increasing usage and engagement on our mobile products;
- Refining our marketing and statistical tracking tools on the *AreYouInterested.com* brand;
- Determining whether to build new applications on social networking platforms and whether to develop and explore new mobile platforms and products; and
- Identifying and exploring new opportunities that emerge in our rapidly evolving industry.

### Results of Operations — Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

### Revenues

Revenue increased to $4,826,783 for the quarter ended June 30, 2011 from $1,243,082 for the quarter ended June 30, 2010, an increase of $3,583,701, or 288%. We experienced an increase in revenue versus the same period of the previous year as a result of an increase in the amount of subscriptions sold in the quarter ended June 30, 2011 as compared to the quarter ended June 30, 2010. Our revenue generated from subscription/point sales and advertising was $4,824,358 and $2,425, respectively, for the quarter ended June 30, 2011, compared to $1,209,923 and $33,159, for the quarter ended June 30, 2010. Our revenue is primarily generated from subscription sales on the *AreYouInterested.com* Facebook application.

As we continued optimizing our subscription model in the second quarter of 2011 and refined our marketing approach in order to buy traffic more effectively, we experienced a quarterly increase in subscription sales for the second quarter of 2011.

### Costs and Expenses

Costs and expenses increased to $5,466,004 for the quarter ended June 30, 2011 from $1,314,994 for the quarter ended June 30, 2010, representing an increase of $4,151,010, or 316%. The increase in operating expenses is primarily attributable to a significant increase in advertising and marketing expenditures for user acquisition campaigns. Other operating expenses that increased include general and administrative expense, programming, hosting and technology expense, professional fees and compensation expense.

Advertising and marketing expense increased to $3,836,652 for the quarter ended June 30, 2011 from $512,772 for the quarter ended June 30, 2010, representing an increase of $3,323,880, or 648%. The increase in advertising and marketing expenses were due to an increase in user acquisition campaigns. We anticipate experiencing further increases in marketing expenses throughout the remainder of 2011. As discussed above, our marketing expenses decreased toward the end of the quarter ended June 30, 2011 and into July 2011 due to a decrease in available advertising inventory. We intend to increase user acquisition campaigns as additional advertising inventory becomes available or as we identify and pursue new avenues for user acquisition campaigns.

General and administrative expense increased to $635,402 for the quarter ended June 30, 2011 from $220,893 for the quarter ended June 30, 2010, representing an increase of $414,509, or 188%. The increase in general and administrative expense is primarily attributable to increases in transaction fees related to accepting subscription payments, including credit card processing fees and foreign currency transaction fees. General and administrative expense also increased due to increased insurance expense, recruiting expense and increased costs associated with the overall expansion of our business.

Programming, hosting and technology expense increased to $606,307 for the quarter ended June 30, 2011 from $383,662 for the quarter ended June 30, 2010, an increase of $222,645, or 58%. The increase in programming, hosting and technology expense is primarily attributable to increased salary expenses due to expansion of our staff as well as increased expenses related to the optimization of our email deliverability.

Professional fees increased to $166,840 for the quarter ended June 30, 2011 from $28,735 for the quarter ended June 30, 2010, representing an increase of $138,105, or 481%. The increase in professional fees was due to increased legal fees, particularly in the areas of intellectual property, trademarks, consumer privacy and regulatory compliance; as well as accounting fees as a result of the overall expansion of our business.

Compensation expense increased to $220,803 for the quarter ended June 30, 2011 from $168,932 for the quarter ended June 30, 2010, representing an increase of $51,871 or 31%. The increase in compensation expense was due to primarily an increase in staffing.

### Net Loss

As a result of the foregoing, net loss increased to $632,868 for the quarter ended June 30, 2011 from a net loss of $68,861 for the quarter ended June 30, 2010, an increase in net loss of $564,007, or 819%.

### Results of Operations — Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

### Revenues

Revenue increased to $8,563,682 for the six months ended June 30, 2011 from $2,170,518 for the six months ended June 30, 2010, an increase of $6,393,164, or 295%. We experienced an increase in revenue versus the same period of the previous year as a result of an increase in the amount of subscriptions sold in the six months ended June 30, 2011 as compared to the six months ended June 30, 2010. Our revenue generated from subscription/point sales and advertising was $8,547,919 and $15,763, respectively, for the six months ended June 30, 2011, compared to $1,960,289 and $210,229, for the six months ended June 30, 2010. Our revenue is primarily generated from subscription sales on the *AreYouInterested.com* Facebook application.

