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SEARCHCORE, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) Our Management's Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission. Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects. The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. Summary Overview We, together with our wholly owned subsidiaries, are engaged in developing, operating and monetizing vertical finder websites in numerous industries. We currently are either in the development stage or are marketing in the recreational sports, prefabricated home, and tattoo industries. We provide services in three different sectors: media, technology and marketing. All of our operations are conducted through our wholly-owned subsidiaries, each of which is incorporated or qualified to do business in the states in which it does so. All of our revenue during 2012 was generated by our finder site, www.weedmaps.com, that aided consumers in finding medicinal cannabis dispensaries, which was operated through our then wholly-owned subsidiary, WeedMaps Media, Inc.. The dispensaries paid a listing fee to WeedMaps Media in order to post their dispensary information on the website. Effective on December 31, 2012, we sold WeedMaps Media, Inc. Our Telemarketing Sales and Technology Platform Our technology knowhow and our telemarketing sales are built around a clearly defined set of market criteria, a strong operating foundation, and a subscription-based revenue model. 24 -------------------------------------------------------------------------------- A reported $37.3 billion was spent on online advertising during 2012 in the United States alone, and the amount is expected to continue to grow. Of the total U.S. market, paid search (like Google Adwords) represents the largest single portion at $17.6 billion. U.S online display ads (banners, video, and pop-ups) continue to command $15 billion 1 . The current challenge for online marketing and online advertising is to find a mechanism that can deliver a form of value to the consumer in return for engagement with a relevant marketer's brand across multiple platforms (web, mobile, etc.). Our technology and telemarketing sales platform addresses this challenge by focusing on delivering value through our niche finder sites. Our sites add a richness and social interactivity to search and display advertising that we believe Google and others don't match for specific industries or niche industry segments. While Google and others will most likely always be the catalyst for consumers, our finder sites intend to be the next click, with relevant content and resources specific to each niche. We focus on making the actual experience of engagement with our finder sites pleasing, ensuring that our finder sites provide value to the consumer to accomplish a task (say, in finding a tattoo artist) and on delivering a targeted segment to local businesses that they would otherwise not reach in a cost effective and timely manner. Our technology and telemarketing sales platform has been built upon our proven track record. Differentiating factors of our business include: - Clear focus and strategic direction: scale the proven paid content model to specifically identified industry niches; - Valuable internet real estate in attractive industry verticals: ensure the portfolio is comprised of highly attractive pieces of internet real estate (i.e. premium domain names and supporting domain names) in underserved but large markets; - Highly experienced, in-house sales staff with proven consultative sales capabilities: having sales personnel that can manage, advise and consult with business owners; - State-of-the-art, multi-channel technology platform: depth of technical knowledge/ability to adapt and benefit from the ever evolving state of search and digital marketing technologies; and - Established culture that fosters client service, innovation and adaptability: individual accountability and innovation. Our Plan of Operation We are currently either developing or marketing websites in the recreational sports, prefabricated housing, and tattoo industries. Our Process for Vertical Finder Site Development We have a systematic approach to the development of our finder sites which allows us to budget our time and resources as we expand and manage our base of finder sites. We believe the timeframe and costs should decrease and then stabilize as a result of efficiently executing the full finder site development. For a finder site to reach scalability, with the fewest malfunctions which cause downtime, it is imperative that the site goes through its normal build life cycle. _________________ 1 http://www.emarketer.com/newsroom/index.php/google-display-ad-leader/ 25 -------------------------------------------------------------------------------- Costs Of and Funding Our Vertical Finder Site Development We currently have several finder sites under development. The costs associated with developing our finder sites include, but are not limited to, expenses for our programmers, coders, user interface design and content creation. Our total monthly expense for development averages from $50,000 