# Intelligent Protection Management Corp.: Form 10-Q for the period ended Mar 31, 2017

- Company: [Intelligent Protection Management Corp.](/companies/ipm.md) (CIK 1355839)
- Form: 10-Q
- Filed: 2017-05-11
- Accepted by EDGAR: May 11, 2017, 16:34 ET
- Period: 2017-03-31
- Accession: 0001213900-17-004956
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1355839/000121390017004956/f10q0317_snapinteractive.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1355839/000121390017004956/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2017-01-01 to 2017-03-31 | $6.7m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2017-01-01 to 2017-03-31 | $1.3m | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2017-01-01 to 2017-03-31 | $2.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2017-01-01 to 2017-03-31 | −$1.1m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2017-01-01 to 2017-03-31 | −$1.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-01-01 to 2017-03-31 | −$0.15 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 3 months, 2017-01-01 to 2017-03-31 | $943.1k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2017-01-01 to 2017-03-31 | $62.6k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-03-31 | $5.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-03-31 | $6.3m | us-gaap:AssetsCurrent |
| Total assets | at 2017-03-31 | $26.7m | us-gaap:Assets |
| Current liabilities | at 2017-03-31 | $5.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-03-31 | $6.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2017-03-31 | $20.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,268 characters.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. 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 months ended March 31, 2017, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2016 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2017 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K. Aside from certain information as of December 31, 2016, all amounts herein are unaudited.

Forward-Looking Statements

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward- looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” in the Form 10-K.

Merger

On October 7, 2016, we completed our previously announced Merger with AVM, pursuant to which SAVM Acquisition Corporation, our wholly owned subsidiary, merged with and into AVM, with AVM surviving as a wholly owned subsidiary of the Company. As a result of the Merger, the former shareholders of AVM received shares of our common stock representing approximately 77.9% of the outstanding shares of common stock of the post-Merger combined company, and the Company’s former shareholders retained approximately 22.1% of the outstanding shares of common stock of the post-Merger combined company, in each case including unvested shares of restricted stock in the total number of shares of common stock outstanding.

Except as otherwise specifically provided, this Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the business and operations of AVM and its consolidated subsidiaries for the periods prior to the closing of the Merger and on a consolidated basis with Snap and its subsidiary for periods after the closing of the Merger. Unless the context otherwise indicates, references to “Snap,” “we,” “our,” “us” and the “Company” refer to the post-Merger combined company and its subsidiaries on a consolidated basis.

Presentation for Reverse Stock Split

On January 5, 2017, we effected a 1-for-35 reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each issued and outstanding share of our common stock, and the per share exercise price of and number of shares of our common stock underlying our outstanding stock options, was automatically proportionally adjusted based on the 1-for-35 Reverse Stock Split ratio. Except as otherwise provided herein, all share and per-share amounts of our common stock and stock options have been adjusted to give effect to the Reverse Stock Split for all periods presented. The Reverse Stock Split did not alter the par value of our common stock, which remains at $0.001 per share, modify any voting rights or other terms of our common stock, or impact the amount of preferred stock we are authorized to issue.

Overview

The Company is a leading provider of live video social networking, and interactive dating applications. Our product portfolio includes Paltalk and Camfrog, which together host one of the world's largest collections of video-based communities, and FirstMet, a prominent interactive dating brand serving users 35 and older. Our other products include Tinychat, Firetalk, 50More, Ribbit Live, The Grade, and Vumber. Our leading network of products creates a unique social media enterprise where users can meet, see, chat, broadcast and message in real time with other users in our network. Our properties are generally available through Windows®, MacTM OS, iOSTM and AndroidTM platforms.

We believe that live video is in the early stages of adoption for applications related to meeting, chatting, dating, broadcasting and other interactive purposes and over time presents an attractive growth opportunity as it becomes pervasively integrated across the social networking and interactive communications industries. The proprietary technology underlying our products allows us to operate thousands of simultaneous streams, including on mobile platforms, that support interactions on a one-on-one, one-to-many and many-to-many basis. We believe our technology represents a significant competitive advantage. Furthermore, most of our technology is supported by a portfolio of 25 issued patents.