As we continued optimizing our subscription model in the first half of 2011 and refined our marketing approach in order to buy traffic more effectively, we experienced a quarterly increase in subscription sales for the second quarter of 2011.

### Costs and Expenses

Costs and expenses increased to $10,134,107 for the six months ended June 30, 2011 from $3,058,456 for the six months ended June 30, 2010, representing an increase of $7,075,651, or 231%. The increase in operating expenses is primarily attributable to a significant increase in advertising and marketing expenditures for user acquisition campaigns. Other operating expenses that increased include general and administrative expense, programming, hosting and technology expense, professional fees and compensation expense.

Advertising and marketing expense increased to $7,208,610 for the six months ended June 30, 2011 from $1,342,188 for the six months ended June 30, 2010, representing an increase of $5,866,422, or 437%. The increase in advertising and marketing expenses was due to an increase in user acquisition campaigns. We anticipate experiencing further increases in marketing expenses throughout the remainder of 2011. As discussed above, our marketing expenses decreased toward the end of the six months ended June 30, 2011 and into July 2011 due to a decrease in available advertising inventory. We intend to increase user acquisition campaigns as additional advertising inventory becomes available or as we identify and pursue new avenues for user acquisition campaigns.

General and administrative expense increased to $1,156,108 for the six months ended June 30, 2011 from $553,104 for the six months ended June 30, 2010, representing an increase of $603,004, or 109%. The increase in general and administrative expense is primarily attributable to increases in transaction fees related to accepting subscription payments, including credit card processing fees and foreign currency transaction fees. General and administrative expense also increased due to increased insurance expense, recruiting expense and increased costs associated with the overall expansion of our business.

Programming, hosting and technology expense increased to $1,060,946 for the six months ended June 30, 2011 from $758,877 for the six months ended June 30, 2010, an increase of $302,069, or 40%. The increase in programming, hosting and technology expense is primarily attributable to increased salary expenses due to expansion of our staff as well as increased expenses related to the optimization of our email deliverability.

Professional fees increased to $288,416 for the six months ended June 30, 2011 from $77,828 for the six months ended June 30, 2010, representing an increase of $210,588, or 271%. The increase in professional fees was due to increased legal fees, particularly in the areas of intellectual property, trademarks, consumer privacy and regulatory compliance; as well as accounting fees as a result of the overall expansion of our business.

Compensation expense increased to $420,027 for the six months ended June 30, 2011 from $326,459 for the six months ended June 30, 2010, representing an increase of $93,568 or 29%. The increase in compensation expense was due to primarily an increase in staffing.

### Net Loss

As a result of the foregoing, net loss increased to $1,553,608 for the six months ended June 30, 2011 from a net loss of $872,311 for the six months ended June 30, 2010, an increase in net loss of $681,297, or 78%.

### Liquidity and Capital Resources

We are currently financing our operations through cash generated by our financing in the first quarter of 2011, subscription fees received from our applications and online dating website, fees for premium features of our applications and revenues derived from advertisements purchased on our various applications.

As of June 30, 2011, we had $9,836,469 in cash and cash equivalents and investments compared to $3,018,876 as of December 31, 2010. Historically, our working capital has been generated through operations. If we continue to grow and expand our operations, our need for working capital will increase. For the near-term, we do not anticipate being profitable because we intend to increase our acquisition costs related to marketing and advertising and through hiring additional employees. We expect to finance our internal growth with cash on hand, cash provided from operations, borrowings, debt or equity offerings, or some combination thereof. We believe that our cash provided from operations, cash on hand and investments will provide sufficient capital to fund our operations for the next twelve months.

A significant portion of our expenses is related to user acquisition costs. Our marketing and advertising expenses are primarily spent on channels where we can estimate the return on investment without long-term commitments. Accordingly, we can adjust our marketing and advertising expenditures quickly based on the expected return on investment, which provides flexibility and enables us to control our expenses. We expect to continue using capital to hire additional employees and for user acquisition campaigns across all products. Our net cash used in operating activities for the second quarter of 2011 was $438,966.