to $60,000 per month. To date, we have funded our development operations from cash on hand, the monthly $100,000 we receive pursuant to the sale of WeedMaps (which we shall receive for the next 25 months), the monthly $10,000 we receive pursuant to our agreement with Tattoo Interactive (which we shall receive for the next 9 months), and to a lesser extent, the listing and advertising revenue we now generate from Tattoo.com. Below is a summary of our finder site development process. There is time overlap between each phase and the labels of the various phases are for example only. Phase 1: Industry Analysis and Domain Name Acquisition We begin by identifying potential niche industries. We conduct initial research and if our internal industry criteria are met, we move to acquire an industry premium domain name. For example, our key internal industry criteria include, but are not limited to, an industry must be fragmented and disjoined, have overall market potential of greater than $250 million, and that we can become the top most visited site in that industry. Phase 2: Discovery & Planning - Approximately 60 - 120 days per industry (per finder site) During discovery and planning, we interview industry experts and insiders who have working knowledge of the industry. We analyze our competition, what the products and services are in the industry, and more importantly, what products and services are needed. We determine the concept of the main page and how our features are going to engage the user so they increase the length of time on the site. We analyze the larger targeted areas as well as specify regions and communities. Phase 3: Content Strategy & Content Development - Approximately 30 - 60 days We determine what content will be viewed, including producing, shooting, editing and posting videos, writing blogs, and drafting content. Typically, we will put up a blog and forum site in order to begin gathering SEO information prior to full site development. The content varies per industry and will include various forms, including written forums, blogging, articles and videos. Phase 4: Graphic Design & Development - Approximately 45 - 90 days We fine-tune the user interface experience through graphical mock-ups. We believe the look and feel of the site is as critical as the performance. The user interface of the site and its various forms of content must lend itself to the target audience. By this phase, all strategy, planning and design are completed and the finder site is coded. Phase 5: Testing and Launch - Approximately 1 week - Ongoing We continually test the site, and the process continues until we determine the product meets our minimal viable standards. This is a collaborative team effort with coders, bloggers, programmers and the sales department. We provide the site to the general public through limited exposure. We obtain quantifying feedback and analyze the results, pivot if need be, refine, and redo any pages or functions as needed. 26 -------------------------------------------------------------------------------- Status of Each of Our Finder Sites Tattoo.com Tattoo.com is a preeminent finder site within the $2.3 billion tattoo industry. An interactive community of tattoo shops, artists, and enthusiasts, this premium URL will serve as the authoritative resource for all things tattoo, including tattoo application and removal. On January 21, 2013, we entered into a Management Agreement with Tattoo Interactive, LLC pursuant to which we will perform various marketing, promotion, and website management services with respect to the domain name known as www.tattoo.com. The Agreement has an initial term of 12 months and shall automatically renew for successive one-year terms unless terminated in accordance with its terms. Pursuant to the Agreement, we will receive twenty percent of all advertising revenue, and after the payment of the advertising revenue, we will receive sixty five percent of all remaining designated gross revenue. We have a right of first refusal in the event Tattoo Interactive elects to sell the domain name, and in the event certain revenue goals, as set forth in the Agreement, are satisfied, we will be granted certain equity interests in Tattoo Interactive. Prior to our entering into the Management Agreement with the owners of the domain name, the site was operational and had nominal revenue. We have begun generating revenue and signing subscription agreements with clients. The fees charged in the subscription agreements are month-to-month and range from $99 to $599. We are compiling a national database of tattoo facilities as well as an ongoing telemarketing campaign to tattoo facilities and artists throughout the U.S., and introducing these potential clients to the website. Conditional on reaching a certain search ranking and certain number of monthly page views, then we believe that sales of the services and products will correlate with the unique monthly visits to the website. ManufacturedHomes.com, ManufacturedHome.com and ManufacturedHouse.com By building an interactive community of potential homebuyers, dealers, and manufacturers, ManufacturedHomes.com will establish itself as the