We also have a worldwide established presence and brand identity in both live video chat and interactive dating, with users in over 180 countries. We believe that we are well-positioned to take advantage of key business opportunities in our industry by leveraging our technology, user base and suite of complementary applications to incorporate live and recorded video into the dating experience, as well as to bring dating opportunities to our video chat community.

### Our Products

#### Live Video Chat

We have 5 products in the video chat space: Paltalk; Camfrog; Tinychat; Ribbit Live; and Firetalk. The major revenue-generating products and current focus of the Company are Paltalk and Camfrog. Each product enables individuals to self-organize around topics and users with common affinities. Tinychat, Ribbit Live and Firetalk enable adaptations of our video technology for alternative uses and opportunities in the future.

*Paltalk and Camfrog*. Paltalk and Camfrog are our major video chat applications and are both leading providers of live video social networking applications available on Windows, Mac OS, iOS, Android and other tablet devices. Together, these products power one of the world’s largest global collections of video based communities, with proprietary technology to host thousands of simultaneous live group conversations on topics such as politics, financial markets, music and dating. Our proprietary client server technology helps maintain high quality video and audio even as many users simultaneously watch a particular broadcaster. Paltalk and Camfrog both have tens of millions of registered users and attract a demographically and geographically diverse user base, with users in over 180 different countries. Paltalk users are approximately one-third domestic and two-thirds international, whereas the majority of Camfrog users are international, with a particular concentration in Southeast Asia.

#### Dating

We currently have three dating applications: FirstMet, 50more and The Grade. FirstMet generates substantially all of the revenue in our dating portfolio. 50more, our product targeting users over 50, was introduced in a limited beta launch in the first quarter of 2017. For the foreseeable future, we expect to focus our dating application resources on FirstMet and 50more. We have deemphasized our promotional efforts for The Grade but expect that it may provide opportunities as a platform for future product evolution.

*FirstMet*. We provide a leading online dating application under the FirstMet brand. FirstMet is native on Facebook, iOS and Android platforms and is also accessible on mobile devices and desktops at FirstMet.com. FirstMet is extremely scalable and requires limited incremental operational cost to add users, active subscribers or new features catering to additional discrete audiences. FirstMet was the #27 grossing application in the U.S. Lifestyle Category on the Apple App Store in the United States as of May 1, 2017.

FirstMet attracts a demographically and geographically diverse user base, with users in over 180 different countries. FirstMet is intuitive, and allows users and subscribers to easily find, connect and communicate with each other.

*50more*. We introduced 50more in limited beta launch in the first quarter of 2017 as our dating application targeting adults over the age of 50. 50more is based on our FirstMet platform and utilizing the underlying FirstMet infrastructure and technology allowed us to streamline the process of launching 50more as a new and fresh online dating product. 50more has similar functionality to FirstMet but addresses a different target audience of adults over 50 and is based on a new brand identity. We expect that we will operate 50more in parallel with FirstMet in order to leverage the overlap with FirstMet’s user base and cross-sell our users with multiple brands. 50more is available on mobile and desktop platforms.

*The Grade*. The Grade is a free mobile application that caters to individuals who are dissatisfied with the quality of user interactions on mobile online dating applications. The Grade launched in November 2014 and is native on iOS and Android. The Grade was designed to hold users accountable to a high standard of behavior by using a proprietary algorithm that assigns letter grades to users ranging from “A+” to “F” based on profile quality, messaging quality and reviews from other users of the application.

Early adopters of The Grade were in the 25–35 year old demographic, which we believe is the most crowded and competitive space in the online dating market. Despite the uniqueness and early success of The Grade, we decided in late 2015 to shift our resource-focus to the rebranding of FirstMet, with its established user base, and the development of 50more, our dating product for adults over 50, targeting what we believe to be one of the fastest growing and least competitive demographic in the online dating industry.

As a result of this shift in resources, we have sustained a significantly lower level of spending on sales and marketing for The Grade and subsequently have experienced a decrease in the number of users and activity on the application. We believe The Grade remains a viable product with relevant technology, and may provide a platform in the future for other product opportunities.

