News Column

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

May 15, 2014

Cautionary Note Regarding Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations is set forth below. Certain statements in this report may be considered to be "forward-looking statements" as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995. In particular, these forward-looking statements include, among others, statements about:

? our expectations regarding user engagement patterns; ? our expectations regarding mobile usage by our users; ? the impact of increased mobile usage and Social Theater competition on revenues and financial results;



? our expectations relating to advertising and the effects of advertising

and mobile monetization on our revenues;

? our plans regarding product development, international growth and personnel;

? our liquidity and expectations regarding uses of cash;



? our expectations regarding payments relating to cost reduction initiatives;

? the impact of new accounting policies; and



? our plans for capital expenditures for the remainder of the year ending

December 31, 2014. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy, plans and objectives of management for future operations, are forward-looking statements. The words "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "could," "target," "potential," "is likely," "will," "expect" and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Important factors that could cause actual results to differ from those in the forward-looking statements include users' willingness to try new product offerings, the risk that unanticipated events affect the functionality of our mobile application with popular mobile operating systems, any changes in such operating systems that degrade our mobile application's functionality and other unexpected issues which could adversely affect usage on mobile devices, the risk that the mobile advertising market will not grow, the ongoing existence of such demand and the willingness of our users to complete mobile offers or pay for virtual currency. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. 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, 2013. Additional risks that we do not presently know or that we currently believe are immaterial could materially and adversely affect any of our business, financial position, future results or prospects. Page 23 -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided as a supplement to and should be read in conjunction with our audited consolidated financial statements, and the MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2013 ("Annual Report"), as well as our condensed consolidated financial statements and the accompanying notes included in this report. Company Overview MeetMe ("we," "our" or "us") is a social network for meeting new people both on the web and on mobile platforms, including on iPhone, Android, iPad and other tablets, that facilitates interactions among users and encourages users to connect with each other. MeetMe monetizes through advertising, virtual currency, and paid subscriptions. MeetMe provides users with access to an expansive, multilingual menu of resources that promote social interaction, information sharing and other topics of interest to users. The Company offers online marketing capabilities, which enable marketers to display their advertisements in different formats and in different locations. The Company works with its advertisers to maximize the effectiveness of their campaigns by optimizing advertisement formats and placement. Just as Facebook has established itself as the social network of friends and family, and LinkedIn as the social network of colleagues and business professionals, MeetMe is creating the social network not of the people you know but of the people you want to know. We believe meeting new people is a basic human need, especially for users aged 18-30, when so many long-lasting relationships are made. There are more than one billion people aged 18-30 worldwide with more than 50 million such people in the United States. We believe that we have significant growth opportunities ahead as people increasingly use their mobile devices to discover the people around them. Given the importance of establishing connections within a user's geographic proximity, we believe it is critical to establish a high density of users within the geographic regions we serve. As the MeetMe network grows and the number of users in a location increases, we believe users will benefit incrementally from the quantity of relevant connections. Operating Metrics We measure site and application activity in terms of monthly active users (MAUs), visits and page views. We define "MAU" as a registered user of one of our platforms who has logged in and visited our websites or mobile applications within the last month of measurement. A "visit" represents a distinct user session, and a "page view" is a page that a user views during a visit. For the quarters ended March 31, 2014 and 2013, the total MeetMe MAUs were approximately 4.76 million and 4.92 million, respectively. MeetMe visits were approximately 883 million and 718 million, respectively, for the quarters ended March 31, 2014 and 2013. MeetMe registered users numbered approximately 132 million and 101 million, respectively, for the three months ended March 31, 2014 and 2013. For the Three Months Ended March 31, 2014 2013 MAU- MeetMe 4,763,486 4,922,391 Visits - MeetMe 883,391,222 717,985,503 Pageviews - MeetMe 11,038,030,009 11,699,582,820



