TMCNet:  GRANDPARENTS.COM, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

[November 21, 2012]

GRANDPARENTS.COM, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) In this Report, the terms "Company," "we," "us" and "our" refer to Grandparents.com, Inc. and its subsidiaries, unless the context otherwise requires.

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 GP.com LLC (as defined below) on February 23, 2012.


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 November 9, 2012, our website has approximately 1.8 million members.

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 Benefits Club. The Grand Deals business model is similar to that of AARP Services, Inc., a marketing arm of AARP. We seek to apply the AARP business model to our business by engaging marketing partners, particularly in the insurance and financial industries, in a strategic relationship in which our website will become a co-brand for marketing insurance and financial products. Other than as described below, we have not entered into any formal agreements with our marketing partners.

We are authorized to offer and sell insurance products through Grandparents Health Plans, LLC ("GHP"), which is ninety percent (90%) owned by us and operated as a joint venture with Denver Management Associates, Inc., which owns ten percent (10%). On July 30, 2012, GHP entered into a Marketing and Distribution Agreement with Humana MarketPOINT, Inc. pursuant to which GHP was granted the right to offer and sell Humana insurance products. We have also entered into initial discussions with several major long-term care, auto, home and life insurance companies and also a major national bank to offer annuity, mutual fund, retirement planning and other financial products and services.

We have also entered into negotiations with Maurice "Hank" Greenberg and C.V.

Starr & Co., Inc., a global insurance and financial services organization, regarding a strategic business relationship through which Mr. Greenberg or C.V.

Starr will, in their first digital insurance venture, assist the Company in (i) developing a comprehensive business plan relating to its insurance business, (ii) designing insurance products to be sold through our website, and (iii) negotiating with insurance carriers to offer their products through our website.

Should the current negotiations be successfully concluded, it is contemplated that C.V. Starr & Co., Inc. will have the right to acquire 25% of the outstanding common stock of the Company and appoint two individuals to serve on the Board of Directors of the Company. The Company has engaged Mel Harris to advise the Company in its discussions with Mr. Greenberg and C.V. Starr. In consideration for Mr. Harris' services to the Company in this regard, Mr. Harris will be entitled to receive a warrant to acquire up to 3,000,000 shares of the Company's common stock at an exercise price of $0.60 per share in the event the Company enters into a binding agreement with Mr. Greenberg or C.V. Starr during the term of such engagement or within one year thereafter.

On August 9, 2012, we entered into a non-binding letter of intent with Cegedim Inc. regarding the formation of a joint venture for the purpose of developing the "Grand Card," a member rewards program that will provide cash rebate benefits on a debit card when cardholders purchase certain products and services. On August 24, 2012, we executed a Card Issuance Agreement with JP Morgan Chase as issuer of the Grand Card as a Chase VISA debit card.

We launched our redesigned website and other new initiatives, including a mobile-based application, on Grandparents Day, September 9, 2012. We are focused on attracting new members and developing new revenue streams. Accordingly, management does not believe past results are indicative of future performance.

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 Denver Management Associates, Inc. On July 30, 2012, GHP entered into a Marketing and Distribution Agreement with Humana MarketPOINT, Inc. pursuant to which Humana granted to GHP the right to offer and sell certain Medicare supplement, major medical, short term medical, term life, dental and vision insurance products as well as financial protection products in any area in which Humana is authorized under applicable law to sell and GHP is licensed under applicable law and appointed by Humana to sell the products. GHP will receive certain commissions from Humana on sales of the products. In addition, Humana will pay GHP administrative fees and/or overrides as consideration for certain administrative services performed by GHP.

The agreement also provides that Humana is responsible for all service requirements and administration regarding issued products, including, but not limited to, claims processing, policy issuance, policy changes, pricing, and sales made through Humana's call center and websites. The agreement became effective on September 1, 2012 and has a term of three (3) years from that date.

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 August 9, 2012, we entered into a non-binding letter of intent with Cegedim Inc. regarding the formation of a joint venture for the purpose of developing the "Grand Card." Cegedim has developed proprietary processes and technologies which will be customized and adapted to the Grand Card. On August 24, 2012, we executed a Card Issuance Agreement with JP Morgan Chase as issuer of the Grand Card as a Chase VISA debit card.

