Business Context and Reporting Period
The filing is Snap Interactive, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2017. The request metadata identifies Intelligent Protection Management Corp., but the filing itself identifies Snap Interactive, Inc. as the registrant.
The company operates live video social-networking, interactive dating, telecommunications, and related internet software products, including Paltalk, Camfrog, FirstMet, 50more, Tinychat, Firetalk, and Vumber. The October 2016 AVM/Paltalk merger was accounted for as a reverse merger, with AVM treated as the accounting acquirer. Accordingly, 2017 results include the combined company, while comparable 2016 results primarily reflect historical AVM operations and are not fully comparable.
Financial Performance and Position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $5.9 million, up 27.5% | $18.9 million, up 35.5% |
| Subscription revenue | $5.4 million, up 30.3% | $17.4 million, up 39.9% |
| Advertising revenue | $0.5 million, up 3.1% | $1.5 million, down 1.7% |
| Operating loss | $(2.0) million | $(4.5) million |
| Net income (loss) | $(2.0) million, or $(0.31) per share | $(4.5) million, or $(0.70) per share |
| Adjusted EBITDA | $(1.1) million, or negative 19.1% of revenue | $(1.9) million, or negative 10.0% of revenue |
| Operating cash flow | $(1.3) million | $(0.7) million |
Third-quarter total costs and expenses were $7.9 million, or 133.9% of revenue, compared with 101.5% in the prior-year quarter. Nine-month costs and expenses were $23.4 million, or 124.1% of revenue, compared with 105.7% in the prior-year period. The company therefore operated at negative operating and net margins.
- September 30, 2017 cash and cash equivalents were $3.3 million, down from $4.2 million at December 31, 2016.
- Total assets were $22.6 million and total liabilities were $5.3 million.
- The company reported no long-term debt. Capital lease payments were $62,775 during the first nine months.
- Deferred subscription revenue was $2.6 million, and current liabilities exceeded $5.3 million.
- Net cash used in investing activities was $139,277, primarily for property and equipment; net cash used in financing activities was $62,775.
- Approximately 179,200 active subscribers were reported as of September 30, 2017.
Material Changes Versus the Prior Comparable Period
- Revenue growth primarily reflects inclusion of pre-merger Snap products, rather than purely organic growth. Pre-merger AVM subscription revenue declined by approximately $562,300 in the quarter and $963,600 for the nine months.
- Third-quarter sales and marketing expense increased 125.4%, product development expense increased 19.0%, and general and administrative expense increased 193.7%.
- For the nine months, sales and marketing expense increased 131.6% and general and administrative expense increased 257.4%.
- Higher general and administrative expense included increased depreciation and amortization, executive compensation and stock compensation, legal and consulting costs related to the proposed LiveXLive merger, and a one-time payroll tax expense of approximately $140,000 related to the AVM merger.
- Amortization expense increased to $1.3 million for the nine months, versus $413,317 in the prior-year period. Stock-based compensation expense increased to $1.0 million from $118,001.
- The company moved toward cloud hosting, reducing certain payroll and information-technology support costs, while fraud monitoring and web-hosting expenses increased.
- The company completed a 1-for-35 reverse stock split in January 2017 and repurchased 2,346 shares for $7,038 before terminating its $1.0 million repurchase plan in September.
Outlook, Commentary, Risks, and Unusual Items
Management stated that cash on hand and expected operating cash flow were sufficient for financial obligations for the twelve months following the filing date, but acknowledged that additional capital may be required for operations and growth initiatives. No formal revenue or earnings guidance was provided.
- Growth initiatives include Camfrog Live, a planned new live-video chat application, the 50more dating application, micro-transactions, advertising, licensing, and blockchain-related products. Bitcoin payments were enabled on Camfrog and Tinychat.
- Management expects legacy live-video user activity may decline as resources are redirected toward newer opportunities, with the expectation that new products will offset those declines.
- The LiveXLive merger agreement, announced in September 2017, was terminated on October 31, 2017 because specified conditions were not fulfilled. No termination fee was payable, but management stated that the process negatively affected operating efficiency, financing efforts, and results.
- Key risks include user and subscriber retention, intense competition, dependence on Apple, Facebook, Google, payment processors and other platforms, data-security and privacy issues, regulatory developments, intellectual-property claims, litigation, cryptocurrency compliance, the need for additional capital, and integration of acquired operations.
- Paltalk Holdings filed a patent-infringement lawsuit against Riot Games and Valve. Management reported that no litigation reserve was required as of September 30, 2017.
- The company terminated an office lease, forfeiting a $200,659 security deposit, and incurred related lease and restructuring costs.
- Management reported that disclosure controls were effective as of September 30, 2017 and that the previously identified material weakness related to the lack of an audit committee had been remediated.
Investor Verification Priorities
- Verify the identity of the registrant, because the supplied metadata differs from the company named in the filing.
- Adjust comparisons for the AVM reverse merger and determine the standalone performance of legacy Snap and AVM products.
- Assess whether Camfrog Live, 50more, the planned live-video application, and blockchain initiatives can offset declines in legacy products.
- Monitor cash burn, subscriber trends, deferred revenue, and the company’s ability to fund operations without additional equity or debt financing.
- Separate recurring operating costs from merger, legal, lease, payroll-tax, depreciation, amortization, and stock-compensation expenses.
- Review the consequences of the terminated LiveXLive transaction and the status of the patent litigation.