Intelligent Protection Management Corp.: Form 10-Q for the period ended Sep 30, 2023
Filed with the SEC on Nov 7, 2023 and accepted by EDGAR at Nov 7, 2023, 16:20 ET.
Management's discussion and analysis
As filed, 36,559 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 and nine months ended September 30, 2023 and 2022, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2023 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-K. Aside from certain information as of December 31, 2022, 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 Part II of this report and “Item 1A. Risk Factors” in the Form 10-K.
Overview
We are a communications software innovator that powers multimedia social applications. We operate a network of consumer applications that we believe create a unique social media enterprise where users can meet, see, chat, broadcast and message in real time in a secure environment with others in our network. Our consumer applications generate revenue principally from subscription fees and advertising arrangements.
Our product portfolio includes Paltalk, Camfrog and Tinychat, which together host a large collection of video-based communities. Our other products include ManyCam and Vumber. ManyCam is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools. Vumber is a telecommunications services provider that enables users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user’s existing telephone number. We have an over 20-year history of technology innovation and hold 10 patents.
We believe that the scale of our user base presents a competitive advantage in the video social networking industry and provides growth opportunities to advance our existing products with up-sell opportunities and build future brands with cross-sell offers. We also believe that our proprietary consumer app technology platform can scalably support large communities of users in activities such as video, voice and text chat, online card games and board games and provide robust user monetization tools.
Our continued growth depends on attracting new consumer application users through the introduction of new applications, features and partnerships and further penetration of our existing markets. Our principal growth strategy is to invest in the development of proprietary software, expand our sales and marketing efforts with respect to such software, and increase our consumer application user base through potential platform partnerships and new and existing advertising campaigns that we run through internet and mobile advertising networks, all while balancing the capital needs of the business. Our strategy also includes the acquisition of, or investment in, technologies, solutions or businesses that complement our business and cross-selling them to additional synergistic businesses.
Our strategy is to approach these opportunities in a measured way, being mindful of our resources and evaluating factors such as potential revenue, time to market and amount of capital needed to invest in the opportunity.
Recent Developments
Director Appointment
On October 9, 2023, our Board of Directors increased the size of the Board of Directors from five (5) directors to six (6) directors and filled the newly created vacancy by appointing Geoffrey Cook as a director of the Company, effective as of October 10, 2023. Mr. Cook was also appointed to serve as a member of the Nominating and Corporate Governance Committee of the Board of Directors and the Strategic Transactions Committee of the Board of Directors. We believe Mr. Cook is qualified to serve on our Board of Directors due to his experience in the social media and consumer internet industries as well as his insights regarding corporate strategy and brand growth.
Impact of Macro-Economic Factors
Our results of operations have been and may continue to be negatively impacted by macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary environment. Prolonged periods of inflation have affected, and may continue to affect, our ability to target new customers as well as keep existing customers engaged and may ultimately have a correlating effect on our users’ discretionary spending. Additionally, the closures of certain banks in the first and second quarters of 2023 and their placement into receivership with the Federal Deposit Insurance Corporation created bank-specific and broader financial institution liquidity challenges and concerns. Future adverse developments with respect to specific financial institutions or the broader financial services industry may create additional market and economic uncertainty, which could affect our industry.
Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), we were eligible for a refundable employee retention tax credit (the “ERTC”) subject to certain criteria. During the nine months ended September 30, 2023, we applied for the ERTC and recorded a receivable in the amount of $343,045, net of related costs, which was recognized in our condensed consolidated statement of operations as other income. As of September 30, 2023, we received an aggregate of $294,833, which was recorded as a reduction of the receivable on our condensed consolidated balance sheet.