On August 28, 2012, Steve Leber, Joseph Bernstein and Paul Kandle filed a provisional patent application for the functionality of the Grand Card. On October 24, 2012, Steve Leber and Joseph Bernstein assigned their rights under the provisional patent application to Grand Card, LLC, a wholly owned subsidiary of the Company.

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 "Grand Corps" which has the purpose of promoting charitable, educational, philanthropic and other eleemosynary causes. We have also established the American Grandparents Association. This association will focus on issues facing "grand families" (those families in which grandparents raise their grandchildren) and grandparents that are estranged from their grandchildren. The association is intended to serve as a resource for grandparents to learn about their legal rights and to share their grandparenting challenges and experiences with other grandparents. We expect to dedicate a special section of our website to the association, which will complement and enhance existing content.

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 Baker-Taylor Ltd., the largest independent wholesale book distributor in the U.S., under our name.

We receive a commission of 3.5% of all sales through the Book Shop. We have not generated any significant revenue from the Book Shop.

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 Transaction On February 23, 2012 (the "Closing Date"), we entered into an Asset Contribution Agreement (the "Contribution Agreement") with GP.com Holding Company, LLC, a Florida limited liability company formerly known as Grandparents.com LLC ("GP.com LLC"). Under the terms of the Contribution Agreement, GP.com LLC contributed substantially all of its assets to us in exchange for our assumption of certain liabilities of GP.com LLC and our issuance to GP.com LLC of one share of our Series A Convertible Preferred Stock and a warrant to purchase shares of our common stock (the "Transaction"). As a result of the Transaction, we now own the grandparents.com domain name, other related domain names, trademarks and related assets formerly owned by GP.com LLC and GP.com LLC became the holder of a majority of our voting securities. In addition, our former directors and officers resigned and the designees of GP.com LLC were appointed to fill the vacancies created by such resignations. Accordingly, the Transaction resulted in a change of control of the Company.

Immediately following the Transaction, GP MergeCo, Inc., a wholly owned subsidiary of the Company, was merged with and into the Company and, in connection with the merger, we changed our name to Grandparents.com, Inc. We also changed our corporate address to 589 Eighth Avenue, 6th Floor, New York, New York and our telephone number to 646-839-8800. In addition, we changed our fiscal year from June 30 to December 31.

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 $3,000,000.

On May 9, 2012, we filed a Second Certificate of Amendment to its Second Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of the Company's capital stock to 155,000,000, consisting of 150,000,000 shares of common stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01 per share (the "Amendment"). Upon filing of the Amendment, the one share of the Company's Series A Convertible Preferred Stock issued to GP.com LLC pursuant to the Transaction automatically converted into 55,887,491 shares of common stock and the 3,000,000 shares of the Company's Series B Convertible Preferred Stock issued to the Purchasers in the February Private Placement automatically converted into 12,897,172 shares of common stock.

Recent Capital Raising Activities In November 2012, we commenced a private offering (the "Contemplated Private Placement") to certain accredited investors of a minimum of $250,000 up to a maximum of $3,500,000 of units, each consisting of a 12% secured convertible promissory note in the principal amount of $50,000 (collectively, the "Contemplated Notes") and a warrant to purchase 50,000 shares of our common stock, par value $.01 per share, at an exercise price of $0.50 per share (collectively, the "Contemplated Warrants"). The Contemplated Notes will accrue interest at the rate of 12% per annum and will mature on the earlier of (i) June 1, 2013, or (ii) the closing of a Qualified Financing (the "Maturity Date"), unless prepaid or converted before such date. Interest and principal shall be due and payable on the Maturity Date. "Qualified Financing" means the sale by the Company of shares of common stock, preferred stock or any other equity financing of the Company to investors in one or more transactions for gross cash proceeds to the Company of not less than $7,000,000. At the closing of a Qualified Financing, each holder of a Contemplated Note shall have the option of (a) being repaid the principal and all accrued interest on such holder's Contemplated Note, or (b) converting such holder's Contemplated Note (principal and interest) into the securities being offered in connection with the Qualified Financing, provided that such holder shall be entitled to convert such holder's Contemplated Note based on a conversion price equal to a 25% discount to the offering price of the securities in the Qualified Financing. If a holder of a Contemplated Note elects to convert such holder's Contemplated Note, such holder will have the same registration rights as investors in the Qualified Financing.

