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MEETME, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge)
You should read the following discussion in conjunction with our audited
historical consolidated financial statements. Management's Discussion and
Analysis of Financial Condition and Results of Operations contain
forward-looking statements that reflect our plans, estimates, and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed elsewhere in "Risk Factors," located at Part
II, Item 1A of this report and in our Form 10-K for the year ended December 31,
2011.
Company Overview
MeetMe, Inc. is social media technology company which owns and operates
MeetMe.com and MeetMe mobile applications for Android, iPhone and iPad.
Previously, the Company operated Quepasa.com which transitioned to Meetme.com in
October 2012. Our mission is to be the best place to meet new people online. We
develop mobile and web applications to make meeting new people fun through
social games and apps. Our social graph is not the people you know but the
people you want to know. We believe the ubiquity of the smart phone and
emergence of social networking will fundamentally transform how people discover
one another and establish relationships in a mobile-first world.
Highlights for the third quarter of 2012 included:
· As of September 30, 2012 registered users increased to 89.2 million, up from
84.6 million reported at the end of the second quarter of 2012, and up from
39.5 million reported at the end of the third quarter of 2011.
· Page views totaled 10.9 billion in the third quarter of 2012, sequentially up
from 9.8 billion reported in the second quarter of 2012, and up from the 579
million page views in the same period of 2011.
· Visits totaled 384.5 million in the third quarter 2012, sequentially up from
the 338.2 million reported in the second quarter of 2012, and up from the 30.2
million visits in the same period of 2011.
· In September of 2012, MeetMe surpassed 1 million daily active US users for the
first time in its history.
· The MeetMe platform launched in Spanish and Portuguese in August and we
anticipate the platform will have six languages available by year end.
· The Company announced the completion of our transition of Quepasa.com users to
the MeetMe platform on October 8, 2012.
Trends in Our Metrics
We measure activity on our sites in terms of monthly active users (MAUs), daily
active users (DAUs), visits and page views. We define an MAU as a registered
user of one of our platforms who logged in and visited our websites or mobile
applications within the month of measurement. We define a mobile MAU as a user
who accessed one of our sites by a mobile application or by the mobile-optimized
version of our website, whether on a mobile phone or tablet such as the iPad
during the month of measurement. We define a DAU as a registered user of one of
our platforms who logged in and visited our websites or mobile applications
within the day of measurement. We define a mobile DAU as a user who accessed our
sites by one of our mobile applications or by the mobile-optimized version of
our website, whether on a mobile phone or tablet such as the iPad during the day
of measurement. Visits represent the number of times during the measurement
period that users came to the site or mobile applications for distinct
sessions. A page view is a page that a user views during a visit.
In the quarter ending September 30, 2012, the MeetMe platform averaged 1.95
million mobile MAUs and 3.4 million total MAUs, as compared to 1.67 million
mobile MAUs and 3.18 million total MAUs for the quarter ended June 30, 2012, a
net increase of over 750,000 total MAUs, or 24%, attributable to the successful
rebranding promotions for the MeeteMe platform. Total MAUs for the combined
platforms increased 3.04 million in the quarter ended September 30, 2012 as
compared to 1.59 million total MAUs for the single Quepasa platform in the
quarter ended September 30, 2011. In the quarter ending September 30, 2012, the
MeetMe platform averaged 1.11 million total DAUs, as compared 1.03 million total
DAUs for the quarter ended June 30, 2012, a net increase of approximately 80,000
total DAUs, or 8%. The Quepasa platform had approximately 703,000 and 152,000
total DAUs for the quarters ended September 30, 2012 and 2011, respectively. For
the nine months ended September 30, 2012 and 2011 there were no mobile
applications or related mobile users for Quepasa.com.
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Improving our mobile products and increasing mobile usage is a key priority that
we believe is critical to help us maintain and grow our user base and engagement
over the long term. We expect global consumers will continue to increase the
amount of time they spend and the information they share and consume through
mobile devices. We currently display ads to users who access our site via mobile
apps, and we also offer them virtual currency. We believe that people around the
world will continue to increase their use of mobile devices, and that some of
this mobile usage has been and may continue to be a substitute for use through
personal computers. Currently approximately 60% of MeetMe daily active users
access the site on mobile devices.
Factors Affecting Our Performance
Growth trends in web and mobile MAUs and DAU are critical variables that affect
our revenue and financial results by influencing the number of advertisements we
are able to show, the value of those ads, the volume of payments transactions,
as well as our expenses and capital expenditures.
Changes in user engagement patterns from web to mobile and international
diversification also affect our revenue and financial performance. We believe
that overall engagement as measured by the percentage of users who create
content (such as status posts, messages, or photos) or generate feedback
increases as our user base grows. We continue to create new apps and enhance
existing apps to lift social sharing and increase monetization. The launch of
additional languages to the platform facilitates international user growth.