Operational Highlights and Business Objectives
During the three and nine months ended September 30, 2023, we executed key components of our objectives:
- total revenue increased by approximately 5.5%, or $144,472, for the three months ended September 30, 2023 compared to total revenue for the three months ended September 30, 2022, primarily as a result of an increase in virtual gift revenue from Paltalk, increased revenue from Vumber, as well as an increase in ManyCam revenue ;
- net loss decreased by 82.7% to $181,576 for the three months ended September 30, 2023, compared to net loss of approximately $1.1 million for the three months ended September 30, 2022, as a result of increased revenues, reduced expenses, and increased operating efficiencies;
- cash flows used in operations decreased by $1.0 million and $1.6 million for the three and nine months ended September 30, 2023, respectively, compared to the three and nine months ended September 30, 2022, mainly as result of a decrease in product development expense;
- we were cash flow positive for the three months ended September 30, 2023; and
- engaged Cleverbridge to facilitate our global payment processing capabilities in international geographic markets.
For the near term, our business objectives include:
- leveraging our recently completed integration of the ManyCam product into Paltalk product through upselling initiatives;
- further optimizing marketing spend to effectively realize a positive return on our investment;
- developing a user-friendly version of ManyCam that will be optimized for both consumer and enterprise applications;
- continuing to implement several enhancements to our live video chat applications as well as the integration of card and board games and other features focused on retention and monetization, which collectively are intended to increase user engagement and revenue opportunities;
- continuing to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our businesses;
- continuing to develop our consumer application platform strategy by seeking potential partnerships with large third-party communities to whom we could promote a co-branded version of our video chat products and potentially share in the incremental revenues generated by these partner communities; and
- continuing to defend our intellectual property.
Sources of Revenue
Our main sources of revenue are subscription revenue, which includes virtual gift revenue, and advertising revenue generated from users of our core video chat products, Paltalk and Camfrog. We also generate revenue from subscriptions for our ManyCam software product. We expect that the majority of our revenue in future periods will continue to be generated from our core video chat products.
Subscription Revenue
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 from one-, three-, six-, twelve-, and twenty-four-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. Subscriptions for ManyCam are generally offered in annual and two-year terms, with exceptions made for enterprise sales.
We recognize revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated. Revenues from multi-month (or annual) subscriptions are recognized on a gross and straight-line basis over the length of the subscription period. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets.
We also offer virtual gifts to our users through our Paltalk, Camfrog and TinyChat applications. 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. Virtual gift revenue is recognized upon the users’ utilization of the virtual gift and included in subscription revenue. The unearned portion of virtual gifts revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets.
Advertising Revenue
We generate a portion of our revenue through advertisements on our video platforms. Advertising revenue is dependent upon the volume of advertising impressions viewed by active users 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. Measurements of impressions include when a user clicks on an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through our application (CPA basis).
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. Cost of revenue also includes compensation and other employee-related costs for technical personnel, consultants and subcontracting costs relating to technology service revenue.
Sales and marketing expense
Sales and marketing expense consist primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel and consultants engaged in sales and sales support functions. Advertising and promotional spend includes online marketing, including fees paid to search engines, and offline marketing, which primarily consists of partner-related payments to those who direct traffic to our brands.
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 and consultant-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 expense
General and administrative expense consists primarily of compensation (including non-cash stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources and facilities costs and fees for other professional services and cost of insurance. General and administrative expense also includes depreciation of property and equipment 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 (used in) operating activities under the ‟Results of Operations” and “Liquidity and Capital Resources” sections below. Adjusted EBITDA is discussed below.