The Contemplated Notes will be secured by a first priority security interest in all assets of the Company and will be jointly and severally guaranteed by Steven Leber, Joseph Bernstein and Dr. Robert Cohen, provided that the amount guaranteed is limited to $1 million in the aggregate. Each Contemplated Warrant will initially be exercisable for that number of shares of the Company's common stock determined by dividing the principal amount of the Contemplated Note purchased by such investor by an initial per share exercise price of $0.50.

However, the number of shares for which such Contemplated Warrant is exercisable will be automatically reduced by 50% if such investor's Contemplated Note is repaid in full or if such investor does not convert such investor's Contemplated Note in connection with a Qualified Financing.

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 $450,000 in November 2012, from two individuals, Vanessa de Oliveira ($250,000) and Mel Harris ($200,000), on an unsecured basis, to be repaid from the proceeds of the Contemplated Private Placement. Each of the lenders entered into a promissory note (the "Bridge Notes") with the Company evidencing the loans. The Bridge Note between the Company and Ms. Oliveira matures on December 24, 2012 and the Bridge Note between the Company and Mr. Harris matures on February 1, 2013. Each Bridge Note is due and payable before maturity upon the earlier of the Company's receipt of $1 million in aggregate gross proceeds from the Contemplated Private Placement or the occurrence of an Event of Default (as defined in the applicable Bridge Note). In addition, the Bridge Notes include certain reset provisions in the event of subsequent debt issuances by the Company that contain more favorable terms. The two loans are personally guaranteed by the Company's Co-Chief Executive Officers, Steve Leber and Joseph Bernstein, and the Company has executed an indemnification in their favor should they have to pay the lenders under their guarantees.

Summary for the Three and Nine Month Periods Ended September 30, 2012 Revenue for the three months ended September 30, 2012 was $70,195, which reflected a decline of $12,900, or 15.5%, compared to revenue of $83,095 for the comparable period in 2011. Revenue for the nine months ended September 30, 2012 was $224,330, which reflected a decline of $96,926, or 30.2%, compared to revenue of $321,256 for the comparable period in 2011. Two customers represented approximately 34.0% of revenues earned during the three months ended September 30, 2012 and 45.0% of revenues earned during the nine months ended September 30, 2012. Four customers represented approximately 70% of accounts receivable as of September 30, 2012.

14 Total operating expenses for the three months ended September 30, 2012 increased $1,719,079, or 241.1%, to $2,432,057 compared to $712,978 for the comparable period in 2011. Total operating expenses for the nine months ended September 30, 2012 increased $6,557,211, or 286.6%, to $8,845,157 compared to $2,287,946 for the comparable period in 2011. The increase in operating expenses for the three months ended September 30, 2012 was due to increases in selling and marketing, salary, rent, equity-based compensation, consulting and other general and administrative expenses. The increase in operating expenses for the nine months ended September 30, 2012 was primarily attributable to expenses of $2,924,592 incurred in connection with the Transaction as well as increases in selling and marketing, salary, rent, equity-based compensation, consulting and other general and administrative expenses.

We incurred net losses of $2,384,292 and $8,699,974 for the three and nine months ended September 30, 2012, respectively. We used $3,770,000, $229,041 and $275,000 in cash for operating, investing and financing activities, respectively, during the nine months ended September 30, 2012, offset by $4,246,935 in cash provided by the February Private Placement, the Transaction and option exercises during the period. We had a working capital deficit of $1,577,301 as of September 30, 2012.

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.

15 Our Ability to Enter into Revenue Sharing Agreements with our Marketing Partners. We must attract, retain and enter into revenue sharing agreements with marketing and commercial sponsors in order to increase revenue and achieve profitability. If marketing and commercial sponsors do not find our marketing and promotional services effective or do not believe that utilizing our website provides them with increases in customers, revenue or profit, they may not make, or continue to make, offers through our website in which case we may sell fewer products and services through the our website.

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 AARP. These competitors compete with us for visitor traffic, members, advertising dollars and partners, including marketing and commercial sponsors, and many of our competitors have competitive advantages over us. It is also possible that new competitors may emerge and acquire significant market share. In addition, the insurance intermediary business in which GHP operates is highly competitive and numerous firms actively compete for customers and insurance partners.