### Cash Flows

Net cash used in operating activities increased $663,846 to $1,144,087 for the six months ended June 30, 2011 from $480,241 for the six months ended June 30, 2010 due mainly to increases in prepaid expense and credit card holdback receivable, partially offset by an increase in deferred revenue and decreases in accounts payable and accrued expenses. Net cash provided by financing activities increased to $8,003,825 for the six months ended June 30, 2011 due to proceeds from the issuance of common stock and warrants in the first quarter of 2011. Cash used in investing activities increased $6,799,775 to $6,806,227 for the six months ended June 30, 2011 from $6,452 for the six months ended June 30, 2010 due to investments in marketable securities, certificates of deposit and the purchase of fixed assets.

### Financing Activities

On January 19, 2011 (the “Closing Date”), for total subscription proceeds of $8,500,000 (the “Offering”) we issued: (i) 4,250,000 shares of our common stock (the “Purchased Shares”) and (ii) warrants (the “Warrants”) exercisable into 2,125,000 shares of common stock (the “Warrant Shares”) at an exercise price of $2.50 per share to certain accredited investors (the “Investors”). The number of shares of common stock to be received upon the exercise of the Warrants and the exercise price of the Warrants are subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions that occur after the Closing Date.

In connection with the Offering, we granted the Investors registration rights pursuant to a registration rights agreement dated as of the Closing Date (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, we filed a registration statement on February 11, 2011, as amended by an amended registration statement filed on April 6, 2011, registering (i) all of the Purchased Shares; (ii) the Warrant Shares issuable upon exercise of the Warrants and (iii) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

In connection with the Offering, we paid a cash placement agency fee to the placement agent equal to 6% of the aggregate purchase price paid by the Investors. We further agreed to pay a cash fee equal to 6% of the aggregate cash exercise price received by us upon the exercise of the Warrants.

For a more detailed description of the Offering, please refer to our Current Report on Form 8-K filed with the SEC the on January 21, 2011.

We currently have no lines of credit or access to short-term borrowing or financing options. We are using cash generated from operations as well as cash from our private placement to fund our operations. Because we have no lines of credit from which to finance operations, we would be dependent upon third-party financing or obtaining such borrowing facilities if the need for immediate capital were to arise. For additional information, see Note 5 to our unaudited consolidated financial statements “Convertible Notes Payable—Related Party”.

We recognize revenue on arrangements in accordance with Accounting Standards Codification (“ASC”) 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. We have revenue streams consisting of subscriptions, sales of points and advertisements. 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. Subscriptions are currently offered in durations of varying length from one month to six months – generally in one-month, three-month and six-month terms. Revenues from multi-month subscriptions are recognized over the length of the subscription term rather than when the subscription is purchased. Because a significant amount of our subscription sales occurred from subscriptions with a term of three-months or six-months, we apportion that revenue over the duration of the subscription term even though it is collected in full at the time of purchase. The difference between the gross cash receipts collected and the recognized revenue from those sales during that reporting period will appear as deferred revenue. We also recognize revenue from the direct sale of “points” over two months. Points can be used in exchange for premium features on products. We recognize advertising revenue as earned on a click-through, impression, and registration or subscription basis. When a user clicks an advertisement (“CPC basis”), views an advertisement impression (“CPM basis”), registers for an external website via an advertisement clicked on through our applications (“CPA basis”), or clicks on an offer to subscribe to premium features on our applications, the contract amount is recognized as revenue.

### Critical Accounting Policies

We account for income taxes under the Financial Accounting Standards Board (“FASB”) ASC No. 740, *Income Taxes (“*ASC 740”). Under ASC 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. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In accordance with ASC No. 718, *Compensation – Stock Compensation (“*ASC 718”), we 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. 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. We apply 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 ASC 718. ASC No. 505, *Equity Based Payments to Non-Employees (“*ASC 505”) defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when 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 ASC 505.

### Recent Accounting Pronouncements

In October 2009, the FASB issued an Accounting Standard Update (“ASU”) No. 2009-13 (“ASU 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. ASU 2009-13 significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASU 2009-13 is 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 adoption of ASU 2009-13 did not have any effect on the Company’s financial statements upon its required adoption on January 1, 2011.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for the Company with the reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for the Company with the reporting period beginning July 1, 2011. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on the Company’s financial statements.