| Three Months Ended September 30, (unaudited) 2023 | 2022 | Nine Months Ended September 30, (unaudited) 2023 | 2022 | |
|---|---|---|---|---|
| Net cash provided by (used in) operating activities | $16,058 | $(979,748) | $(980,720) | $(2,623,682) |
| Net loss | $(181,576) | $(1,050,365) | $(784,245) | $(2,918,016) |
| Net loss as a percentage of total revenues | (6.5)% | (40.0)% | (9.5)% | (35.0)% |
| Adjusted EBITDA | $(126,453) | $(780,550) | $(789,692) | $(2,173,979) |
| Adjusted EBITDA as percentage of total revenues | (4.6)% | (29.8)% | (9.5)% | (26.5)% |
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net loss adjusted to exclude interest (income) expense, net, other (income) expense, net, income tax (benefit) expense, impairment loss on digital tokens, depreciation and amortization expense, 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 that Adjusted EBITDA does not reflect, among other things: interest (income) expense, net, income tax (benefit) expense, depreciation and amortization expense, other (income) expense, net, and stock-based compensation. 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 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 to Adjusted EBITDA: | Three Months Ended September 30, (unaudited) 2023 | 2022 | Nine Months Ended September 30, (unaudited) 2023 | 2022 |
|---|---|---|---|---|
| Net loss | $(181,576) | $(1,050,365) | $(784,245) | $(2,918,016) |
| Interest (income) expense, net | (169,925) | (19,750) | (462,433) | 3,004 |
| Other (income) expense, net | - | - | (343,045) | 27,361 |
| Income tax (benefit) expense | (37,915) | 9,712 | 13,590 | 30,496 |
| Impairment loss on digital tokens | - | - | - | 7,262 |
| Depreciation and amortization expense | 205,583 | 220,124 | 616,750 | 404,565 |
| Stock-based compensation expense | 57,380 | 59,729 | 169,691 | 271,349 |
| Adjusted EBITDA | $(126,453) | $(780,550) | $(789,692) | $(2,173,979) |
Results of Operations
The following table sets forth condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenues:
| Three Months Ended September 30, (unaudited) 2023 | 2022 | Nine Months Ended September 30, (unaudited) 2023 | 2022 | |
|---|---|---|---|---|
| Total revenue | 100.0% | 100.0% | 100.0% | 100.0% |
| Costs and expenses: | ||||
| Cost of revenue | 29.9% | 29.6% | 29.0% | 25.5% |
| Sales and marketing expense | 7.6% | 14.1% | 8.3% | 15.5% |
| Product development expense | 43.1% | 56.6% | 43.5% | 55.4% |
| General and administrative expense | 33.5% | 40.1% | 38.2% | 38.5% |
| Impairment loss on digital tokens | 0.0% | 0.0% | 0.0% | 0.1% |
| Total costs and expenses | 114.1% | 140.4% | 119.0% | 134.9% |
| Loss from operations | (14.1)% | (40.4)% | (19.0)% | (34.9)% |
| Interest income (expense), net | 6.1% | (0.7)% | 5.6% | (0.0)% |
| Other income (expense), net | 0.0% | 0.7% | 4.1% | (0.3)% |
| Loss from operations before provision for income taxes | (8.0)% | (39.7)% | (9.3)% | (35.2)% |
| Income tax benefit (expense) | 1.4% | (0.4)% | (0.2)% | (0.4)% |
| Net loss | (6.6)% | (40.0)% | (9.5)% | (35.6)% |
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Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Revenue
Total revenue increased by 5.5% to $2,767,939 for the three months ended September 30, 2023 from $2,623,467 for the three months ended September 30, 2022. This increase was primarily driven by an increase in virtual gift revenue from Paltalk, increased revenue from Vumber, as well as an increase in ManyCam revenue compared to the three months ended September 30, 2022.
The following table sets forth our subscription revenue, advertising revenue and total revenue for the three months ended September 30, 2023 and the three months ended September 30, 2022, the increase between those periods, the percentage increase between those periods, and the percentage of total revenue that each represented for those periods:
(unaudited)
(unaudited)
| Three Months Ended September 30, 2023 | 2022 | $% Increase | Increase | % Revenue Three Months Ended September 30, 2023 | 2022 | |
|---|---|---|---|---|---|---|
| Subscription revenue | $2,673,333 | $2,538,764 | $134,569 | 5.3% | 96.6.% | 96.8% |
| Advertising revenue | 94,606 | 84,703 | 9,903 | 11.7% | 3.4% | 3.2% |
| Total revenues | $2,767,939 | $2,623,467 | $144,472 | 5.5% | 100.0% | 100.0% |
Subscription Revenue
Our subscription revenue for the three months ended September 30, 2023 increased by $134,569, or 5.3%, as compared to the three months ended September 30, 2022. The increase in subscription revenue was primarily driven by an increase in virtual gift revenue in the Paltalk application, a price increase in Vumber, as well as an increase in subscription revenue from ManyCam.