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 the United States.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including, among others, those affecting revenue, the allowance for doubtful accounts, and the useful lives of tangible and intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our 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 under different assumptions or conditions, or if management made different judgments or utilized different estimates.

Included in our Amendment No. 3 on Form 8-K/A dated February 27, 2012 and filed with the SEC on June 18, 2012, as may be further amended (the "Form 8-K/A"), for the year ended December 31, 2011, we identified four of our accounting policies that we consider critical to our business operations and an understanding of our results of operations: · 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 GP.com LLC is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The financial statements before the Transaction are those of GP.com LLC with the results of the Company being consolidated from the Closing Date.

Three Month Periods ended September 30, 2012 and 2011 Revenue Revenue for the three months ended September 30, 2012 decreased $12,900, or 15.5%, to $70,195 compared to $83,095 for the comparable period in 2011. We experienced a decrease in direct sales in the third quarter of 2012 compared to the comparable period in 2011. As a result, our average CPM (cost per thousand views) rate decreased during the third quarter of 2012 compared to the comparable period in 2011. We also experienced a decrease in website traffic in the third quarter of 2012, which resulted in less inventory available for advertising compared to the third quarter of 2011. We typically experience less website traffic in the third quarter compared to other quarters.

Operating Expenses Total operating expenses for the three months ended September 30, 2012 increased $1,719,079, or 241.1%, to $2,432,057 compared to $712,978 for the comparable period in 2011.

Selling and marketing. Selling and marketing expense increased $441,248, or 1964.2%, to $463,712 for the three months ended September 30, 2012 compared to $22,464 for the comparable period in 2011. In the third quarter of 2012, the Company significantly increased its marketing expenditures in order to attract new members to the website.

Salaries. Salary expense increased $452,749, or 263.5%, to $624,550 for the three months ended September 30, 2012 compared to $171,801 for the comparable period in 2011. The increase was primarily due to salary paid to our Co-Chief Executive Officers and other officer salaries and an increase in staff headcount compared to the comparable 2011 period. In connection with the closing of the Transaction, we entered into employment agreements with each of Messrs. Leber and Bernstein pursuant to which each of Messrs. Leber and Bernstein receives a monthly salary of approximately $18,750. Prior to the closing of the Transaction, GP.com LLC did not pay salary directly to Messrs. Leber or Bernstein and instead paid a monthly management fee to an entity controlled by Messrs. Leber and Bernstein. As discussed below, payment of the monthly management fee ceased upon closing of the Transaction. Salary expense includes $148,260 paid to certain advisors to the Company as well as $5,121 in recurring consulting expense during the three months ended September 30, 2012. We did not engage any advisors or consultants during the comparable period in 2011.

Rent. Rent expense increased $668, or 1.7%, to $40,668 for the three months ended September 30, 2012 compared to $40,000 for the comparable period in 2011.

Equity-based compensation. Equity-based compensation expense increased $348,229, or 2744.6%, to $360,917 for the three months ended September 30, 2012 compared to $12,688 for the comparable period in 2011. In the first nine months of 2012, the Company granted options to purchase 7,035,000 shares of its common stock and awarded 50,000 shares of restricted stock to its management, employees, advisors and consultants pursuant to the Grandparents.com, Inc. 2012 Stock Incentive Plan (the "2012 Plan"). The compensation expense recognized under the 2012 Plan was $318,995 for the three months ended September 30, 2012.

At September 30, 2012, GP.com LLC had outstanding options to purchase 466,667 Class A units of GP.com LLC under its 2010 Stock Option Plan. In addition, GP.com LLC had outstanding warrants to purchase 437,500 Class A units of GP.com LLC. Since the employees and consultants to whom these options and warrants were granted continue to provide services to the Company, the Company continued to record an equity compensation charge of $28,582 during the three months ended September 30, 2012.

Management fees. We did not pay any management fees during the three months ended September 30, 2012. For the three months ended September 30, 2011, we paid management fees of $150,000. GP.com LLC paid a monthly management fee to LBG (as defined below) for management services provided to GP.com LLC prior to the closing of the Transaction. No payments were payable for the three months ended September 30, 2012 compared to three payments of $50,000 each payable during the comparable period in 2011. The payments ceased upon the closing of the Transaction.