In February 2010, the FASB issued ASU No. 2010-09 (“ASU 2010-09”), which amends ASC 855 – Subsequent Events to eliminate the requirement for public companies to disclose the date through which subsequent events have been evaluated. The Company will continue to evaluate subsequent events through the date of the issuance of the financial statements; however, consistent with the guidance, this date will no longer be disclosed. ASU 2010-09 does not have any impact on the Company’s results of operations, financial condition or liquidity.

In April 2010, the FASB issued ASU No. 2010-13 (“ASU 2010-13”), which amends ASC 718 – Compensation – Stock Compensation (“ASC 718”) to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. ASU 2010-13 is effective for fiscal years beginning on or after December 15, 2010, and the Company is currently assessing the potential impact, if any, the adoption of this update may have on its Consolidated Financial Statements.

In April, 2011, the FASB issued ASU No. 2011-02 to provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. Early adoption is permitted. The Company intends to adopt the methodologies prescribed by this ASU by the date required and is continuing to evaluate the impact of adoption of this ASU.

In April, 2011, the FASB issued ASU No. 2011-03 to remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this ASU also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.

The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

In May 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generally represent clarifications of ASC 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted.

The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.

The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Due to the recent nature of this pronouncement, the Company is evaluating when it will adopt ASU 2011-05, but it will adopt the ASU retrospectively by the due date.

### Off-Balance Sheet Arrangements

As of June 30, 2011, we did not have any off-balance sheet arrangements.

## Controls and procedures

As filed, 2,404 characters.

### Evaluation of Disclosures Controls and Procedures

Our management, including our Chief Executive, Financial and Accounting Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2011, the end of the period covered by this report. Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system of disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on the evaluation as of the end of the period covered by this report, our Chief Executive, Financial and Accounting Officer concluded our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive, Financial and Accounting Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting. The material weaknesses in our internal control over financial reporting include: (i) management’s failure to issue stock certificates in a timely manner to certain employees, upon their meeting of all requirements to earn such shares, and (ii) our lack of an audit committee.

### 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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 11,345 characters.

There were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” of our Annual Report, except for the following risk factors. For more information concerning our risk factors, please refer to “Item 1A. Risk Factors” of our Annual Report.

**Our online social networking applications rely heavily on email campaigns, and as our subscriber base continues to grow we face an increasing risk that any disruptions or restrictions on the sending or receipt of emails or increase in the associated costs could adversely affect our business and results of operations.**

Our emails are an important driver of our subscribers’ activities. We send a large volume of emails to our subscribers notifying them of a variety of activities on our applications, such as new matches. As our subscriber base continues to grow we face an increasing risk that Internet service providers or email applications may block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails to our subscribers. Third parties may also block our emails as spam, impose restrictions on, or start to charge for, the delivery of emails through their email systems. Without the ability to email these subscribers, we have limited means of inducing subscribers to return to our websites and applications and to utilize our services. Due to the importance of email to our business, any disruptions or restrictions on the distribution or receipt of emails or increase in the associated costs could materially and adversely affect our business and results of operations.

**Our heavy reliance on third-party platforms where we build applications may negatively affect our ability to effectively and profitably provide services to users of our applications, maintain our existing markets and expand our business.**

The various social networking platforms on which we build applications enjoy the sole ability and discretion to take action against applications on their platform, including restricting access to platform functionality or even removing us entirely from their platforms. In addition, these third-party platforms constantly evolve, which often includes changes to policies, features and how users interact with applications, some of which may adversely affect our user engagement. These third-party platforms have broad discretion to determine whether our applications are consistent with their policies and can remove our applications for violations of their policies. These third-party platforms could also enact policies that would force us to use their method of payment or restrict the methods of collecting payments through their platform. If any of these actions are taken against our applications or if detrimental changes to policies and how users interact with our applications occur, it could impede our ability to grow or generate revenue and would likely adversely affect our revenues and financial results.

**Security breaches, computer viruses and computer hacking attacks could harm our business and results of operations.**

Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business, financial condition and operating results. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure to the satisfaction of our subscribers may harm our reputation and our ability to retain existing subscribers and attract new subscribers.

**Programming errors or flaws in our products could harm our reputation or decrease market acceptance of our products, which would harm our operating results.**

Our applications and websites may contain errors, bugs, flaws or corrupted data, and these defects may only become apparent after their launch, particularly as we launch new applications or websites and rapidly release new features to existing products under tight time constraints. We believe that if our users have a negative experience with our applications or websites, they may be less inclined to continue or resume using our products or recommend our products to other potential users. In addition, programming errors or defects may allow users access to premium features even if they do not pay for such content. Undetected programming errors, defects and data corruption can disrupt our operations, adversely affect the experience of our users, harm our reputation, cause our users to stop using our applications or websites, divert our resources and delay market acceptance of our products, any of which could result in legal liability to us or harm our operating results.