Advertising Revenue
Our advertising revenue for the three months ended September 30, 2023 increased by $9,903, or 11.7%, as compared to the three months ended September 30, 2022. The increase in advertising revenue was primarily due to an increase in the volume of advertising impressions related to changes in the optimization of third-party advertising partners.
Costs and Expenses
Total costs and expenses for the three months ended September 30, 2023 decreased by $526,515, or 14.3%, as compared to the three months ended September 30, 2022. The following table presents our costs and expenses for the three months ended September 30, 2023 and 2022, the increase or decrease between those periods and the percentage increase or decrease between those periods and the percentage of total revenue that each represented for those periods:
| Three Months Ended September 30, (unaudited) 2023 | 2022 | $ Increase (Decrease) | % Increase (Decrease) | % Revenue Three Months Ended September 30, (unaudited) 2023 | 2022 | |
|---|---|---|---|---|---|---|
| Cost of revenue | $826,662 | $775,330 | $51,332 | 6.6% | 29.9% | 29.6% |
| Sales and marketing expense | 210,573 | 370,772 | (160,199) | (43.2)% | 7.6% | 14.1% |
| Product development expense | 1,193,430 | 1,485,479 | (292,049) | (19.7)% | 43.1% | 56.6% |
| General and administrative expense | 926,690 | 1,052,289 | (125,599) | (11.9)% | 33.5% | 40.1% |
| Total costs and expenses | $3,157,355 | $3,683,870 | $(526,515) | (14.3)% | 114.1% | 140.4% |
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Cost of revenue
Our cost of revenue for the three months ended September 30, 2023 increased by $51,332, or 6.6%, as compared to the three months ended September 30, 2022. This increase is primarily due to an increase in hosting expense due to increased usage and per unit cost from web hosting providers.
Sales and marketing expense
Our sales and marketing expense for the three months ended September 30, 2023 decreased by $160,199, or 43.2%, as compared to the three months ended September 30, 2022. The decrease in sales and marketing expense for the three months ended September 30, 2023 was primarily due to a decrease in marketing user acquisition expenses.
Product development expense
Our product development expense for the three months ended September 30, 2023 decreased by $292,049, or 19.7%, as compared to the three months ended September 30, 2022. The decrease was primarily due to a decrease of approximately $267,615 in software expenses and a decrease of $16,557 in salary-related expenses. We accomplished this reduction by streamlining our offshore development efforts as well as reallocating in-house resources. In addition, amortization expense decreased by $13,633.
General and administrative expense
Our general and administrative expense for the three months ended September 30, 2023 decreased by $125,599, or 11.9%, as compared to the three months ended September 30, 2022. The decrease in general and administrative expense for the three months ended September 30, 2023 was primarily due to decreases in professional fees of $68,241, decreases in dues and subscriptions of $34,030 and decreases in compensation-related expenses of $19,259.
Non-Operating Income
The following table presents the components of non-operating income for the three months ended September 30, 2023 and the three months ended September 30, 2022, the increase between those periods and the percentage increase between those periods and the percentage of total revenue that each represented for those periods:
| Three Months Ended September 30, (unaudited) 2023 | 2022 | $% Increase | Increase | % Revenue Three Months Ended September 30, (unaudited) 2023 | 2022 | |
|---|---|---|---|---|---|---|
| Interest income, net | $169,925 | $19,750 | $150,175 | 760.4% | 6.1% | (0.8)% |
| Total non-operating income | $169,925 | $19,750 | $150,175 | 760.4% | 6.1% | (0.8)% |
Non-operating income for the three months ended September 30, 2023 was $169,925, an increase of $150,175, or 760.4%, as compared to non-operating income of $19,750 for the three months ended September 30, 2022. The increase was primarily a result of interest earned in a high yield bank account.