#### Telecommunications

We own and operate a small telecommunications provider called Vumber that enables users to have multiple phone numbers in any area code through which calls can be forwarded to a user’s existing cell phone or land line telephone number. Vumber serves both the retail and small business community. Vumber not only allows individuals to communicate while protecting privacy, but also gives business professionals the ability to add a new business line with any chosen area code to their cell phones. Vumber provides an in-depth data analytics platform that can track, record and analyze calls to gain new insights into one’s business.

#### Product Development

We are continually developing new products, as well as optimizing our existing platforms and feature sets in order to meet the evolving needs of our user base and advertising partners.

We develop most of our software internally. We will, however, purchase technology and license intellectual property rights where it is strategically important, operationally compatible, or economically advantageous. For instance, we partner with third parties to further our internationalization efforts as we look to bring additional languages into our existing platforms. We are not materially dependent upon licenses and other agreements with third parties relating to product development.

### Subscriber Base

Our applications and the majority of revenues generated therefrom are supported by a large user database of approximately 183,300 active subscribers worldwide as of March 31, 2017, as compared to 153,000 active users as of March 12, 2017. Our management believes that the scale of our subscriber base presents a competitive advantage in the video social networking industry and can present growth opportunities to combine video with dating to advance existing products with upsell opportunities as well as to build future brands with cross-sell offers. The scale of our usage also offers us the opportunity to build our third party advertising revenue.

### Operational Highlights and Objectives

During the three months ended March 31, 2017, we executed key components of our objectives:

- founded an innovation lab to leverage our technology and commercial platform to support growth initiatives in the live video markets;
- began work on a new live video chat consumer application;
- introduced a beta launch of 50more, our dating product targeting users over 50 years old;
- launched a dating tab on Paltalk to cross sell FirstMet to video chat users;
- continued Merger integration efforts, including organizational restructuring, real estate and vendor consolidation, and standardizing our technology platform and reporting systems;
- completed the Reverse Stock Split at a 1-for-35 ratio; and
- formed both an audit and compensation committee consisting of three and two independent directors, respectively.

For the near term, our business objectives include:

- advancing our strategy to enter the live streaming market;
- completing the development and launch of our new live video chat consumer application;
- building awareness and usage of 50more;
- continuing to realize revenue and cost reducing benefits of the Merger integration;
- enhancing user monetization and revenue through micro transactions, licensing and advertising;
- exploring merger and acquisition opportunities; and
- continuing to defend our intellectual property.

Sources of Revenue

#### Subscription

Our video chat platforms generate revenue primarily through subscription fees. Our tiers of subscriptions provide users with unlimited video windows and levels of status within the community. Multiple subscription tiers are offered in different durations depending on the product. We currently offer one-, six-, twelve-, and fifteen-month terms, which continue to vary as we continue to test and optimize length and pricing. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates. Levels of membership benefits are offered in tiers, with the least membership benefits in the lowest paid tier and the most membership benefits in the highest paid tier. Our membership tiers are “Plus,” “Extreme,” “VIP” and “Prime” for Paltalk and “Pro,” “Extreme” and “Gold” for Camfrog. We also hold occasional promotions that offer discounted subscriptions and virtual gifts.

FirstMet generates revenue primarily through subscription fees. Multiple subscription tiers are offered in one-, three- and six-month terms, which continue to vary as we continue to test and optimize length and pricing. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates. Pursuant to the terms of service of our dating platforms, subscriptions automatically renew for periods of the same length and at the same price as the original subscription term until terminated by the subscriber. We also hold occasional promotions that offer initial discounted subscriptions that renew at the regular price.

We recognize revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated. Revenues from multi-month subscriptions are recognized on a straight-line basis over the length of the subscription period. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying consolidated Balance Sheets.

