GRANDPARENTS.COM, INC. – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Edgar Online, Inc. |
In this Report, the terms "Company," "we," "us" and "our" refer to
The following discussion and analysis is based on, should be read with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes thereto included in this Report. The following discussion and analysis should also be read in conjunction with the disclosure under "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A-Risk Factors" of Part II in this Report. Unless specifically noted otherwise, this Report reflects the business and operations of the Company after its completion of the asset contribution transaction with
Our website, www.grandparents.com, is a family-oriented social media website with a core mission of enhancing relationships between the generations and enriching the lives of grandparents by providing tools to foster connections among grandparents, parents, and grandchildren. We primarily target the approximately 65 million grandparents in the U.S., but we also target the approximately 55 million "boomers" and seniors that are not grandparents. We believe that our website is one of the leading online communities for our market and that our website is the premier social media platform targeting active, involved grandparents. In 2010, Examiner.com ranked our website second among commercial websites serving the age 50+ demographic markets. As of
Our website features "Grand Deals" through which our marketing partners offer discounts and other benefits to our members on a variety of consumer products and services. Grand Deals was formerly known as the
We are authorized to offer and sell insurance products through
We have also entered into negotiations with
On
We launched our redesigned website and other new initiatives, including a mobile-based application, on Grandparents Day,
Grandparents.com Health Plans
We are authorized to offer and sell insurance products through GHP, which is 90% owned by us and operated as a joint venture with
12 Grand Card
In late 2011, the "Grand Card" was conceptualized as a member rewards program that will provide cash rebate benefits on a debit card when cardholders purchase certain products and services. On
On
In order for the Grand Card to be implemented, the Company (or the joint venture) will need to obtain a license from Cegedim to use their processes and technologies. Although the parties have agreed to negotiate definitive agreements regarding the proposed joint venture and the license of the Cegedim technology, there is no guarantee that the parties will enter into such definitive agreements or licenses.
Grand Corps
We have established the "
Grandparents.com Book Shop
In the fourth quarter of 2011, we launched the Grandparents.com Book Shop. The Book Shop features over one million book titles, including e-books, and approximately 400,000 CD/DVD's. Order fulfillment is done by
Mobile Application
We launched our new application for smartphone and other mobile users simultaneously with the launch of our new website. We believe that a mobile-based application will help us broaden user engagement and help increase our user base by making our content more accessible and useful. The mobile-based application allows users to socially interact with other members by uploading photos and videos, commenting, following and sharing via the "mobile web." In addition, mobile users are able to view website articles and other content in a mobile friendly format.
Asset Contribution TransactionOn
Immediately following the Transaction,
13 February Private Placement
On the Closing Date and simultaneously with the closing of the Transaction, we entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with certain accredited investors (collectively, the "Purchasers") for the issuance and sale in a private placement (the "February Private Placement") of 3,000,000 shares of the Company's Series B Convertible Preferred Stock for aggregate gross proceeds to the Company of
On
Recent Capital Raising Activities
In
The Company intended to commence the Contemplated Private Placement in October. However, due to disruptions caused by Hurricane Sandy, the launch of the Contemplated Private Placement was delayed and the Company, pending raising funds in the Contemplated Private Placement, borrowed
Summary for the Three and Nine Month Periods Ended
Revenue for the three months ended
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Total operating expenses for the three months ended
We incurred net losses of
Without additional capital from existing or outside investors or further financing, our ability to continue to implement our business plan may be limited. These conditions raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements included in this Report do not include any adjustments that might result from the outcome of this uncertainty.
Sources of Revenue
Historically, we have generated revenue through the sale of advertisements on our website. We intend to expand our revenue sources to include commissions, fees or royalties on offerings by our insurance, financial services and other marketing partners.
We expect that Grand Deals, particularly insurance and financial products, will be our primary revenue source in the future. However, as of the date of this Report, we have not yet generated any revenue from this program. In 2011, in order to accelerate the buildup of marketing partners, we accepted pilot programs and waived revenue sharing arrangements. Through this pilot program, we attracted more than 300 marketing partners as of the date of this Report. As we build our membership base, we will seek to enter into revenue sharing arrangements with existing and new marketing partners. We expect that each revenue sharing arrangement will be negotiated based on the category of the product and service and the accompanying discount or benefits offered to our members.