Other general and administrative.Other general and administrative expense increased $626,771, or 635.0%, to $725,482 for the three months ended September 30, 2012 compared to $98,711 for the comparable period in 2011. The increase in other general and administrative expense was primarily attributable to legal, accounting and other professional fees incurred as a result of being a public company. GP.com LLC was not a public company and therefore did not incur similar expenses in the comparable 2011 period.

17 Depreciation and amortization.Depreciation and amortization decreased $586, or 0.3%, to $216,728 for the three months ended September 30, 2012 compared to $217,314 for the comparable period in 2011.

Other Expense We had other expense of $22,430 for the three months ended September 30, 2012 compared to other expense of $8,279 for the comparable period in 2011. Other expense for the three months ended September 30, 2012 was attributable to interest expense of $22,439, offset by $9 of interest income.

Loss from Operations Loss from operations for the three months ended September 30, 2012 was $2,384,292 compared to $638,162 for the comparable period in 2011.

Preferred Return Expense We had no preferred return expense for the three months ended September 30, 2012 compared to $23,602 for the comparable period in 2011, which reflects preferred returns payable by GP.com LLC prior to the closing of the Transaction with respect to its Class A Preferred units.

Net Loss Net loss for the three months ended September 30, 2012 was $2,384,292 compared to $661,764 for the comparable period in 2011.

Nine Month Periods ended September 30, 2012 and 2011 Revenue Revenue for the nine months ended September 30, 2012 decreased $96,926, or 30.2%, to $224,330 compared to $321,256 for the comparable period in 2011. Two advertising campaigns that commenced in the fourth quarter of 2010 continued to generate revenue in the first quarter of 2011. However, there was no such carryover effect from the fourth quarter of 2011 into the first quarter of 2012.

Also, we experienced a decrease in direct sales in the first nine months of 2012 compared to the comparable period in 2011. As a result, our average CPM (cost per thousand views) rate decreased during the first nine months of 2012 compared to the comparable period in 2011.

Operating Expenses Total operating expenses for the nine months ended September 30, 2012 increased $6,557,211, or 286.6%, to $8,845,157 compared to $2,287,946 for the comparable period in 2011.

Selling and marketing. Selling and marketing expense increased $773,274, or 1206.3%, to $837,376 for the nine months ended September 30, 2012 compared to $64,102 for the comparable period in 2011. In the first nine months of 2012, we engaged a public relations firm and paid $13,000 upon execution of the agreement. In addition, we significantly increased our marketing expenditures in the first nine months of 2012 in order to attract new members to our website.

Salaries. Salary expense increased $974,878, or 160.2%, to $1,583,395 for the nine months ended September 30, 2012 compared to $116,707 for the comparable period in 2011. The increase was primarily due to salary paid to our Co-Chief Executive Officers other officers and an increase in staff headcount compared to the comparable 2011 period. In connection with the closing of the Transaction, we entered into employment agreements with each of Messrs. Leber and Bernstein pursuant to which each of Messrs. Leber and Bernstein receives a monthly salary of approximately $18,750. Prior to the closing of the Transaction, GP.com LLC did not pay salary directly to Messrs. Leber or Bernstein and instead paid a monthly management fee to an entity controlled by Messrs. Leber and Bernstein.

As discussed below, payment of the monthly management fee ceased upon closing of the Transaction. Salary expense includes $271,524 paid to certain advisors and $110,563 in recurring consulting expense during the nine months ended September 30, 2012. We did not engage any advisors during the comparable period in 2011 but had recurring consulting expense of $695 during such period.

Rent. Rent expense increased $5,661 or 4.9%, to $122,368 for the nine months ended September 30, 2012 compared to $116,707 for the comparable period in 2011.

18 Consulting. Non-recurring consulting expense was $14,325 for the nine months ended September 30, 2012. We had no non-recurring consulting expenses for the comparable period in 2011. During the first nine months of 2012, we engaged marketing, financial and other consultants which were not engaged in the comparable 2011 period.

Equity-based compensation. Equity-based compensation expense increased $819,828, or 1622.8%, to $870,346 for the nine months ended September 30, 2012 compared to $50,518 for the comparable period in 2011. In the first nine months of 2012, we granted options to purchase 7,035,000 shares of its common stock and awarded 50,000 shares of restricted stock to its management, employees, advisors and consultants pursuant to the 2012 Plan. In addition, options to purchase 330,000 shares of common stock previously granted under the 2012 Plan were forfeited during the nine months ended September 30, 2012. The compensation expense recognized under the 2012 Plan was $710,285 for the nine months ended September 30, 2012.