Income Taxes
Our provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align our year-to-date tax provision with the effective rate that we expect to achieve for the full year. For the three months ended September 30, 2023 and September 30, 2022, we recorded an income tax (benefit) expense of $(37,915) and $9,712, respectively, primarily related to foreign, state and local taxes.
As of September 30, 2023, our conclusion regarding the realizability of our US deferred tax assets had not changed, and we had recorded a full valuation allowance against them.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Revenue
Total revenue increased by 1.1% to $8,287,958 for the nine months ended September 30, 2023 from $8,194,436 for the nine months ended September 30, 2022. This increase was primarily driven by an increase in subscription revenue in the nine months ended September 30, 2023.
The following table sets forth our subscription revenue, advertising revenue and total revenue for the nine months ended September 30, 2023 and the nine months ended September 30, 2022, the increase (decrease) between those periods, the percentage increase (decrease) between those periods, and the percentage of total revenue that each represented for those periods:
| Nine Months Ended September 30, (unaudited) 2023 | 2022 | $ Increase (Decrease) | % Increase (Decrease) | % Revenue Nine Months Ended September 30, (unaudited) 2023 | 2022 | |
|---|---|---|---|---|---|---|
| Subscription revenue | $8,063,992 | $7,945,809 | $118,183 | 1.5% | 97.3% | 97.0% |
| Advertising revenue | 223,966 | 248,827 | (24,861) | (10.0)% | 2.7% | 3.0% |
| Total revenues | $8,287,958 | $8,194,636 | $93,322 | 1.1% | 100.0% | 100.0% |
Subscription Revenue
Our subscription revenue for the nine months ended September 30, 2023 increased by $118,183, or 1.5%, as compared to the nine months ended September 30, 2022. The increase in subscription revenue was primarily driven by an increase in virtual gifts across the Paltalk and Camfrog applications during the nine months ended September 30, 2023, as well as an increase in ManyCam revenue.
Advertising Revenue
Our advertising revenue for the nine months ended September 30, 2023 decreased by $24,861, or 10.0%, as compared to the nine months ended September 30, 2022. The decrease in advertising revenue was primarily due to a decrease in the volume of advertising impressions related to changes in the optimization of third-party advertising partners.
Costs and Expenses
Total costs and expenses for the nine months ended September 30, 2023 decreased by $1,187,700, or 10.7%, as compared to the nine months ended September 30, 2022. The following table presents our costs and expenses for the nine months ended September 30, 2023 and 2022, the increase or decrease between those periods and the percentage increase or decrease between those periods and the percentage of total revenue that each represented for those periods:
| Nine Months Ended September 30, (unaudited) 2023 | 2022 | $ Increase (Decrease) | % Increase (Decrease) | % Revenue Nine Months Ended September 30, (unaudited) 2023 | 2022 | |
|---|---|---|---|---|---|---|
| Cost of revenue | $2,403,165 | $2,088,974 | $314,191 | 15.0% | 29.0% | 25.5% |
| Sales and marketing expense | 685,953 | 1,266,387 | (580,434) | (45.8)% | 8.3% | 15.5% |
| Product development expense | 3,605,652 | 4,537,384 | (931,732) | (20.5)% | 43.5% | 55.4% |
| General and administrative expense | 3,169,321 | 3,151,784 | 17,537 | 0.6% | 38.2% | 38.5% |
| Impairment loss on digital tokens | - | 7,262 | (7,262) | (100.0)% | 0.0% | 0.1% |
| Total costs and expenses | $9,864,091 | $11,051,791 | $(1,187,700) | (10.7)% | 119.0% | 134.9% |
Cost of revenue
Our cost of revenue for the nine months ended September 30, 2023 increased by $314,191, or 15.0%, as compared to the nine months ended September 30, 2022. This increase was primarily due to an increase in hosting expenses due to increased usage and per unit cost from web hosting providers.