Trends in Our Operating Metrics

We measure activity on our sites in terms of MAUs, daily active users ("DAUs"), average revenue per user ("ARPU"), average revenue per daily active user ("ARPDAU"), visits and page views. 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. We define ARPU as the average revenue per monthly active user for web and mobile. We define ARPDAU as the average revenue per daily active web or mobile user. 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. Page 24 -------------------------------------------------------------------------------- In the quarter ended March 31, 2014, MeetMe averaged 2.45 million mobile MAUs and 4.76 million total MAUs, as compared to 2.36 million mobile MAUs and 4.92 million total MAUs on average for the quarter ended March 31, 2013, a net decrease of 0.09 million or 4% and 0.16 million or 3% in mobile and total MAUs. Mobile DAUs were 772,000 and 774,000 for the quarters ended March 31, 2014 and 2013, respectively. For the quarter ended March 31, 2014, we averaged 1.03 million total DAUs, as compared to 1.19 million total DAUs on average for the quarter ended March 31, 2013, a net decrease of approximately 152,000 total DAUs, or (13%). We believe the shift of our audience from web to mobile is an important driver of our business. As users shift from web to mobile, web page views decreased in every quarter of 2013 and the first quarter of 2014, from 2.4 billion in the first quarter of 2013 to 1.7 billion in the first quarter of 2014. Our user base generated over 11.0 billion total page views in the first quarter of 2014, and 11.7 billion page views in the same period of 2013. Decreasing web traffic resulted in declining web revenue. We have successfully increased our mobile monetization by 144% and our mobile ARPDAU by 145%, respectively, to $4.7 million and $0.068 for the quarter ended March 31, 2014 from $1.9 million and $0.028 for the quarter ended March 31, 2013. We believe our ability to continue to grow our mobile audience and our mobile monetization at a faster pace than the decline in our web revenue will impact the performance of our business.



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-------------------------------------------------------------------------------- In the quarter ended March 31, 2014, MeetMe earned an average of $1.04 ARPU on the web and $1.92 in ARPU in its mobile applications, as compared to $1.38 in web ARPU and $0.82 in mobile ARPU for the quarter ended March 31, 2013. In the quarter ended December 31, 2013, the company reported mobile ARPU of $2.01, which included a one-time revenue recognition of past deferred revenue for virtual currency sales previously collected but never used by the purchaser. Excluding this one-time adjustment, the mobile ARPU for the quarter ended December 31, 2013 would have been $1.81. In the quarter ended March 31, 2014, MeetMe earned an average of $0.109 ARPDAU on the web and $0.068 in ARPDAU in its mobile applications, as compared to $0.110 in web ARPDAU and $0.028 in mobile ARPDAU for the quarter ended March 31, 2013. In the quarter ended December 31, 2013, the company reported mobile ARPDAU of $0.071, which included a one-time revenue recognition of past deferred revenue for virtual currency sales previously collected but never used by the purchaser. Excluding this one-time adjustment, the mobile ARPDAU for the quarter ended December 31, 2013 would have been $0.064.



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First Quarter of 2014 Highlights

? Mobile revenue grew 144% from the first quarter of 2013 to $4.7 million.

? Mobile ARPU of $1.92 in the first quarter of 2014 compared to $0.82 in the

first quarter of 2013.



? Mobile revenue in the first quarter of 2014 represented 49.4% of MeetMe

company revenue, compared to 24.6% in the first quarter of 2013.



Factors Affecting Our Performance

? Number of MAUs and DAUs: We believe ability to grow web and mobile MAUs and DAUs affects our revenue and financial results by influencing the number of advertisements we are able to show, the value of those advertisements, and the volume of virtual currency purchases, as well as our expenses and capital expenditures. ? User Engagement: Changes in user engagement patterns we believe also



affect our revenue and financial performance. Specifically, the number of

visits and page views each MAU or DAU generates affects the number of advertisements we are able to display and therefore the rate at which we are able to monetize our active user base. We continue to create new



features and enhance existing features to drive additional engagement.