At September 30, 2012, GP.com LLC had outstanding options to purchase 466,667 Class A units of GP.com LLC under its 2010 Stock Option Plan. In addition, GP.com LLC had outstanding warrants to purchase 437,500 Class A units of GP.com LLC. Since the employees and consultants to whom these options and warrants were granted continue to provide services to the Company, the Company continued to record an equity compensation charge of $85,746 during the nine months ended September 30, 2012.

As of September 30, 2012, there were 300,000 options outstanding under the 2005 Stock Incentive Plan. In accordance with the terms of the Contribution Agreement, these options became fully vested and exercisable as of the date of the Closing Date. Due to the immediate vesting provision, and since these employees no longer provide services to us, we recorded a charge in the amount of $98,190 during the nine months ended September 30, 2012. There is no remaining unrecognized compensation charge related to these options.

In May 2012, we entered into an agreement with an investor relations firm to provide services. The agreement was for a term of three months, from May 2012 to July 2012, and required a cash payment of $10,000 per month and the issuance of a total of 75,000 restricted shares of the Company's common stock. The agreement also provided us with options for three additional three-month renewal periods, in exchange for a cash payment of $10,000 per month and an additional 75,000 restricted shares per renewal. We valued the 75,000 restricted shares at their fair value of $33,000, which amount was charged to expense over the three-month term of the agreement. We did not exercise our renewal option upon expiration of the initial three-month term in July 2012.

Management fees. Management fees decreased $350,000, or 77.8%, to $100,000 for the nine months ended September 30, 2012 compared to $450,000 for the comparable period in 2011. GP.com LLC paid a monthly management fee to LBG (as defined below) for management services provided to GP.com LLC prior to the closing of the Transaction. Two payments of $50,000 each were payable for the first nine months of 2012 compared to nine payments of $50,000 each payable during the comparable period in 2011. The payments ceased upon the closing of the Transaction.

Transaction costs. We incurred $2,924,592 in transaction costs for the nine months ended September 30, 2012 due to the issuance of warrants to our investment banking advisor in connection with the Transaction. There were no transaction costs for the comparable period in 2011.

Other general and administrative. Other general and administrative expense increased $1,408,773, or 407.0%, to $1,754,935 for the nine months ended September 30, 2012 compared to $346,162 for the comparable period in 2011. The increase in other general and administrative expense was primarily attributable to legal, accounting and other professional fees incurred in connection with the Transaction and as a result of being a public company.

Depreciation and amortization.Depreciation and amortization decreased $14,120, or 2.2%, to $637,820 for the nine months ended September 30, 2012 compared to $651,940 for the comparable period in 2011.

Other Expense We had other expense of $13,623 for the nine months ended September 30, 2012 compared to other expense of $11,432 for the comparable period in 2011. Other expense for the nine months ended September 30, 2012 was attributable to $69,735 of interest expense, offset by income attributable to accrued revenues from prior periods of $52,852 and interest income of $3,260.

Loss from Operations Loss from operations for the nine months ended September 30, 2012 was $8,634,450 compared to $1,978,122 for the comparable period in 2011.

19 Preferred Return Expense Preferred return expense was $14,265 for the nine months ended September 30, 2012 compared to $70,806 for the comparable period in 2011. Preferred return expense for the nine months ended September 30, 2012 reflects preferred returns payable by GP.com LLC prior to the closing of the Transaction with respect to its Class A Preferred units.

Income Taxes For the nine months ended September 30, 2012, we incurred and accrued for $51,259 of tax expense related to a prior period gain resulting from the sale of substantially all of our operating assets to Emerald Star Holdings, LLC in September 2011. There was no such accrual in the comparable period in 2011.

Net Loss Net loss for the nine months ended September 30, 2012 was $8,699,974 compared to $2,048,928 for the comparable period in 2011.

Liquidity and Capital Resources We raised approximately $3,000,000 in gross proceeds in the February Private Placement, but before deducting any expenses incurred by us in connection with the February Private Placement. After deducting expenses, we received $2,667,629 in net proceeds from the February Private Placement. We had cash of $1,549,306 as of the closing of the Transaction prior to the net proceeds from the February Private Placement. As of September 30, 2012, we had unrestricted cash of $320,178.