**Our business depends in large part upon the availability of advertising space through a variety of media.**

We depend upon the availability of advertising space through a variety of media, including third party applications on platforms such as Facebook, to recruit new subscribers, generate activity from existing subscribers and direct traffic to our products. The availability of advertising space varies. A shortage of advertising space in any particular media, or the elimination of a particular medium on which we advertise, could limit our ability to generate new subscribers, generate activity from existing subscribers or direct traffic to our products, any of which could materially and adversely affect our business and results of operations.

**If we fail to effectively manage our growth, our business and operating results could be harmed.**

We continue to experience rapid growth in our headcount and operations, which will continue to place significant demands on our management and our operational and financial infrastructure. As of August 1, 2011, approximately 50% of our employees had been with us for less than one year and approximately 75% for less than two years. As we continue to grow, we must expend significant resources to identify, hire, integrate, develop and motivate a large number of qualified employees. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our ability to continue launching new applications and enhance existing applications could suffer.

**Our growth prospects will suffer if we are unable to develop and support successful applications for mobile platforms.**

We have limited experience developing and supporting applications for mobile platforms. We expect to devote substantial resources to the development and support of our mobile applications, and our limited experience makes it difficult to know whether we will succeed in developing and supporting such applications. The uncertainties we face include:

- our experience in developing and supporting applications for use primarily on Facebook may not be relevant for developing and supporting applications for mobile platforms;
- we have limited experience working with wireless carriers, mobile platform providers and other partners whose cooperation we may need in order to be successful;
- we may encounter difficulty in integrating features on applications developed for mobile platforms that a sufficient number of subscribers will pay for; and
- we may need to allow for a variety of payment methods and systems based on mobile platforms, geographies and other factors.

These and other uncertainties make it difficult to know whether we will succeed in developing and supporting commercially viable applications for mobile platforms. If we do not succeed in doing so, our prospects for growth will suffer.

**A significant majority of our application traffic is hosted by a single vendor and any failure or significant interruption in our network could impact our operations and harm our business.**

Our technology infrastructure is critical to the performance of our applications and to our subscribers’ satisfaction. Significant elements of this system are operated by third parties that we do not control and which would require significant time to replace. We expect this dependence on third parties to continue. In particular, a significant majority of our application traffic is hosted by a single vendor. We have experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. If a particular application is unavailable when subscribers attempt to access it or interaction through an application is slower than they expect, subscribers may stop using the application and may be less likely to return to the application as often, if at all. A failure or significant interruption in the availability of our applications would harm our reputation and operations. We expect to continue to make investments to our technology infrastructure to maintain and improve all aspects of our subscribers’ experience and application performance. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate increasing traffic, our business and operating results may suffer. We do not maintain insurance policies covering losses relating to our systems and we do not have business interruption insurance.

**Our quarterly operating results are volatile and difficult to predict, and our stock price may decline if we fail to meet the expectations of securities analysts or investors.**

Our revenue, traffic and operating results could vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance because of a variety of factors, some of which are outside of our control. Any of these events could cause the market price of our common stock to fluctuate. Factors that may contribute to the variability of our operating results include:

- the amount of advertising and marketing that is available and spent on user acquisition campaigns;
- the timing of the launch and the popularity of new applications and enhancements to existing applications by us or our competitors;
- changes to the social networks or mobile platforms on which we operate;
- disruptions in the availability of our applications or of social networking or mobile platforms;
- actual or perceived violations of privacy obligations and compromises of our subscribers data;
- the entrance of new competitors in our market whether by established companies or the entrance of new companies; and
- the cost of attracting and retaining application developers and other software engineers.

Given our short operating history and the rapidly evolving social networking industry, our historical operating results may not be useful in predicting our future operating results. In addition, metrics available from third parties regarding our industry and the performance of our applications may not be indicative of our financial performance.

Filed Aug 9, 2011.
Source: SEC EDGAR, the filing index for accession 0001213900-11-004116. Last ingested by Listed: Nov 11, 2026, 00:54 ET. No prices; not investment advice.