Our revenue trends are also affected by advertisement inventory management
changes affecting the number, size, or prominence of advertisements we display
and traditional seasonality. Social Theater is a growing revenue product for
the MeetMe platform and on third-party sites. Social Theater growth is affected
by large brand penetration, the ability to grow the advertiser base and
advertiser spending budgets.
Our employee headcount decreased during 2012 as a result of termination related
to process re-engineering and discontinued operations. We expect to leverage
and supplement our current talent pool through managed growth. We intend to hire
additional software engineers, other personnel with technology expertise and
sales personnel to support domestic and international expansion.
Concentration of Credit Risk
During the nine months ended September 30, 2012, customers (1) and (2) comprised
17.1% and 24.2% of total revenues, respectively. For the nine months ended
September 30, 2011 customer (1), the Company's principal shareholder, MATT Inc.,
comprised 88% total revenues. Six customers comprised 69 % and 47% of total
accounts receivable as of September 30, 2012 and December 31, 2011,
respectively.
Critical Accounting Policies, Judgments and Estimates
Our discussion and analysis of our consolidated financial condition and results
of operations is based upon our consolidated financial statements, which have
been prepared in accordance with Generally Accepted Accounting Principles
("GAAP"). The consolidated financial statements include our accounts and the
accounts of our wholly-owned subsidiaries, Quepasa.com de Mexico, Quepasa
Serviços em Solucoes de Publicidade E Tecnologia Ltda (inactive), MeetMe Online
S/S Ltda (formerly Quepasa Games S/S Ltda from March 2, 2011), and Insider
Guides, Inc. (formerly known as IG Acquisition Company from November 10, 2011
until its mergers into MeetMe, Inc. on January 1, 2012). On June 30, 2012 the
Company discontinued its game development and hosting operations. Accordingly
games operations have been classified as discontinued operations for all periods
presented. All intercompany accounts and transactions have been eliminated in
consolidation. The preparation of these consolidated financial statements
requires us to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Most significant estimates
in the accompanying consolidated financial statements include the allowance on
accounts receivable, valuation of notes receivable, valuation of deferred tax
assets, valuation of equity instruments granted for services, valuation of
assets acquired and liabilities assumed in business combinations, evaluating
goodwill and long-lived assets for impairment and the measurement and accrual of
restructuring costs. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
An accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimate that are reasonably
likely to occur, could materially impact the consolidated financial statements.
We believe that the following critical accounting policies reflect the more
significant estimates and assumptions used in the preparation of the
consolidated financial statements.
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Management has discussed the development and selection of these critical
accounting estimates with the Audit Committee of our Board. In addition, there
are other items within our consolidated financial statements that require
estimation, but are not deemed critical as defined above. Changes in estimates
used in these and other items could have a material impact on our consolidated
financial statements.
Accounts Receivable Allowances
We maintain an allowance for potential credit losses based on historical
experience and other information available to management. The fees associated
with display advertising are often based on "impressions," which are created
when the ad is viewed. The amount of impressions often differs between tracking
systems, resulting in discounts on some payments. We maintain an allowance for
potential discounts based on historical experience and other information
available to management.
Goodwill
Goodwill is subject to impairment tests on an annual basis or more frequently if
facts and circumstances warrant such a review. Goodwill is evaluated using
specific methods, including potentially, a discounted cash flows method to
determine the fair value of a reporting unit and comparison of the carrying
value of goodwill to its implied fair value. The analysis necessarily involves
significant management judgment to evaluate the capacity of an acquired business
to perform within projections. If the carrying amount of a reporting unit
exceeds its fair value, determined by conducting a valuation, then the goodwill
impairment test is performed to measure the amount of the impairment loss, if
any. Management performs a qualitative assessment of goodwill to determine if it
is more likely than not that the fair value of a reporting unit is less than its
carrying value including goodwill. In the event facts and circumstances indicate
the carrying value of goodwill is impaired, the goodwill carrying value will be
reduced to its implied fair value through a charge to operating expenses.
Contingencies
We accrue for contingent obligations, including legal costs, when the obligation
is probable and the amount can be reasonably estimated. As facts concerning
contingencies become known we reassess our position and make appropriate
adjustments to the financial statements. Estimates that are particularly
sensitive to future changes include those related to tax, legal, and other
regulatory matters that are subject to change as events evolve and additional
information becomes available.