definitive go-to finder site for manufactured home purchasers, dealers, manufacturers and lenders. On August 2, 2012, we entered into a Domain Name Purchase Agreement pursuant to which we purchased the domain names known as www.manufacturedhome.com and www.manufacturedhouse.com, for total consideration of $50,000, paid at closing. Further, on August 16, 2012, we entered into a Domain Name Purchase Agreement pursuant to which we purchased the domain name known as www.manufacturedhomes.com, for total consideration of $130,000, paid at closing. ManufacturedHomes.com is currently under development. ManufacturedHome.com and ManufacturedHouse.com both currently exist as single web pages which indicate that a website is coming soon. At the current time, management is not certain whether these domain names will become their own respective websites that are expected to generate revenue or if they will be websites that exist to drive traffic to ManufacturedHomes.com. 27 -------------------------------------------------------------------------------- Sportify.com Sportify.com aims to become a social network designed for recreational sports enthusiasts. Our intent is for the site to enable users to source, schedule, and review, connect and participate in up to 90 different recreational sports in a geographic area anywhere throughout the U.S. The complete functionality of the site is pending, and we believe it will take approximately two years to incorporate and code all of our concepts to Sportify.com. On December 31, 2012, we entered into a Securities Purchase Agreement pursuant to which we purchased 100% of the issued and outstanding equity interests of Sports Asylum, Inc. which owns and operates the intellectual property associated with www.sportify.com, in exchange for (a) the cancellation of a previous Secured Promissory Note issued to Sports Asylum, entered into on or about August 22, 2012 and with an outstanding principal balance of $285,000 and (b) $215,000 represented by promissory notes. Sportify beta launched during the quarter ended March 31, 2013, including an App in Apple's App Store, and is expected to fully launch during the quarter ended June 30, 2013. We expect to begin generating nominal revenue during the quarter ended September 30, 2013 and meaningful revenues during the quarter ended March 31, 2014. ModularHomes.com Modular homes are similar to manufactured homes in that they are factory built. However, distinct from manufactured homes, modular home components are joined at the building site and are regulated in the same way as site-built homes. Currently, there are approximately 150 modular home manufacturing facilities in the United States. We intend for ModularHomes.com to serve as the de facto online destination for all constituents in this growing and regionally diverse industry. The Modular Home finder site will feature tools for both consumers and retailers from custom price quotes and a local site contractor finder to retailer and builder directories and profiles, including featured listings and advertising opportunities for retailers and builders. On January 25, 2013, we purchased the domain name known as www.modularhomes.com for $140,000, payable in a down payment of $50,000 and the balance over twelve equal monthly payments. ModularHomes.com is currently under development. Karate.com Karate.com is anticipated to become a highly ranked consolidated site for all types of martial arts. It will build a community of martial arts enthusiasts and industry professionals who can share interests and make friends, locate studios and training facilities, find equipment and tournaments, and post items for sale or inquiries. We have already compiled a database of over 60,000 stores and facilities in the United States. On August 7, 2012, we entered into a Domain Name Purchase Agreement and a Non-Recourse Secured Promissory Note pursuant to which we purchased the domain names known as www.rodeo.com and www.karate.com, for total consideration of $500,000, with the entire purchase price represented by the Note. On October 25, 2012, we amended the Purchase Agreement and the Note. Pursuant to the terms of the amendments, we agreed to make payments of $50,000 on each of August 15, 2012 and November 1, 2012, which we did. The balance of $400,000 is to be paid in eighteen equal monthly installments of $22,222 beginning June 1, 2013, and continuing on the first day of each month thereafter. Karate.com is currently under development. 