#### Advertising

We also generate a portion of our revenue on both our video and dating platforms through advertisements. Advertising revenue is dependent upon traffic as well as the advertising inventory we place on our products. We recognize advertising revenue as earned on a click-through, impression, 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 by clicking on or through our application (CPA basis), or clicks on an offer to subscribe to premium features on the application, the contract amount is recognized as revenue.

#### Virtual Gifts/Micro-transactions

In our video chat applications we offer virtual gifts to our users. Users may purchase credits that can be redeemed for a host of virtual gifts such as a rose, a beer or a car, among other items. These gifts are given among users to enhance communication and are generally redeemed within the month of purchase. Virtual gift revenue is recognized at the point of sale and included in subscription revenue.

We also offer micro-transactions to our users. Micro-transactions allow users in the dating applications to increase the visibility of their profile and messages by paying for such services. In addition, micro-transactions include activation fees for new subscriptions. We recently introduced micro-transactions to our video applications that allow users to pay for limited access to premium-level benefits without a premium subscription. While micro-transactions are not currently a significant driver of revenue, we believe that micro-transactions increase user engagement with our applications and the likelihood that users will become paid subscribers. Micro-transaction revenue is recognized at the point of sale and included in subscription revenue.

### Costs and Expenses

*Cost of revenue*. Cost of revenue consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent and bandwidth costs.

*Sales and marketing expense*. Sales and marketing expense consists primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel engaged in sales, and sales support functions. Advertising and promotional spend includes online marketing, including fees paid to search engines, and offline marketing, which is primarily partner-related payments to those who direct traffic to our brands. We plan to continue to expand sales and marketing efforts to attract new users, retain existing users and increase sales to both new and existing users.

*Product development expense*. Product development expense, which relates to the development of technology of our applications, consists primarily of compensation (including stock-based compensation) and other employee-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of service offerings as well as amortization of capitalized website development costs.

*General and administrative*. General and administrative expense consists primarily of compensation (including stock-based compensation) and other employee- related costs for personnel engaged in executive management, finance, legal, tax, human resources and facilities costs and fees for other professional services. General and administrative expense also includes depreciation of fixed assets and amortization of intangible assets.

Key Metrics

Our management relies on certain non-GAAP and/or unaudited performance indicators to manage and evaluate our business. The key performance indicators set forth below help us evaluate growth trends, establish budgets, measure the effectiveness of our advertising and marketing efforts and assess operational efficiencies. We also discuss net cash provided by operating activities under the ‟Results of Operations” and ‟Liquidity and Capital Resources” sections below. Bookings and Adjusted EBITDA are discussed below.

|  | March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Bookings | $6,143,208 | $4,274,120 |
| Net cash provided by operating activities | $943,100 | $407,654 |
| Net (loss) income | $(1,038,703) | $40,789 |
| Adjusted EBITDA | $(213,990) | $297,315 |
| Adjusted EBITDA as percentage of total revenues | (3.2)% | 6.0% |

#### Bookings

Bookings is a financial measure representing the aggregate dollar value of subscription fees, virtual gift credit purchases and micro-transactions received during the period. We calculate bookings as subscription revenue recognized during the period plus the change in deferred subscription revenue recognized during the period. We record subscription revenue from subscription fees, virtual gift credit purchases and micro-transactions as deferred subscription revenue and then recognize that revenue ratably over the length of the fulfillment term of the subscription or other sale item. Our management uses bookings internally in analyzing our financial results to assess operational performance and to assess the effectiveness of, and plan future, user acquisition campaigns. We believe that this financial measure is useful in evaluating our business because we believe, as compared to subscription revenue, it is a better indicator of the subscription activity in a given period. We believe that both management and investors benefit from referring to bookings in assessing our performance and when planning, forecasting and analyzing future periods.

While the factors that affect bookings and subscription revenue are generally the same, certain factors may affect subscription revenue more or less than such factors affect bookings in any period. While we believe that bookings is useful in evaluating our business, it should be considered as supplemental in nature and it is not meant to be a substitute for subscription revenue recognized in accordance with GAAP.

#### Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net income (loss) adjusted to exclude interest expense, net, income tax (benefit), depreciation and amortization expense, other income, net and stock-based compensation expense.