As discussed above, GHP entered into a Marketing and Distribution Agreement with Humana pursuant to which GHP will receive certain commissions, administrative fees and overrides from Humana on sales of Humana insurance products. However, there can be no guarantee that we will be able to enter into similar agreements or other revenue arrangements with other insurance, financial services or other marketing partners or that, if we are, the terms of such arrangements will be on terms advantageous to us. To the extent we are able to enter into revenue sharing agreements, revenues, if any, from such arrangements may be limited in the near term.
In addition, we hope to derive revenue from the Grand Card. However, the can be no guarantee that we will be able to further develop this concept or, that if we are able to do so, that we will be able to generate significant revenue from it. Although we have entered into a non-binding letter of intent with Cegedim, there can be no guarantee that the parties will enter into definitive agreements with respect to the Grand Card concept.
Certain Factors Affecting our Performance
In addition to the Risk Factors discussed elsewhere in this Report, we consider the following to be significant factors affecting our future performance and financial results.
Our Ability to Attract and Retain Members. We must attract and retain members in order to increase revenue and achieve profitability. We expect revenue to be generated in part from the purchase of products and services by our members and advertisements on our website. If we are unable to attract and retain members, we may not be able to attract marketing and commercial sponsors or advertisers to our website.
Volatility or Declines in Insurance Premiums. GHP will derive revenue from commissions and fees for its insurance agency and brokerage services. Commission and fees are based, in part, on a percentage of insurance premiums paid by customers for insurance products. Accordingly, such commissions are dependent on insurance premium rates charged by insurance companies. Insurance premiums are cyclical in nature and may vary widely based on market conditions. Our brokerage revenues and profitability can be volatile or remain depressed for significant periods of time. In addition, insurance companies may seek to further minimize their expenses by reducing the commission rates payable to insurance agents or brokers. The reduction of these commission rates, along with general volatility and/or declines in premiums, may significantly affect our margins.
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Our Ability to Enter into Revenue Sharing Agreements with our
Competition. We compete with companies in the social networking industry such as Facebook, Twitter and Google and other companies that specifically target the age 50+ market, in particular
Additional Financing. To effectively implement our business plan, we need to obtain additional financing. If we obtain financing, we would expect to accelerate our business plan and increase our advertising and marketing budget, hire additional staff members and increase our office space and operations all of which we believe would result in the generation of revenue and development of our business. Inability to obtain additional financing may delay the implementation of our business plan and may cause us to reduce our budget and capital expenditures.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in
Included in our Amendment No. 3 on Form 8-K/A dated
· revenue recognition;
· fair value of measurements;
· equity-based compensation; and
· impairment of long-lived assets.
Certain amounts in the 2011 condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current period condensed consolidated financial statements. These reclassifications had no effect on previously reported results.
We included in our Form 8-K/A a brief discussion of some of the judgments, estimates and uncertainties that can impact the application of these policies and the specific dollar amounts reported on our financial statements. This is neither a complete list of all of our accounting policies, nor does it include all the details surrounding the accounting policies we identified, and there are other accounting policies that are significant to us. For detailed information and discussion on our critical accounting policies and estimates, see our financial statements and the accompanying notes included in this Report and in our Form 8-K/A. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed below and elsewhere in this Report and in our Form 8-K/A. We do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances. See "Cautionary Note Regarding Forward-Looking Statements" contained in this Report.
