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MEET > SEC Filings for MEET > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for MEETME, INC.

Form 10-Q for MEETME, INC.


9-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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.


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.


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.


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.


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.


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.


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 . . .

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