Income Taxes
We use the asset and liability method to account for income taxes. Under this
method, deferred income taxes are determined based on the differences between
the tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements which will result in taxable or deductible
amounts in future years and are measured using the currently enacted tax rates
and laws. A valuation allowance is provided to reduce net deferred tax assets to
the amount that, based on available evidence, is more likely than not to be
realized.
Revenue Sources and Recognition
Our revenue is generated from two principal sources: revenue earned from the
sales of advertising on our websites and virtual currency products.
Advertising Revenue: Advertising and custom sponsorship revenues consist
primarily of advertising fees earned from the display of advertisements and
click-throughs on text based links on our websites. Revenue from online
advertising is recognized as impressions are delivered. An impression is
delivered when an advertisement appears on pages viewed by members of the
Company's websites. Revenue from the display of click-throughs on text based
links is recognized as click-throughs occur. Consistent with GAAP, we recognize
advertising revenue from customers that are advertising networks on a net basis,
while advertising revenues earned directly from advertisers are recognized on a
gross basis. Sponsorship revenue is recognized over the time period in which the
sponsorship on the website occurs. Approximately 55% and 9% of our revenue came
from advertising during the nine months ended September 30, 2012 and 2011,
respectively.
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Virtual Currency: Revenue is earned from virtual currency monetization products
sold to our website users. These products include Lunch Money, Credits on
MeetMe, and "VIP" subscriptions. Revenue is recognized as the products are
consumed. The Company also earns revenue from advertisement products from
currency engagement actions (i.e. sponsored engagement advertisements) by users
on all of our platforms, including cost-per-action (CPA) currency incented
promotions and sales on our proprietary cross-platform currency monetization
product, "Social Theater". When a user performs an action, the user earns
virtual currency and the Company earns product revenue from the advertiser. The
Company controls and develops the Social Theater product and CPA promotions and
acts as a principal in these transactions and recognizes the related revenue on
a gross basis when collections are reasonably assured and upon delivery of the
virtual currency to the users' account. Effective November 2011 in connection
with the Merger with myYearbook, the DSM product became a part of Social
Theater, a cross platform, virtual currency product. Approximately 45% of our
revenue came from virtual currency product revenues during the nine months ended
September 30, 2012. Approximately 91% of our revenue came from Social Theater
cross platform DSM campaigns during the nine months ended September 30, 2011.
Operating Expenses
Our principal operating expenses are divided into the following categories:
• Sales and Marketing Expenses: Our sales and marketing expenses consist
primarily of salaries, benefits, and non-cash share-based compensation for our
employees engaged in sales, sales support, and marketing.
• Product Development and Content Expenses: Our product development and content
expenses including costs incurred in the classification and organization of
listings within our websites, including salaries, benefits, and non-cash
share-based compensation for our employees, utility charges, occupancy and
support for our offsite technology infrastructure, bandwidth and content
delivery fees, and internet game development and maintenance costs, are
charged to expense as incurred.
• General and Administrative Expenses: Our general and administrative expenses
consist primarily of salaries, benefits, and non-cash share-based compensation
for our executives as well as our finance, legal, human resources, and other
administrative employees. In addition our general and administrative expenses
include outside consulting, legal and accounting services, and facilities and
other supporting overhead costs.
• Depreciation and Amortization Expenses: Our depreciation and amortization are
non-cash expenses which have consisted primarily of depreciation and
amortization related to our property and equipment, and intangible
assets. Currently the majority of our depreciation and amortization expense is
attributable to tangible and intangible assets associated with the
acquisitions of myYearbook and Quepasa Games.
• Acquisition and Restructuring Costs: Acquisition and restructuring costs,
include costs incurred related to the business acquisitions made by the
Company and costs incurred in conjunction with the restructuring of the
Company's business processes. Acquisition costs include the fees for broker
commissions, investment banking, legal, accounting and other professional
services, proxy, printing and filing costs, and travel costs incurred by the
Company during the acquisition process. Restructuring costs include employee
termination and relocation costs recorded as incurred, and exit costs for the
office closures.
• Other Income (Expense): Other income (expense) consists primarily of interest
earned, interest expense and earned grant income. We have invested our cash in
AAA rated, fully liquid instruments. Interest income relates to our Notes
Receivable discussed in Note 4 of our Consolidated Financial Statements and
our cash balances. Interest expense relates to our Loan and Notes Payable
discussed in Note 8 of our Consolidated Financial Statements. Earned grant
income represents the amortized portion of a cash grant received from the
Mexican government for approved capital expenditures. The grant is being
recognized on a straight-line basis over the useful lives of the purchased
assets.