Sales and marketing expense
Our sales and marketing expense for the nine months ended September 30, 2023 decreased by $580,434, or 45.8%, as compared to the nine months ended September 30, 2022. The decrease in sales and marketing expense for the nine months ended September 30, 2023 was primarily due to a decrease in marketing user acquisition expenses, including agent fees, as well as a decrease in marketing and branding expense.
Product development expense
Our product development expense for the nine months ended September 30, 2023 decreased by $931,732, or 20.5%, as compared to the nine months ended September 30, 2022. The decrease was primarily due to a decrease of approximately $613,877 in software expenses. We accomplished this reduction by streamlining our offshore development efforts. Additionally, during the nine months ended September 30, 2023, we reduced our compensation related costs by $121,440 due to headcount reductions, and we reduced our amortization expense by $65,107 and dues and subscriptions expense by $65,436.
General and administrative expense
Our general and administrative expense for the nine months ended September 30, 2023 increased by $17,537, or 0.6%, as compared to the nine months ended September 30, 2022. The increase in general and administrative expense for the nine months ended September 30, 2023 was due to an increase in global professional and tax fees during such period.
Non-Operating Income (Loss)
The following table presents the components of non-operating income (loss) for the nine months ended September 30, 2023 and the nine months ended September 30, 2022, the increase between those periods and the percentage increase between those periods and the percentage of total revenue that each represented for those periods:
| Nine Months Ended September 30, (unaudited) 2023 | 2022 | $% Increase | Increase | % Revenue Nine Months Ended September 30, (unaudited) 2023 | 2022 | |
|---|---|---|---|---|---|---|
| Interest income (expense), net | $462,433 | $(3,004) | $465,437 | 15,493.9% | 5.6% | (0.0)% |
| Other income (expense), net | $343,045 | (27,361) | 370,406 | 1.353.8% | 4.1% | (0.3)% |
| Total non-operating income (loss) | $805,478 | $(30,365) | $835,843 | 2,752.7% | 9.7% | (0.3)% |
Non-operating income for the nine months ended September 30, 2023 was $805,478, an increase of $835,843, or 2,752.7%, as compared to non-operating loss of $30,365 for the nine months ended September 30, 2022. The increase was primarily the result of recording the ERTC, as well as an increase resulting from the interest earned in a high yield bank account.
Income Taxes
Our provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align our year-to-date tax provision with the effective rate that we expect to achieve for the full year. For the nine months ended September 30, 2023 and 2022, we recorded an income tax provision of $13,590 and $30,496, respectively, consisting primarily to a discrete item related to the filing of our Canadian tax return.
As of September 30, 2023, our conclusion regarding the realizability of our US deferred tax assets had not changed and we had recorded a full valuation allowance against them.
Liquidity and Capital Resources
| Condensed Consolidated Statements of Cash Flows Data: | Nine Months Ended September 30, (unaudited) 2023 | 2022 |
|---|---|---|
| Net cash used in operating activities | $(980,720) | $(2,623,682) |
| Net cash used in investing activities | (85,000) | (2,942,279) |
| Net cash used in financing activities | (7,213) | (572,336) |
| Net decrease in cash and cash equivalents | $(1,072,933) | $(6,138,297) |
Currently, our primary source of liquidity is cash on hand, and we believe that our cash and cash equivalents balance and our expected cash flows from operations will be sufficient to meet all of our financial obligations for one year from the date these financial statements are issued. As of September 30, 2023, we had $13,667,000 of cash and cash equivalents.
Our primary use of working capital is related to product development resources and an investment in marketing activities in order to maintain and create new services and features in applications for our clients and users. In particular, a significant portion of our working capital has been allocated to the improvement of our products. In the future, we may seek to grow our business by expending our capital resources to fund strategic acquisitions, investments and partnership opportunities.