We present Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to develop short- and long-term operational plans, and to allocate resources to expand our business. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of the cash operating income generated by our business. We believe that Adjusted EBITDA is useful to investors and others to understand and evaluate our operating results and it allows for a more meaningful comparison between our performance and that of competitors.

#### Limitations of Adjusted EBITDA

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

- Adjusted EBITDA does not reflect cash capital expenditures for assets underlying depreciation and amortization expense that may need to be replaced or for new capital expenditures;
- Adjusted EBITDA does not reflect our working capital requirements;
- Adjusted EBITDA does not consider the potentially dilutive impact of stock-based compensation; and
- other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results. The following table presents a reconciliation of net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated:

| Reconciliation of Net (loss) income to Adjusted EBITDA: | Three Months Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Net (loss) income | $(1,038,703) | $40,789 |
| Interest expense, net | (36,813) | (285) |
| Depreciation and amortization expense | 551,824 | 242,600 |
| Stock-based compensation expense | 309,702 | 14,211 |
| Adjusted EBITDA | $(213,990) | $297,315 |

### Results of Operations

The following table sets forth Consolidated Statements of Operations data for each of the periods indicated as a percentage of total revenues:

|  | Three Months Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Total revenue | 100.0% | 100.0% |
| Costs and expenses: |  |  |
| Cost of revenue | 19.1% | 28.3% |
| Sales and marketing expense | 33.2% | 18.6% |
| Product development expense | 32.9% | 42.4% |
| General and administrative expense | 30.8% | 9.9% |
| Total costs and expenses | 116.0% | 99.2% |
| (Loss) income from operations | (16.0)% | 0.8% |
| Interest expense, net | 0.5% | 0.0% |
| Total other income (expense), net | 0.5% | 0.0% |
| (Loss) income before income taxes | (15.5)% | 0.8% |
| Provision (benefit) for income taxes |  |  |
| Net (loss) income | (15.5)% | 0.8% |

### Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

### Revenues

Revenues increased to $6,718,952 for the three months ended March 31, 2017, from $4,937,698 for the three months ended March 31, 2016. The increase was mainly driven by the inclusion of revenue from pre-Merger Snap products following the completion of the Merger, offset by a decline in subscription revenue and advertising revenue in pre-Merger AVM products.

The following table sets forth our subscription revenue, advertising revenue and total revenues for the three months ended March 31, 2017 and the three months ended March 31, 2016, the increase/decrease between those periods, the percentage increase/decrease between those periods, and the percentage of total revenues that each represented for those periods:

|  | Three Months Ended March 31, 2017 | 2016 | Increase (Decrease) | % Increase (Decrease) | % Revenue Three Months Ended March 31, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription revenue | $6,223,685 | $4,389,274 | $1,834,411 | 41.8% | 92.6% | 88.9% |
| Advertising revenue | 495,267 | 548,424 | (53,157) | (9.7)% | 7.4% | 11.1% |
| Total revenues | $6,718,952 | $4,937,698 | $1,781,254 | 36.1% | 100.0% | 100.0% |

*Subscription Revenue -* Our subscription revenue for the three months ended March 31, 2017 increased by $1,834,411, or 41.8%, as compared to the three months ended March 31, 2016. This increase in subscription revenue for the three months ended March 31, 2017 was primarily due to the inclusion of subscription revenue from pre-Merger Snap of approximately $2,112,000 following the completion of the Merger offset by a decline in subscription revenue of approximately $277,660 as compared to March 31, 2016 from products attributable to pre-Merger AVM. We believe that the decrease in subscription revenue from pre-Merger AVM products was driven, in part, by an anticipated decrease in new transactions in the Paltalk product as we shift management attention and resources to new higher growth opportunities in the live video market.

*Advertising Revenue -* Our advertising revenue for the three months ended March 31, 2017 decreased by $53,157, or 9.7%, as compared to the three months ended March 31, 2016. The decrease in advertising revenue primarily resulted from the loss of one advertising partner and the elimination of a third party toolbar distribution arrangement offset by an increase in advertising revenue from FirstMet as a result of the Merger.