27--------------------------------------------------------------------------------Discontinued Operations from Quepasa Games
On June 30, 2012, the Company discontinued its games development and hosting
operations. Accordingly games operations have been classified as discontinued
operations for all periods presented. Game revenue was recognized when
persuasive evidence of an arrangement exists, the sales price was fixed or
determinable, collectability was reasonable assured, and the service was
rendered. For the purpose of determining when the service had been provided to
the player, we determined an implied obligation existed to the paying player to
continue displaying the purchased virtual items within the online game of a
paying player over their estimated life. The virtual goods were categorized as
either consumable or durable. Consumable goods represent goods that are consumed
immediately by a specific player action and have no residual value. Revenue from
consumable goods was recognized at the time of sale. Durable goods add to the
player's game environment over the playing period. Durable items, that otherwise
do not have a limitation on repeated use, were recorded as deferred revenue at
time of sale and recognized as revenue ratably over the estimated average
playing period of a paying player. For these items, the Company considered the
average playing period that the paying players typically play the game, to be 18
months. If we did not have the ability to differentiate revenue attributable to
durable virtual goods from the consumable virtual goods for the specific game,
we recognized revenue on the sale of the virtual goods for the game ratably over
the estimated average playing period that paying players typically play the
game. Any adjustments arising from changes in the average playing period would
have been applied prospectively on the basis that such changes are caused by new
information indicating a change in the game player behavior patterns. As the
Company controlled the game process and acted as a principal in the transaction,
revenue for internally developed games was recognized on a gross basis from
sales proceeds reported by pay aggregators which were net of payment rejections,
charge-backs and reversals.
Games expenses represented the direct expenses for hosting, marketing, site
fees, reporting and foreign taxes. Games product development and content
expenses included salaries, benefits, and share-based compensation for our
employees, utility charges, and production office costs, charged to
discontinuing operations as incurred. Game exit costs include severance costs of
terminated employees and exit costs of office closure expenses and were charged
to discontinuing operations as incurred.
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--------------------------------------------------------------------------------Comparison of the three months ended September 30, 2012 with the same period
ended September 30, 2011
The three month and nine months discussions follow our November 2011 merger with
myYearbook. The reader should understand that the 2012 increases in revenue and
expenses reflect the operations of two platforms. The following table sets forth
a modified version of our Consolidated Statements of Operations and
Comprehensive Loss that is used in the following discussions of our results of
operations:
For the three months ended September 30,
2012 2011 Change ($) Change (%)
Revenues $ 11,598,432 $ 929,482 $ 10,668,950 1148 %
Operating Costs and Expenses
Sales and marketing 2,656,955 328,118 2,328,837 710 %
Product development and content 7,883,987 1,515,499 6,368,488 420 %
General and administrative 2,001,950 774,342 1,227,608 159 %
Depreciation and amortization 1,025,421 96,943 928,478 958 %
Acquisition and restructuring costs 353,555 732,075
(378,520 ) -52 %
Operating Expenses 13,921,868 3,446,977 10,474,891 304 %
Loss from Operations (2,323,436 ) (2,517,495 ) 194,059 8 %
Other Income (Expense):
Interest income 3,866 15,426 (11,560 ) -75 %
Interest expense (280,852 ) (151,780 ) (129,072 ) -100 %
Other income 8,581 548 8,033 1466 %
Total Other Income (Expense) (268,405 ) (135,806 ) (132,599 ) -98 %
Net loss from continuing operations $ (2,591,841 ) $ (2,653,301 ) $
61,460 2 %
Net loss from discontinued operations $ - $ (859,511 ) $
859,511 100 %
Net loss $ (2,591,841 ) $ (3,512,812 ) $ 920,971 26 %
Revenues
Our revenues were approximately $11.6 million for the three months ended
September 30, 2012, an increase of $10.7 million or 1148% compared to $929,000
for the same period in 2011. The increase in revenues for the three months ended
September 30, 2012 is primarily the result of increases of approximately $4.2
million and $976,000, respectively, in web and mobile advertising, and $5.5
million in virtual currency products revenues primarily due to the MeetMe
platform (formerly myYearbook) acquired in November 2011. The revenues decreased
approximately $1.4 million for the quarter ended September 30, 2012 as compared
to the quarter ended June 30, 2012. The sequential quarter net decrease is
primarily the result of decreases of approximately $1.8 million in Social
Theater advertising revenues net of a $346,000 increase in mobile advertising
revenues. We earned no direct brand Social Theater revenue for the three months
ended September 30, 2012 from the Company's principal shareholder, MATT Inc. We
earned approximately $700,000 of Social Theater, formerly known as DSM, revenue
for the three months ended September 30, 2011 from AHMSA, which owns MATT,
Inc. We do not expect that either MATT Inc. or AHMSA will run any Social Theater
campaigns for the remainder of 2012.