? Platform Trends: Increasing use of MeetMe on mobile devices may affect our

revenue and financial results, as we currently display fewer advertising

on average to mobile users compared to users on personal computers, and we

earn less revenue per ad impression as a result of the mobile advertising

market being less established than the web advertising

market. For example, in the first quarter of 2014, over 70% of our DAUs on

average accessed MeetMe on mobile devices, yet we generated only 59% of our core platform revenue from our mobile usage. Improving the rate at



which we monetize our growing mobile traffic is a key priority in 2014, as

we expect our users to continue to shift their usage from web to

mobile for the foreseeable future. The transition in our user access to

mobile may impact revenues negatively in the short-term and medium-term as

mobile monetization continues to mature. ? Advertising Rates: Our revenue and financial results are materially dependent on industry trends, and any changes to the revenue we earn per thousand advertising impressions (CPM) could affect our revenue and financial results. We expect to continue investing in new types of



advertising and new placements, especially in our mobile applications.

Additionally, we are prioritizing initiatives that generate revenue

directly from users, including new virtual currency products and a premium

subscription product, in part to reduce our dependency on advertising revenue. ? User Geography: The geography of our users influences our revenue and financial results because we currently monetize users in distinct geographies at varying average rates. For example, ARPU in the United States and Canada is significantly higher than in Latin America. In 2012



and early 2013, we laid the foundation for future international growth by

localizing the core MeetMe service in multiple languages including English, Spanish, Portuguese, French, Italian, German, Chinese (Traditional and Simplified), Russian, Japanese, Dutch, Turkish and Korean. Page 27

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? New User Sources: The percentage of our new users that are acquired



through inorganic, paid sources has a material impact on our financial

performance, specifically with regard to ARPU for web and mobile.

Inorganically acquired users tend to have lower engagement rates, tend to

generate fewer visits and ad impressions and to be less likely to buy

virtual currency products. When paid marketing campaigns are ongoing, our

overall usage and traffic increases due to the influx of inorganically

acquired users, but the rate at which we monetize the average active user overall declines as a result.



? Ad Inventory Management: Our revenue trends are affected by advertisement

inventory management changes affecting the number, size, or prominence of

advertisements we display. In general, more prominently displayed

advertising units will generate more revenue per impression. Our Social

Theater campaign expenses are materially dependent on the percentage of Social Theater campaigns that run on the MeetMe platform and the percentage that run on our partners' cross-platform networks. We work to maximize the share of Social Theater campaigns that run on the MeetMe



platform and run campaigns on our partners' networks only when necessary

to increase their reach.



? Increased Social Theater Competition: A significant portion of the revenue

generated by the Social Theater is derived from advertising campaigns,

powered by Social Theater technology, that run on our

partners' cross-platform networks and not on the MeetMe platform. A recent

increase in competitors offering similar technology solutions, and in some

cases their own cross-platform distribution networks, may make it

difficult to compete on price and win business. We expect this downward

pressure on price to continue and impact our operating results in the future.



? Seasonality: Advertising spending is traditionally seasonal with a peak in

the fourth quarter of each year. We believe that this seasonality in advertising spending affects our quarterly results, which generally reflect a growth in advertising revenue between the third and fourth quarters and a decline in advertising spending between the fourth and subsequent first and second quarters of each year. ? Headcount: We plan to invest more heavily in mobile products in 2014



expecting to grow headcount by 15% or approximately 20 people, primarily

to expand the size of the mobile development team. Growth trends in web and mobile MAUs and DAUs 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 advertising, 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. We believe 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 revenue product for the MeetMe platform and on third-party sites. Social Theater growth may be affected by large brand penetration, the ability to grow the advertiser base and advertiser spending budgets.



Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on March 25, 2014. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the three months ended March 31, 2014, compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2013.



Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2013-11 Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance is effective for fiscal year and interim periods beginning after December 15, 2013. The adoption of ASU 2013-11 in fiscal 2014 is not expected to have a material impact on the Company's Consolidated Condensed Financial Statements.



In February 2013, the FASB issued Accounting Standards Update 2013-02 Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.