### Costs and Expenses

Total costs and expenses for the three months ended March 31, 2017 reflect an increase in costs and expenses of $2,897,274, or 59.2%, as compared to the three months ended March 31, 2016. The following table presents our costs and expenses for the three months ended March 31, 2017 and 2016, the increase or decrease between those periods and the percentage increase or decrease between those periods:

|  | Three Months Ended March 31, 2017 | 2016 | Increase (Decrease) | % Increase (Decrease) | % Revenue Three Months Ended March 31, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of revenue | $1,282,505 | $1,399,000 | $(116,495) | (8.3)% | 19.1% | 28.3% |
| Sales and marketing expense | 2,230,492 | 918,616 | 1,311,876 | 142.8% | 33.2% | 18.6% |
| Product development expense | 2,211,344 | 2,092,835 | 118,509 | 5.7% | 32.9% | 42.4% |
| General and administrative expense | 2,070,127 | 486,743 | 1,583,384 | 325.3% | 30.8% | 9.9% |
| Total costs and expenses | $7,794,468 | $4,897,194 | $2,897,274 | 59.2% | 116.0% | 99.2% |

*Cost of revenue -* Our cost of revenue for the three months ended March 31, 2017 decreased by $116,495, or 8.3%, as compared to the three months ended March 31, 2016. The decrease in cost of revenue for the three months ended March 31, 2016 was primarily driven by a move from physical servers to cloud web hosting services. The server move also drove reduced headcount in our information technology support areas.

*Sales and marketing expense -* Our sales and marketing expense for the three months ended March 31, 2017 increased by $1,311,876, or 142.8%, as compared to the three months ended March 31, 2016. The increase in sales and marketing expense for the three months ended March 31, 2017 was primarily due to the inclusion of pre-Merger Snap sales and marketing expense following the completion of the Merger. In addition, we commenced a new relationship with a marketing vendor which had no marketing expense for the three months ended March 31, 2016.

*Product development expense -* Our product development expense for the three months ended March 31, increased by $118,509, or 5.7%, as compared to the three months ended March 31, 2016. The increase in product development expense for the three months ended March 31, 2017 was primarily due to the increase in headcount from the inclusion of the pre-Merger Snap and an increase in consulting services supporting the efforts to enhance user retention and improve monetization of our sites.

*General and administrative expenses -* Our general and administrative expense for the three months ended March 31, 2017 increased by $1,583,384, or 325.3%, as compared to the three months ended March 31, 2016. The increase in general and administrative expense was primarily driven by stock compensation expense relating to executive equity awards as well as an increase in accounting and legal fees related to the filing of the Form 10-K. In addition, we incurred a lease cancellation fee related to our office space on 320 W 37th Street in New York, NY.

### Non-Operating Income, net

The following table presents the components of non-operating income for the three months ended March 31, 2017 and the three months ended March 31, 2016, the increase or decrease between those periods and the percentage increase or decrease between those periods:

|  | Three Months Ended March 31,% 2017 | 2016 | Increase | Increase | % Revenue Three Months Ended March 31, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income, net | $36,813 | $285 | $36,528 | 12816.8% | 0.5% | 0.0% |
| Total non-operating income, net | $36,813 | $285 | $36,528 | 12816.8% | 0.5% | 0.0% |

#### Interest income, net

Interest income, net for the three months ended March 31, 2017 was $36,813, a net increase of $36,528, or 12816.8%, as compared to $285 for the three months ended March 31, 2016. The increase of interest income was mainly driven by the interest on our cash balances.

### Liquidity and Capital Resources

| Condensed Consolidated Statements of Cash Flows Data: | Three Months Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $943,100 | $407,654 |
| Net cash used in investing activities | (64,588) | (107,866) |
| Net cash used in financing activities | (17,144) | - |
| Net increase in cash and cash equivalents | $861,368 | $299,788 |

We have historically financed our operations through cash generated from operations.