Operating Costs and Expenses
Sales and Marketing: Sales and marketing expenses increased approximately $2.3
million to $2.7 million for the three months ended September 30, 2012 from
$328,000 in 2011. The increases are primarily attributable to approximately $1.2
million of marketing and promotion costs for the rebranded platform, $950,000 in
sales and marketing salaries, sales commissions, related expenses and stock
compensation costs, and $151,000 of travel costs and office rent. For the three
months ended September 30, 2012, the Company had 31 person full-time sales and
sales support staff located primarily in the New York and New Hope offices, an
increase of 27 staff primarily from the November 2011 Merger.
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Product Development and Content: Product development and content expenses
increased approximately $6.4 million to $7.9 million, for the three months ended
September 30, 2012 from $1.5 million in 2011. Increased salary, bonuses, related
expenses and stock compensation of approximately $3.0 million accounted for 46%
of the increase. In addition, we incurred an increase of approximately $1.9
million of third party content and delivery costs and $1.6 million of additional
data center cost, website support, and production office costs accounted for 54%
of the total increase. These increases are primarily attributable to the
acquisition of myYearbook which brought an additional website, developers, and
an expanded data center and production office. The migration of services from
the Mexico service center and staff reductions decreased data center costs by
approximately $240,000 for the three months ended September 30, 2012 from the
same period in 2011. For the three months ended September 30, 2012, the Company
had 101 full-time and 8 part-time development staff located primarily in the New
Hope office, a net increase of 93 full-time and 8 part-time staff primarily from
the November 2011 Merger.
General and Administrative: General and administrative expenses increased
approximately $1.2 million to $2.0 million from the three months ended September
30, 2012 from $800,000 for the same period in 2011. The increases are primarily
attributable to approximately $588,000 in salaries, bonuses, related expenses
and stock compensation costs, $122,000 in insurance costs, $93,000 of travel
costs, $229,000 in professional fees, a $20,000 litigation settlement, and
$148,000 of office rent, utilities and administrative costs. For the three
months ended September 30, 2012, the Company had a 14 person full-time executive
and corporate staff located primarily in the New Hope and West Palm Beach
offices, a net increase of 9 staff primarily from the November 2011 Merger.
Stock Based Compensation: Stock based compensation expense from continuing
operations, included in the operating expense categories discussed above,
increased approximately $206,000 to $1,027,000 for the three months ended
September 30, 2012 from $821,000 in 2011. Stock based compensation expense for
discontinued operations, included in the loss from discontinued operations
category, was approximately $220,000 and $0 for the three months ended September
30, 2011 and 2012, respectively. Stock based compensation expense represented
7% and 24% of operating expenses for the three months ended September 30, 2012
and 2011, respectively.
For the three months ended
September 30, Change ($)
2012 2011
Sales and marketing 95,399 197,471 (102,072 )
Product and content development 475,616 178,659 296,957
General and administrative 455,555 444,548 11,007
Total stock based compensation from continuing
operations 1,026,570 820,678 205,892
Total stock based compensation for
discontinued operations - 219,979 (219,979 )
Total stock based compensation 1,026,570 1,040,657 (14,087 )
Stock based compensation for continuing operations is composed of the following:
For the three months ended
September 30,
2012 2011
Vesting of Stock Options 1,026,570 1,040,657
Vesting of Warrants - -
Total stock based compensation for continuing
operations 1,026,570 1,040,657
Depreciation and amortization expense: Depreciation and amortization expense for
the three months ended September 30, 2012 increased by approximately
$928,000. The increase is due to the depreciation and amortization of tangible
and intangible assets associated with the acquisition of myYearbook in November
2011.
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Acquisition and Restructuring Costs: For the three months ended September 30,
2012 restructurings costs were approximately $354,000 and include the accrual of
employee exit costs and employee relocation costs. No acquisition costs were
incurred during the three months ended September 30, 2012. The Company incurred
approximately $732,000 of legal and professional fees and travel costs during
the acquisition of myYearbook and Quepasa Games during the three months ended
September 30, 2011. No restructuring costs were incurred during the three months
ended September 30, 2011.
Discontinued Operations- Quepasa Games:
For the three months ended
September 30,
2012 2011 Change
Games Revenues $ - $ 539,615 $ (539,615 )
Games Expenses - 676,978 (676,978 )
Product development and content - 459,475 (459,475 )
Depreciation and amortization - 42,694 (42,694 )
Exit costs - - -
Loss on disposable of assets - - -
Stock-based compensation - 219,979 (219,979 )
Loss on impairment of goodwill - - -
Total - 1,399,126 (1,399,126 )
Loss from discontinued operations attributable
to Quepasa Games $ - $ (859,511 ) $ 859,511
The games revenues and related games expenses for 2011 represented operations
for the three months ended September 30, 2011 whereas the 2012 games operations
were discontinued on June 30, 2012, and no loss from discontinued operations was
incurred for the three months ended September 30, 2012.