Operating Activities
Net cash used in operating activities was $980,720 for the nine months ended September 30, 2023, as compared to net cash used in operating activities of $2,623,682 for the nine months ended September 30, 2022. The improvement in the amount of cash used in operations for the nine months ended September 30, 2023 was primarily attributed to an increase in total revenue and a decrease in total operating expenses compared to the nine months ended September 30, 2022.
Investing Activities
Net cash used in investing activities was $85,000 for the nine months ended September 30, 2023 compared to $2,942,279 for the nine months ended September 30, 2022. This decrease in cash used in investing activities was primarily due to the payment of the Adjusted Earn-Out Payment during the nine months ended September 30, 2023 in connection with the ManyCam asset acquisition compared to $2,942,279 spent during the nine months ended September 30, 2022 in connection with the acquisition of the ManyCam assets.
Financing Activities
Net cash used in financing activities was $7,213 for the nine months ended September 30, 2023 compared to $572,336 for the nine months ended September 30, 2022. This increase in cash used in financing activities was primarily due to purchases made under our stock repurchase plan, which expired on March 29, 2023 in accordance with its terms. During the nine months ended September 30, 2023, we repurchased 5,192 shares of common stock for an aggregate purchase price of $7,213.
Contractual Obligations and Commitments
There have been no other material changes to our contractual obligations and commitments disclosed in the contractual obligations and commitments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.
Off-Balance Sheet Arrangements
As of September 30, 2023, we did not have any off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include the discount rates and weighted average costs of capital used in the fair value of the ManyCam intangible assets and in assigning their respective useful lives. These fair values and estimates were based on a number of factors, including a valuation from an independent third party.
Controls and procedures
As filed, 1,754 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive officer and principal 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, our chief executive officer recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Based on the evaluation as of September 30, 2023, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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 quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 256 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
There were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in the Form 10-K during the nine months ended September 30, 2023. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in the Form 10-K.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2023-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2023-07-01 to 2023-09-30 | $2.8m | us-gaap:Revenues |
| Revenue | 9 months2023-01-01 to 2023-09-30 | $8.3m | us-gaap:Revenues |
| Cost of revenue | 3 months2023-07-01 to 2023-09-30 | $826.7k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months2023-01-01 to 2023-09-30 | $2.4m | us-gaap:CostOfRevenue |
| Research and development | 3 months2023-07-01 to 2023-09-30 | $1.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months2023-01-01 to 2023-09-30 | $3.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months2023-07-01 to 2023-09-30 | −$389.4k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2023-01-01 to 2023-09-30 | −$1.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months2023-07-01 to 2023-09-30 | −$37.9k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2023-01-01 to 2023-09-30 | $13.6k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2023-07-01 to 2023-09-30 | −$181.6k | us-gaap:NetIncomeLoss |
| Net income | 9 months2023-01-01 to 2023-09-30 | −$784.2k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2023-07-01 to 2023-09-30 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2023-01-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2023-07-01 to 2023-09-30 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2023-01-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2023-07-01 to 2023-09-30 | 9,222,157 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2023-01-01 to 2023-09-30 | 9,222,223 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2023-01-01 to 2023-09-30 | −$980.7k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2023-01-01 to 2023-09-30 | $2.7m | us-gaap:PaymentsToAcquireProductiveAssets |
| Share repurchases | 9 months2023-01-01 to 2023-09-30 | $5.2k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | At period end2023-09-30 | $13.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2023-09-30 | $14.7m | us-gaap:AssetsCurrent |
| Total assets | At period end2023-09-30 | $24.1m | us-gaap:Assets |
| Current liabilities | At period end2023-09-30 | $3.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2023-09-30 | $3.7m | us-gaap:Liabilities |
| Shareholders' equity | At period end2023-09-30 | $20.4m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001213900-23-084315. Last ingested by Listed: Oct 24, 2026, 15:09 ET. Listed shows no prices and gives no investment advice.