28 -------------------------------------------------------------------------------- Rodeo.com Worldwide, the advertising, marketing, and products sold in the rodeo industry exceed $3 billion. To capitalize on this fragmented market, we intend to make Rodeo.com the online hub of information, products, and services for the rodeo industry. We are currently in the planning and discovery phase for Rodeo.com. WeedMaps.com Prior to the sale of our first finder site, www.weedmaps.com, which was operated through our wholly-owned subsidiary, WeedMaps Media, Inc., on December 31, 2012, our technology and telemarketing platform addressed primarily the needs of dispensaries in the medicinal cannabis industry. We were never engaged in the growing, harvesting, cultivation, possession, or distribution of cannabis. Instead, we engaged in developing our finder site technology and associated business model which could then be implement in a myriad of industries. Quarter Ended March 31, 2013 compared to the Quarter Ended March 31, 2012 Results of Operations Revenue Our sales, total revenue, total operating expenses and operating income for the three months ended March 31, 2013, compared to the three months ended March 31, 2012, were as follows: Quarters Ended March 31, March 31, 2013 2012 Sales $ 27,000 $ 3,613,000 Total revenue 27,000 3,613,000 Total operating expenses 665,000 2,865,000 Operating income $ (638,000 ) $ 748,000 The significant decrease in sales from $3.61 million for the three months ended March 31, 2012, to $27,000 for the three months ended March 31, 2013, a decrease of 99%, is because we are no longer advertising in and providing listing services to the medicinal cannabis industry vertical as a result of our sale of our finder site weedmaps.com. 29 -------------------------------------------------------------------------------- The decrease in total revenue for the three months ended March 31, 2013 is a result of a decrease in the fees we charge for our listing packages and a decrease in the number of customers as compared to the three months ended March 31, 2012. The fee we charge for listing packages, in general, has decreased from the previous year primarily because we no longer advertise to and provide listing services to the medicinal cannabis industry vertical as a result of our sale of our finder site weedmaps.com. For example, during the three months ended March 31, 2012 an average listing package would range from $5,000 to $10,000, as compared to the three months ended March 31, 2013 where the average listing package was $99. During the three months ended March 31, 2013, we began generating revenue from Tattoo.com and have also begun to experience growth in the number of customers in the Tattoo industry. However, as compared to the previous year, we have significantly fewer customers. During the three months ended March 31, 2012, we experienced significant growth in the number of our customers in the medical cannabis industry, which was attributable to an increase in the number of dispensaries that purchased our listing packages and, to a lesser extent, because we started offering our listing packages in new states such as Washington, Oregon and Michigan, in addition to our then-existing offerings in California and Colorado. Below is a summary presentation of the average number of clients during each of the quarters ended March 31, 2013 and 2012, as well as those outstanding at the end of each period: Quarters Ended March 31, March 31, 2013 2012 Average number of clients 20 1,137 Total clients at the end of the period 53 1,271 To date, the number of paying clients in the tattoo industry has been increasing in total; however, as was the case with our first finder site, weedmaps.com and our customer base in the medicinal cannabis industry, we expect that some of our customers in the tattoo industry as well as industries we will serve in the future will decide to terminate their advertising and listing services. The reasons for termination vary and may include typical business cycles and/or internal business decisions made by our customers as to their marketing and advertising budgets as it relates to the complex nature of their respective industry. To date, terminations by our customers of their advertising and listing services with us have not had a material effect on our business. Operating Expenses Operating Expenses - Our operating expenses decreased significantly during the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, because we are no longer advertising to and providing listing services to the medicinal cannabis industry vertical as a result of our sale of our finder site weedmaps.com. 30 -------------------------------------------------------------------------------- The decrease in operating expenses from $2.87 million for the three months ended March 31, 2012, to $665,000 for the three months ended March 31, 2013, a decrease of 77%, was because we are no longer advertising to and providing listing services to the medicinal cannabis industry vertical as a result of our sale of our finder site weedmaps.com, which was offset slightly by our efforts to expand our operations in other industries during the three months ended March 31, 2013. In particular, during the quarter ended March 31, 2013, we decreased the number of technology specialists for our research and development department, including the number of coders, programmers and engineers whose responsibilities included, but were not limited to, developing software and additional finder sites. This was accompanied by decreases in salaries and employee benefits, decreases in professional fees which included fees for legal and accounting work as well as expenses related to our Securities and Exchange Commission filings and for fees paid to consultants related to business development, investor relations, sales