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--------------------------------------------------------------------------------Comparison of the nine months ended September 30, 2012 with the same period
ended September 30, 2011
The following table sets forth a modified version of our Consolidated Statements
of Operations and Comprehensive Loss that is used in the following discussions
of our results of operations:
For the nine months ended Septemer 30,
2012 2011 Change ($) Change (%)
Revenues $ 35,049,022 $ 4,793,519 $ 30,255,503 631 %
Operating Costs and Expenses
Sales and marketing 6,099,594 955,964 5,143,630 538 %
Product development and content 22,605,195 4,575,294 18,029,901 394 %
General and administrative 6,325,796 2,624,613 3,701,183 141 %
Depreciation and amortization 2,888,960 276,634 2,612,326 944 %
Acquisition and restructuring costs 891,499 1,168,992
(277,493 ) -24 %
Operating Expenses 38,811,044 9,601,497 29,209,547 304 %
Loss from Operations (3,762,022 ) (4,807,978 ) 1,045,956 22 %Other Income (Expense):
Interest income 13,758 49,460 (35,702 ) -72 %
Interest expense (867,136 ) (452,985 ) (414,151 ) -100 %
Other income 9,611 1,718 7,893 459 %
Total Other Income (Expense) (843,767 ) (401,807 ) (441,960 ) -110 %
Net loss from continuing operations $ (4,605,789 ) $ (5,209,785 ) $
603,996 -12 %
Net loss from discontinued operations $ (3,680,627 ) $ (2,098,761 ) $ (1,581,866 ) 75 %
Net loss $ (8,286,416 ) $ (7,308,546 ) $ (977,870 ) 13 %
Revenues
Our revenues were approximately $35 million, for the nine months ended September
30, 2012, an increase of $30.2 million or 631% compared to $4.8 million for the
same period in 2011. The increase in revenues for the nine months ended
September 30, 2012 is primarily the result of increases of approximately $16.5
million and $2.2 million, respectively, in web and mobile advertising and $11.5
million in virtual currency products revenues primarily due from the MeetMe
platform. We earned $6 million of Social Theater revenue for the nine months
ended September 30, 2012 from the Company's principal shareholder, MATT Inc. We
earned approximately $4.2 million of social theater revenue, formerly known as
DSM, and $120,000 of website development revenue for the nine months ended
September 30, 2011 from AHMSA, which owns MATT, Inc. We do not expect that
either MATT Inc. or AHMSA will run any Social Theater campaigns for the
remainder of 2012.
Operating Costs and Expenses
Sales and Marketing: Sales and marketing expenses increased approximately $5.1
million to $6.0 million for the nine months ended September 30, 2012 from
$956,000 in 2011. The increases are primarily attributable to approximately $2.6
million in sales and marketing salaries, sales commissions, related expenses and
stock compensation costs, $2.0 million of marketing and promotion costs
primarily for the rebranded platform, and $500,000 of travel costs and office
rent. For the nine months ended September 30, 2012, the Company had 31 person
full-time sales and sales support staff located primarily in the New York and
New Hope offices, an increase of 27 staff primarily from the November 2011
Merger.
Product Development and Content: Product development and content expenses
increased approximately $18.0 million, to $22.6 million, for the nine months
ended September 30, 2012 from $4.6 million in 2011. Increased salary, bonuses,
related expenses, and stock compensation of approximately $8.6 million accounted
for 48% of the total increase. Approximately $4.7 million of increased third
party content and delivery costs and $4.74 million of additional data center
cost, website support, and production office costs accounted for 52% of the
total increase. These increases are primarily attributable to the acquisition of
myYearbook which brought an additional website, developers, and an expanded data
center and production office. The migration of services from the Mexico service
center and staff reductions decreased data center costs by approximately
$486,000 for the nine months ended September 30, 2012 from the same period in
2011. For the nine months ended September 30, 2012, the Company had
101 full-time and 8 part-time development staff located primarily in the New
Hope office, a net increase of 93 full-time and 8 part-time staff primarily from
the November 2011 Merger.
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General and Administrative: General and administrative expenses increased $3.7
million, to $6.3 million for the nine months ended September 30, 2012 from $2.6
million for the same period in 2011. The total increase is primarily
attributable to increases of approximately $1.7 million in salaries, bonuses,
related expenses and stock compensation costs, $385,000 of insurance costs,
$264,000 of travel costs, $425,000 of professional fees, $170,000 of litigation
settlement, $558,000 office rent, utilities and administrative costs, and
$171,000 increase in uncollectable receivables. For the nine months ended
September 30, 2012, the Company had a 14 person full-time executive and
corporate staff located primarily in the New Hope and West Palm Beach offices, a
net increase of 9 staff primarily from the November 2011 Merger.