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 November 2012.

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 GP.com LLC that we assumed in connection with the Transaction. Specifically, we entered into the following: · Amended and Restated Promissory Note in favor of Steven E. Leber, a Managing Director of GP.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 by GP.com LLC to Mr. Leber and a revolving note issued by GP.com LLC to Mr. Leber and Joseph Bernstein that we assumed in connection with the Transaction.

· Amended and Restated Promissory Note in favor of Joseph Bernstein, a Managing Director of GP.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 by GP.com LLC to Mr. Bernstein and a revolving note issued by GP.com LLC to Messrs. Leber and Bernstein that we assumed in connection with the Transaction.

· Amended and Restated Promissory Note in favor of Meadows Capital, LLC ("Meadows"), an entity controlled by Dr. Robert Cohen, a Managing Director of GP.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 by GP.com LLC to Meadows that we assumed in connection with the Transaction.

· Promissory Note in favor of Leber-Bernstein Group, LLC, an entity controlled by Messrs. Leber and Bernstein ("LBG"), in the principal amount of $612,500 (the "LBG Note"). The LBG Note reflects the amount of accrued but unpaid management fees of GP.com LLC payable to LBG that we assumed in connection with the 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 $2,500,000 as reflected on our quarterly or annual financial statements filed with the SEC, but in no event earlier than April 1, 2013, or (ii) the closing a financing with gross proceeds to us of at least $10 million. Payment of the Promissory Notes is guaranteed by GP.com LLC.

In addition, payment of the Meadows Note is guaranteed by Messrs. Leber and Bernstein. The Leber Note, Bernstein Note and LBG Note are subordinate in right of payment to the Meadows Note and rank pari passu with each other. The Meadows Note is secured by a first priority security interest in the assets of GP.com LLC. Other than the Meadows Note, none of the Promissory Notes are secured.

In addition, pursuant to the Contribution Agreement, on the Closing Date the Company assumed GP.com LLC's obligations under a zero coupon note issued by GP.com LLC in July 2011 to a consultant. The note provided $225,000 to GP.com LLC in exchange for repayment of $275,000 on August 30, 2012, the maturity date of the note. The discount from the maturity value of $275,000, initially $50,000, is being amortized to interest expense by the effective interest method over the life of the note, with an effective interest rate of 20.04%. The note was paid in full on the maturity date.

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 September 30, 2012, net cash used in operating activities of $3,770,000 consisted of net loss of $8,699,974, $62,334 in changes in fair value of warrant derivative liability and a $52,776 gain on extinguishment of indebtedness, offset by $637,820 in adjustments for depreciation and amortization expense, $864,561 in adjustments for equity-based compensation expense, $2,924,592 in adjustments for transaction costs incurred in connection the Transaction, $14,265 in adjustments for preferred return expense, $34,119 in adjustments for amortization of discount on zero coupon note payable and $569,727 in cash provided by changes in working capital and other activities. For the nine months ended September 30, 2011, net cash used in operating activities of $649,592 consisted of net loss of $2,048,928, offset by $651,940 in adjustments for depreciation and amortization expense, $50,518 in adjustments for equity-based compensation expense, $70,806 in adjustments for preferred return expense and $626,072 in cash provided by changes in working capital and other activities.

Cash Provided or Used In Investing Activities For the nine months ended September 30, 2012, net cash used in investing activities of $229,041 consisted of $173,981 for development of intangible assets and $55,060 for purchases of property and equipment. For the nine months ended September 30, 2011, net cash provided by investing activities of $858 consisted of $4,105 in proceeds from the disposal of property and equipment, offset by $3,247 for purchases of property and equipment.

Cash Provided By Financing Activities For the nine months ended September 30, 2012, net cash provided by financing activities of $3,971,935 consisted of $2,667,629 in net proceeds from the February Private Placement, $1,549,306 in predecessor cash that remained in the Company following the Transaction and $30,000 from the exercise of options, offset by $275,000 in payments on notes payable. For the nine months ended September 30, 2011, net cash provided by financing activities of $691,000 consisted of $565,000 in net proceeds from a private placement and $126,000 in loans and short-term advances.

Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements.

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