Currently, our primary source of liquidity is cash on hand and cash flows from continuing operations. As of March 31, 2017, we had $5,023,964 in cash and cash equivalents, as compared to cash and cash equivalents of $4,162,596 as of December 31, 2016, and no long-term debt.

We are focused on reducing costs and increasing profitability following the Merger and we believe that our cash balance and our expected cash flow from operations will be sufficient to meet all of our financial obligations for the twelve months from the filing date of this Form 10-Q. It is possible that we would need additional capital in the future to fund our operations, particularly growth initiatives, which we expect we would raise through a combination of equity offerings, debt financings, other third-party funding and other collaborations and strategic alliances. Our future capital requirements will depend on many factors including our growth rate, headcount, sales and marketing activities, research and development efforts, and the introduction of new features, products, acquisitions and continued user engagement.

Our primary use of working capital is related to user acquisition costs, including sales and marketing expense and product development expense. Our sales and marketing expenditures are primarily spent on channels where we can estimate the return on investment without long-term commitments. Accordingly, we can adjust our advertising and marketing expenditures quickly based on the expected return on investment, which provides flexibility and enables us to manage our advertising and marketing expense. In addition, we allocate significant resources to product development in order to maintain and create new features and products which will enable a better user experience and increased interactions.

We are continuously evaluating and implementing cost reduction initiatives to manage the expense of our operations. During 2017, we plan to continue to reduce costs by consolidating vendors (including office space, payment processing, licensing agreements, etc.), consolidation of advertising affiliate partners, consolidation of internal departments (such as customer service) and incremental offshore product development resources.

### Operating Activities

Net cash provided by operating activities was $943,100 for the three months ended March 31, 2017, as compared to net cash provided by operating activities of $407,654 for the three months ended March 31, 2016. This increase in net cash provided by operating activities of $535,446 was mainly as result of an increase in subscription revenue received during the period.

Significant items impacting cash flow in the three months ended March 31, 2016 included significant cash outlays relating to advertising and marketing expense and increased headcount related expenses in the product development area. These uses of cash were offset in part by collections in subscription and advertising revenue received during the period.

### Investing Activities

Net cash used in investing activities for the three months ended March 31, 2017 and 2016 was $64,588 and $107,866, respectively. The decrease in cash used in investing activities for the three months ended March 31, 2017 was primarily the result of reduced purchases of property and equipment. These purchases consisted primarily of computers and office furniture. Purchases of property and equipment may vary from period to period due to the timing of the expansion of our operations and software development.

### Financing Activities

Net cash used in financing activities for the three months ended March 31, 2017 and 2016 was $17,144 and $0, respectively. The cash used in financing activities for the three months ended March 31, 2017 was related to the repayment of capital leases.

### Off-Balance Sheet Arrangements

As of March 31, 2017, we did not have any off-balance sheet arrangements.

## Controls and procedures

As filed, 2,517 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In connection with the preparation of this Form 10–Q, our management, (Chief Executive Office and Chief Financial Officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2017. Management had previously identified material weaknesses in our internal control over financial reporting as of December 31, 2016 (see Form 10-K filed with the SEC on March 28, 2017), which is an integral component of our disclosure controls and procedures.

- The Company does not have an independent audit committee in place, which would provide oversight of the Company’s officers, operations and financial reporting function.

On February 2, 2017, the Company formed an audit committee consisting of three independent members of our Board of Directors, as independence is defined by the rules of NASDAQ. As part of its duties, the audit committee will assist our management in the establishment and monitoring of our internal controls and procedures. Management believes that the controls implemented in relation to the audit committee are sufficient to address the above weakness, however, they have concluded that such controls have not been in place for a sufficient period of time in order to conclude that the identified material weaknesses described above has been fully remediated. Therefore, management has concluded that as of March 31, 2017, our disclosure controls were not effective.

### Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as discussed above.

## Risk factors

As filed, 208 characters.

There were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in the Form 10-K. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in the Form 10-K.

Filed May 11, 2017.
Source: SEC EDGAR, the filing index for accession 0001213900-17-004956. Last ingested by Listed: Nov 11, 2026, 00:54 ET. No prices; not investment advice.