Stock Based Compensation: Stock based compensation expense for continuing
operations, included in the operating expense categories discussed above,
increased approximately $500,000 to $2.9 million for the nine months ended
September 30, 2012 from $2.4 million in 2011. Stock based compensation expense
for discontinued operations; included in the loss from discontinued operations
category, decreased by approximately $355,000 for the nine months ended
September 30, 2012 from 2011 for terminated employees. Stock based compensation
expense represented 7% and 25% of operating expenses for the nine months ended
September 30, 2012 and 2011, respectively. As of September 30, 2012, there was
$14.5 million of total unrecognized compensation cost, which is expected to be
recognized over a period of approximately three years.
For the nine months ended
September 30, Change ($)
2012 2011
Sales and marketing 256,662 468,156 (211,494 )
Product and content development 1,426,332 531,377 894,955
General and administrative 1,222,161 1,372,060 (149,899 )
Total stock based compensation for continuing
operations 2,905,155 2,371,593 533,562
Total stock based compensation for
discontinued operations 151,506 506,909 (355,403 )
Total stock based compensation 3,056,661 2,878,502 178,159
Stock based compensation from continuing operations is composed of the
following:
For the nine months ended
September 30,
2012 2011
Vesting of stock options 2,905,155 2,192,690
Vesting of warrants - 178,903
Total stock based compensation for continuing
operations 2,905,155 2,371,593
Depreciation and amortization expense: Depreciation and amortization expense for
the nine months ended September 30, 2012 increased by approximately $2.6
million. The increase is due to the depreciation and amortization of intangible
and tangible assets associated with the acquisition of myYearbook.
Acquisition and Restructuring Costs: For the nine months ended September 30,
2012 restructuring costs were approximately $891,000 and include the accrual of
employee exit costs and employee relocation costs. No acquisition costs were
incurred during the nine months ended September 30, 2012. The Company incurred
approximately $1.2 million of broker commissions, legal and professional fees
and travel costs during the acquisition of Quepasa Games and myYearbook during
the nine months ended September 30, 2011. No restructuring costs were incurred
during the nine months ended September 30, 2011.
33
--------------------------------------------------------------------------------Discontinued Operations- Quepasa Games:
For the nine months ended
September 30,
2012 2011 Change
Games Revenues $ 840,190 $ 760,792 $ 79,398
Games expenses 1,032,366 969,197 63,169
Product development and content 552,563 1,165,244 (612,681 )
Depreciation and amortization 16,102 218,203 (202,101 )
Exit costs 431,418 - 431,418
Loss on disposable of assets 48,084 - 48,084
Stock-based compensation 151,508 506,909 (355,401 )
Loss on impairment of goodwill 2,288,776 - 2,288,776
Total 4,520,817 2,859,553 1,661,264
Loss from discontinued operations attributable
to Quepasa Games $ (3,680,627 ) $ (2,098,761 ) $ (1,581,866 )
Revenues from discontinued games operations for the nine months ended September
30, 2012 increased approximately $79,000 to $840,000 from $761,000 in 2011. For
the nine months ended September 30, 2012 games expenses of approximately $1.0
million increased $63,000 from $969,000 in 2011. The games revenues and related
games expenses for 2011 represented operations for less than five full months
whereas the 2012 games expenses reflect six months of operation. The Wonderful
City Rio and Amazon Alive games were launched in April of 2011 and May 2012,
respectively. Games product development and content expenses decreased
approximately $613,000 to $553,000 in the nine months ended September 30, 2012
from $1,165,000 in 2011. The decrease in product development and content expense
is due to reimbursements of specific production costs by a third party developer
for the Amazon Alive game in 2012. Games exit costs of approximately $431,000
include severance costs of terminated employees and exit costs of office closure
expenses. An impairment loss of goodwill of approximately $2.3 million was
recorded at June 30, 2012 in conjunction with the decision to discontinue the
Quepasa Games development business.