The ASU is effective for annual periods and interim periods within those periods beginning after December 15, 2012. The ASU was effective for the Company beginning in the first quarter of fiscal 2014 and did not have a material impact on the Company's consolidated condensed financial statements.

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In February 2013, the FASB issued Accounting Standards Update 2013-02 Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.

The ASU is effective for annual periods and interim periods within those periods beginning after December 15, 2012. The ASU was effective for the Company beginning in the first quarter of fiscal 2014 and did not have a material impact on the Company's Consolidated Condensed Financial Statements.

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 March 31, 2014 to 2013 2014 to 2013 2014 2013 Change ($) Change (%) Revenues $ 9,503,504$ 7,805,632$ 1,697,872 22 % Operating Costs and Expenses Sales and marketing 2,159,088 1,986,693 172,395 9 % Product development and content 6,857,440 6,383,444 473,996 7 % General and administrative 1,929,645 2,400,259 (470,614 ) (20 )% Depreciation and amortization 1,085,459 1,082,944 2,515 - % Restructuring costs 120,202 1,894,417 (1,774,215 ) (94 )% Loss on debt restructure - 1,174,269 (1,174,269 ) (100 )% Operating Expenses 12,151,834 14,922,026 (2,770,192 ) (19 )% Loss from Operations (2,648,330 ) (7,116,394 ) 4,468,064 63 % Other Income (Expense): Interest income 1,166 2,256 (1,090 ) (48 )% Interest expense (420,243 ) (213,840 ) (206,403 ) 97 % Change in warrant liability (355,954 ) - (355,954 ) 100 % Total Other Income (Expense) (775,031 ) (211,584 ) (563,447 ) 266 % Net loss $ (3,423,361 )$ (7,327,978 )$ 3,904,617 53 %



Comparison of the three months ended March 31, 2014 and 2013

Revenues Our revenues were approximately $9.5 million, for the three months ended March 31, 2014, an increase of $1.7 million or 22% compared to $7.8 million for the same period in 2013. The increase is attributable to a $2.8 million increase in mobile revenue and $800,000 increase in cross platform revenue, partially offset by a $1.9 million decrease in web advertising and virtual currency revenue.



Operating Costs and Expenses

Sales and Marketing: Sales and marketing expenses increased approximately $172,000, or 9%, to approximately $2.2 million for the three months ended March 31, 2014 from $2.0 million for the comparable period of 2013. Increased sales and marketing expenses are primarily attributable to increased advertising and marketing initiatives, offset by lower sales and marketing salaries and related employee expenses. Product Development and Content: Product development and content expenses increased approximately $474,000, or 7%, to $6.9 million, for the three months ended March 31, 2014 from $6.4 million for the comparable period of 2013. The net increase in product development and content is attributable to increased third party content costs for cross platform Social Theater campaigns, partially offset by decreased employee related expenses. Page 29 -------------------------------------------------------------------------------- General and Administrative: General and administrative expenses decreased $471,000, or 20% to $1.9 million for the three months ended March 31, 2014 from $2.4 million for the same period of 2013. The aggregate decrease in general and administrative costs is due to a decrease of approximately $667,000 in salaries, bonuses, related expenses, stock compensation costs and Board of Directors compensation for which approximately $564,000 was accelerated stock compensation for the immediate vesting of stock options for the former Chief Executive Officer and Chief Financial Officer at March 31, 2013.



Comparison of Stock-Based Compensation and Other Costs and Expenses

Stock-Based Compensation Stock-based compensation expense for continuing operations, included in the operating expense by category, decreased approximately $364,000 to $941,000 for the three months ended March 31, 2014 from $1.3 million for the three months ended March 31, 2013. The decrease is primarily the result of approximately $564,000 of accelerated stock compensation attributable to the immediate vesting of stock options for the former Chief Executive Officer and Chief Financial Officer at March 31, 2013 offset by an increase of $200,000 for other employee equity grants. Stock based compensation expense represented 8% and 9% of operating expenses for the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, there was approximately $3.6 million of total unrecognized compensation cost, which we expect to recognize over a period of approximately three years. For the Three Months Ended March 31, 2014 to 2013 2014 2013 Change ($) Sales and marketing $ 116,990$ 93,322$ 23,668 Product and content development 514,745 350,298



164,447

General and administrative 309,552 861,528



(551,976 ) Total stock-based compensation $ 941,287$ 1,305,148$ (363,861 )

Depreciation and amortization expense

Depreciation and amortization expense was $1.1 million for the three months ended March 31, 2014 and 2013.