16 Results of Operations
The Transaction has been accounted for as a reverse acquisition whereby
Three Month Periods ended
Revenue
Revenue for the three months ended
Operating Expenses
Total operating expenses for the three months ended
Selling and marketing. Selling and marketing expense increased
Salaries. Salary expense increased
Rent. Rent expense increased
Equity-based compensation. Equity-based compensation expense increased
At
Management fees. We did not pay any management fees during the three months ended
Other general and administrative.Other general and administrative expense increased
17
Depreciation and amortization.Depreciation and amortization decreased
Other Expense
We had other expense of
Loss from Operations
Loss from operations for the three months ended
Preferred Return Expense
We had no preferred return expense for the three months ended
Net Loss
Net loss for the three months ended
Nine Month Periods ended
Revenue
Revenue for the nine months ended
Operating Expenses
Total operating expenses for the nine months ended
Selling and marketing. Selling and marketing expense increased
Salaries. Salary expense increased
Rent. Rent expense increased
18
Consulting. Non-recurring consulting expense was
Equity-based compensation. Equity-based compensation expense increased
At
As of
In
Management fees. Management fees decreased
Transaction costs. We incurred
Other general and administrative. Other general and administrative expense increased
Depreciation and amortization.Depreciation and amortization decreased
Other Expense
We had other expense of
Loss from Operations
Loss from operations for the nine months ended
19
Preferred Return Expense
Preferred return expense was
Income Taxes
For the nine months ended
Net Loss
Net loss for the nine months ended
Liquidity and Capital Resources
We raised approximately
We expect to finance our operations over the next twelve months primarily through our existing cash and our operations and offerings of our equity or debt securities or through bank financing. However, our operations have not yet generated positive cash flows. To effectively implement our business plan, we will need to obtain additional financing. If we obtain financing, we would expect to accelerate our business plan and increase our advertising and marketing budget, hire additional staff members and increase our office space and operations all of which we believe would result in the generation of revenue and development of our business. We cannot be certain that financing will be available on acceptable terms, or available at all. To the extent that we raise additional funds by issuing debt or equity securities or through bank financing, our stockholders may experience significant dilution. If we are unable to raise funds when required or on acceptable terms, we may have to significantly scale back, or discontinue, our operations. As noted above, the Company commenced the Contemplated Offering and entered into the Bridge Notes in
Pursuant to the Contribution Agreement, on the Closing Date we entered into promissory notes with certain of our newly appointed directors and officers with respect to certain liabilities of
· Amended and Restated Promissory Note in favor of
Director ofGP.com LLC and current Chairman and Co-Chief Executive Officer of the Company, in the principal amount of$78,543 (the "Leber Note"). The Leber Note reflects amounts outstanding under a promissory note previously issued byGP.com LLC toMr. Leber and a revolving note issued byGP.com LLC toMr. Leber andJoseph Bernstein that we assumed in connection with the Transaction.
· Amended and Restated Promissory Note in favor of
Director ofGP.com LLC and our current Director, Co-Chief Executive Officer, Chief Financial Officer and Treasurer, in the principal amount of$78,543 (the "Bernstein Note"). The Bernstein Note reflects amounts outstanding under a promissory note previously issued byGP.com LLC toMr. Bernstein and a revolving note issued byGP.com LLC to Messrs. Leber and Bernstein that we assumed in connection with the Transaction.
· Amended and Restated Promissory Note in favor of
("Meadows"), an entity controlled by Dr.Robert Cohen , a Managing Director ofGP.com LLC and a current Director of the Company, in the principal amount of$308,914 (the "Meadows Note"). The Meadows Note reflects amounts outstanding under promissory notes previously issued byGP.com LLC to Meadows that we assumed in connection with the Transaction.
· Promissory Note in favor of
Messrs. Leber and Bernstein ("LBG"), in the principal amount of
"LBG Note"). The LBG Note reflects the amount of accrued but unpaid management
fees of
Transaction. 20
The Leber Note, the Bernstein Note, the Meadows Note and the LBG Note are collectively referred to herein as the "Promissory Notes." The Promissory Notes accrue interest at the rate of 5% per annum and mature upon the earlier of (i) our attainment of EBITDA of at least
In addition, pursuant to the Contribution Agreement, on the Closing Date the Company assumed
Cash Flow Net cash flow from operating, investing and financing activities for the periods below were as follows: Nine months ended September 30, 2012 2011 Cash provided by (used in): Operating Activities $ (3,770,000 ) $ (649,592 ) Investing Activities (229,041 ) 858 Financing Activities 3,971,935 691,000 Net (decrease) increase in cash: (27,106 ) 42,266
Cash Used In Operating Activities
For the nine months ended
Cash Provided or Used In Investing Activities
For the nine months ended
Cash Provided By Financing Activities
For the nine months ended
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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