Liquidity and Capital Resources
For the nine months ended
September 30,
2012 2011Net cash provided (used) by operating activities (656,209 ) (4,919,578 )
Net cash used in investing activities
(573,010 ) (650,053 )
Net cash provided (used) by financing activities (1,561,992 ) 6,483,240
(2,791,211 ) 913,609
34--------------------------------------------------------------------------------
Net cash used in operations was approximately $656,000 for the nine months ended
September 30, 2012 compared to cash used by operations of $4.9 million for the
same time in 2011. For the nine months ended September 30, 2012, net cash
provided by continuing operations consisted primarily of a net loss from
continuing operations of approximately $4.6 million offset by non-cash expenses
of approximately $2.9 million of depreciation and amortization expense, $2.9
million related to stock based compensation for the vesting of stock options,
$218,000 in amortization of discounts on notes payable and debt issuance costs,
$251,000 net write off of trade receivables and allowance
adjustments. Additionally, changes in working capital impacted the net cash used
in continuing operations. These changes included increases in accounts
receivable of $4.9 million and in prepaid expenses, other current assets and
other assets of $135,000 offset by a net decrease of $275,000 in restricted
cash, increases in accounts payable and accrued expenses of $3.4 million and of
$238,000 in deferred revenues. Net cash used in discontinued operations of
Quepasa Games of approximately $1.2 million consisted of a net loss from
discontinued operations of $3.7 million offset by noncash expenses of $2.3
million loss on impairment of goodwill, $152,000 related to stock based
compensation for the vesting of stock options, $48,000 loss on disposal of
property and equipment, and $16,000 of depreciation and amortization.
Additionally, changes in working capital from discontinued operations of $27,000
increased the net cash used for discontinued operations.
For the nine months ended September 30, 2011, net cash used by continuing
operations consisted primarily of a net loss of approximately $5.2 million,
offset by non-cash expenses of $277,000 of depreciation and amortization
expenses and $2.2 million related to stock based compensation for the vesting of
stock options and $179,000 for vesting of warrants, and $218,000 in amortization
of discounts on notes payable and debt issuance costs. Additionally, changes in
working capital impacted the net cash used in continuing operations. These
changes included increases in accounts receivable of approximately $1.6 million
and in prepaid expenses, other current assets and other assets of $100,000
offset by increases of $540,000 in accounts payable and accrued expenses. Net
cash used in discontinued operations of Quepasa Games of approximately $1.4
million consisted of a net loss from discontinued operations of $2.1 million
offset by noncash expenses of $507,000 related to stock based compensation for
the vesting of stock options and $218,000 of depreciation and amortization.
Additionally, changes in working capital from discontinued operations of $74,000
increased the net cash used for discontinued operations.
Net cash used in investing activities in the nine months ended September 30,
2012 of approximately $573,000 was primarily attributable to net payments made
for capital expenditures of $492,000 primarily for computer servers to increase
capacity, improve performance, and provide redundant backup for content and
$125,000 for the purchase of intellectual properties, offset by $44,000 of note
receivable payments. The Company made non-cash acquisitions of approximately
$1.8 million of property and equipment through capital leases in nine months
ended September 30, 2012. Net cash used in investing activities in the nine
months ended September 30, 2011 of approximately $650,000 was primarily
attributable to $500,000 payment made related to the acquisition of Quepasa
Games, capital expenditures of $163,000 primarily for computer servers and we
made a $40,000 loan disbursement to Hollywood Creations offset by $53,000 of
note receivable payments.
There was approximately $1.6 million cash used by financing activities for the
nine months ended September 30, 2012, of which $1.9 million was attributable to
payments on notes and loans and a $100,000 dividend payment on preferred stock,
and $238,000 of payments made on capital leases offset by $630,000 from the
exercise of stock options. Approximately $6.5 million cash was provided by
financing activities for the nine months ended September 30, 2011, of which $5
million was attributable to the proceeds of the issuance of convertible
preferred stock and $1.5 million from the exercise of stock options offset by a
$100,000 dividend payment on preferred stock.
September 30, December 31,
2012 2011
Cash and cash equivalents $ 5,476,042 $ 8,271,787
Total assets
$ 105,136,553 $ 106,804,696
Percentage of total assets 5 % 8 %
Our cash balances are kept liquid to support our growing infrastructure needs
for operational expansion. The majority of our cash is concentrated in two large
financial institutions, Comerica and JP Morgan Chase.
MeetMe had a positive working capital of approximately $11.6 million and $13.3
million at September 30, 2012 and December 31, 2011 respectively, which
consisted primarily of trade receivables and cash. We have budgeted capital
expenditures of $715,000 for the remainder of 2012, which will allow us to
continue to grow the business given our member growth, by increasing capacity,
improving performance and providing redundant backup for content. The Company
expects to incur approximately $268,000 of cash expenditures related to the
discontinuance of Quepasa Games operations for satisfaction of liabilities and
exit costs of the office closure.
As of the date of the filing of this report, we have approximately $ 4.9 million
in cash and $15.2 million in accounts receivable, including $6.4 million from
MATT Inc. and AHMSA. Management believes that we have sufficient working capital
to operate beyond the next 12 months.
35--------------------------------------------------------------------------------
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