Restructuring Costs For the three months ended March 31, 2014 and 2013 restructuring costs were approximately $120,000 and $1.9 million, respectively, including the accrual of office, employee exit, and employee relocation costs. The Company paid approximately $1.8 million of the accrued restructuring expenses in severance and related employee exit costs to its former Chief Executive Officer and Chief Financial Officer during 2013.



Liquidity and Capital Resources

For the Three Months Ended March 31, 2014 2013



Net cash provided by operating activities $ 394,149$ 39,337 Net cash used in investing activities (37,156 ) (150,256 ) Net cash used in financing activities (913,380 ) (656,449 )

$ (556,387 )$ (767,368 ) Net cash provided by operations was approximately $394,000 for the three months ended March 31, 2014 compared to cash provided by operations of $39,000 for the same period in 2013. For the three months ended March 31, 2014, net cash provided by continuing operations consisted primarily of a net loss from continuing operations of approximately $3.4 million offset by non-cash expenses of approximately $1.1 million of depreciation and amortization expense, $941,000 related to stock based compensation for the vesting of stock options, and $257,000 in amortization of discounts on notes payable and debt issuance costs. Additionally, changes in working capital increased the net cash provided by continuing operations. These changes included decreases in accounts receivable of approximately $1.6 million resulting from collections, and $27,000 in prepaid expenses, and other current assets and other assets, offset by a decrease offset by net decrease in accounts payable, accrued expenses, and deferred revenue of $346,000. Page 30

-------------------------------------------------------------------------------- For the three months ended March 31, 2013, net cash provided by continuing operations consisted primarily of a net loss from continuing operations of approximately $7.3 million offset by non-cash expenses of approximately $1.1 million of depreciation and amortization expense, $1.3 million related to stock based compensation for the vesting of stock options, $1.1 million of loss on debt restructure, and $47,000 in amortization of discounts on notes payable and debt issuance costs. Additionally, changes in working capital increased the net cash provided by continuing operations. These changes included decreases in accounts receivable of approximately $3.9 million resulting from collections, $73,000 in prepaid expenses, and other current assets and other assets, and an increase of $159,000 in deferred revenues offset by a decrease offset by net decrease in accounts payable and accrued expenses of $232,000. Net cash used in investing activities in the three months ended March 31, 2014 of approximately $37,000, was due to capital expenditures of $37,000 for computer equipment to increase capacity and improve performance. Net cash used in investing activities in the three months ended March 31, 2013 of approximately $150,000, was due to capital expenditures of $164,000 for computer equipment to increase capacity and improve performance offset by $14,000 of loan receivable payments received from BRC Group, LLC. Net cash used in investing activities in the three months ended March 31, 2013 excluded approximately $330,000 of computer equipment purchased using capital leases. Net cash used in financing activities in the three months ended March 31, 2014 of approximately $913,000 was due to approximates $684,000 of debt payments, and $230,000 of capital lease payments. Net cash used in financing activities in the three months ended March 31, 2013 of approximately $656,000 was due to $564,000 of debt payments, and $171,000 of capital lease payments offset by $79,000 of proceeds from the exercise of stock options. Net cash used in financing activities in the three months ended March 31, 2013 excludes the $6.0 million note payable with accrued interest and accounts receivable offset and $2.8 million of warrant exercises and subordinated note payable with accrued interest cancellation which were non-cash transactions. March 31, 2014 December 31, 2013 Cash and cash equivalents $ 5,786,227 $ 6,330,532 Total assets $ 92,460,353$ 95,576,240 Percentage of total assets 6.3 % 6.6 % Our cash balances are kept liquid to support our growing infrastructure needs for operational expansion. The majority of our cash is concentrated in two large financial institutions.



As of March 31, 2014, the Company had positive working capital of approximately $6.0 million.

The Company may borrow up to $6.0 million of debt from financial institutions and under capital leases through its Loan and Security Agreement ("Debt Agreement"), provided that the Company has unrestricted cash and accounts receivable greater than 200% of its outstanding debt under the Debt Agreement. On April 29, 2013, the Company (i) entered into a loan and security agreement with a leading provider of debt financing to technology companies (the "Loan Agreement") and (ii) issued two warrant agreements ("Warrants") for the purchase of shares of the Company's common stock to the lenders under the Loan Agreement. The Loan Agreement has an aggregate commitment of $8 million. The Company borrowed $5 million under the Loan Agreement on April 29, 2013. Upon the achievement of certain financial goals, the Company may borrow two additional tranches of loans, each in an aggregate principal amount of up to $1.5 million. All loans under the Loan Agreement have a term of 36 months and may not be re-borrowed after repayment. The lender under the Loan Agreement has a security interest in substantially all assets of the Company. The purchase price for the shares of common stock issuable upon exercise of the Warrants is equal to, at each Warrant holder's option, the lower of (x) $1.96 and (y) the price per share of the stock issued in the next equity placement of the Company's stock, subject to certain restrictions set forth in the Warrants. The Warrants may be exercised until February 28, 2024. As of the date of May 6, 2014, the Company owed approximately $4.1 million on its loan payable of which $1.3 million is due through December 2014, and the remainder of $2.8 million is due through April 2016. During the three months ended March 31, 2014, the Company did not enter into any additional capital leases. As of March 31, 2014, capital leases that were previously entered into by the Company had $1.4 million in principal amount of capital lease indebtedness, of which approximately $756,000 is due through December 31, 2014. The Company believes that, with its current available cash, anticipated revenues and collections on its accounts receivables, and its access to capital through various financing options, it will have sufficient funds to meet its anticipated cash needs for the next 12 months.



We have budgeted capital expenditures of $3.0 million for the remainder of 2014, funded primarily through capital leases, which will support our growth of domestic and international business through increased capacity, performance improvement, and expanded content.

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Off-Balance Sheet Arrangements

There have been no material changes with regard to our off-balance sheet arrangements since our Annual Report on Form 10-K for the year ended December 31, 2013.

Non-GAAP Financial Measures

The following discussion and analysis includes both financial measures in accordance with GAAP, as well as a non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of the Company nor is it intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods. Our management uses this non-GAAP financial measure in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison. The Company defines Adjusted EBITDA as earnings (or loss) from continuing operations before interest expense, income taxes, depreciation and amortization, amortization of stock-based compensation, acquisition, restructuring or other expenses and goodwill impairment charges. The Company excludes stock based compensation because it is non-cash in nature. Our management believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our operating results from period to period after removing the impact of acquisition related costs, and other items of a non-operational nature that affect comparability. Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items. We have included a reconciliation of our non-GAAP financial measures to the most comparable financial measures calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between the Company and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measure provided by each company under applicable SEC rules. The following table presents a reconciliation of Adjusted EBITDA to Net Loss from continuing operations allocable to common shareholders, a GAAP financial measure: For the Three Months Ended March 31, 2014 2013 Net Loss Allocable to Common Shareholders $ (3,423,361 )$ (7,327,978 ) Interest expense 420,243 213,840 Change in warrant liability 355,954 - Depreciation and amortization 1,085,459 1,082,944 Stock-based compensation expense 941,287 1,305,148 Restructuring costs 120,202 1,894,417 Loss on debt restructure - 1,174,269 Adjusted EBITDA (loss) $ (500,216 )$ (1,657,360 )


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