contract work, and decreases in general and administrative expenses. Salaries And Employee Benefits - During the three months ended March 31, 2013 and 2012, salaries and employee benefits were $252,000 and $1.57 million, respectively. The significant decrease in salaries and employee benefits during the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, was primarily because we are no longer advertising to and providing listing services to the medicinal cannabis industry vertical as a result of our sale of our finder site weedmaps.com, which decreased our need for certain operations, employees and staff which resulted in decreases in associated salaries and employee benefits as well as decreases in general and administrative costs. Professional Fees - During the three months ended March 31, 2013 and 2012, professional fees were $256,000 and $403,000, respectively. This decrease during the three months ended March 31, 2013 as compared to 2012 was a result of less spending related to legal expenses related to us providing services to the medicinal cannabis industry and the unique legal circumstances of that industry. The decrease during the three months ended March 31, 2013 as compared to 2012 was also as a result of less spending on accounting and legal fees related to our SEC filings, which was slightly offset by our efforts to expand our operations serving the tattoo industry as well as other industries in which we expect to operate in during the year ended 2013, as well as our recent acquisitions. General And Administrative Expenses - During the three months ended March 31, 2013 and 2012, general and administrative expenses were $94,000 and $300,000, respectively. The slight change in these expenses was primarily attributable to decreases in computer and internet expenses, spending on travel and on advertising expense, as well as significant decreases in insurances costs. Gain On Change In Fair Value Of Earn-Out Liability - As of December 31, 2012, all of our obligations pursuant to earn-out provisions were cancelled, therefore there was no gain/loss on change in fair value of earn-out liability during the quarter ending March 31, 2013. The total non-cash gain on change in fair value of earn-out liability for the three months ended March 31, 2012 was $2.96 million. Liquidity and Capital Resources Our cash, current assets, intangible assets, total assets, current liabilities, and total liabilities as of March 31, 2013 and March 31, 2012 were as follows: March 31, December 31, 2013 2012 (unaudited) (audited) Cash $ 299,000 $ 514,000 Total current assets 1,809,000 2,237,000 Intangible assets: Domain names 1,031,000 806,000 Trademarks 1,000 1,000 Web software 394,000 430,000 Goodwill 59,000 59,000 Total intangible assets 1,485,000 1,296,000 Total assets 4,673,000 5,196,000 Total current liabilities 2,905,000 3,094,000 Total long term liabilities 961,000 683,000 Total liabilities $ 3,867,000 $ 3,777,000 31-------------------------------------------------------------------------------- We had a decrease in cash of $215,000, from $514,000 at December 31, 2012 to $299,000 at March 31, 2013. This was because of our sale of our finder site weedmaps.com and thus we generated less revenue and to a lesser extent, by reducing our debt by $23,000 and also as a result of cash used in our recent acquisitions. Our intangible assets at March 31, 2013 consisted of the domain names of www.Rodeo.com, www.Karate.com, www.ManufacturedHome.com, www.ManufacturedHomes.com, www.ManufacturedHouse.com, and www.Sportify.com and its associated web software, as well as the recently acquired domain names acquisitions www.ModularHomes.com, www.TravelTrailer.com and www.ToyHaulers.com. The balance was goodwill which represented the premium paid for the Sportify acquisition. Our current liabilities decreased by $189,000, from $3.1 million at December 31, 2012 to $2.9 million at March 31, 2013, primarily as a result of payments on our taxes payable, reclassifying noncurrent debt to current, and a reduction of our obligation in stock based compensation, all of which was offset by increases in accrued insurance costs. Our total long-term liabilities increased by $278,000, from $683,000 at December 31, 2012 to $961,000 at March 31, 2013, as a result of reclassifying noncurrent debt to current, offset in part by payments on notes payable. During the three months ended March 31, 2012, we recognized a non-cash gain of $2.96 million on change in fair value of earn-out liability. Cash Requirements We had approximately $299,000 in cash and cash equivalents as of March 31, 2013. Our operating loss for the three months ended March 31, 2013 was $638,000. We had a working capital deficit of approximately $1.1 million at March 31, 2013. During the three months ended March 31, 2013, our principal source of liquidity was cash generated from our then-current operations as well as payments we received pursuant to our sale of our finder site weedmaps.com ($250,000 on January 15, 2013 and $100,000 a month for a total of 27 months). Finally, pursuant to the sale of our finder site weedmaps.com we received an additional $750,000 in cash on December 31, 2012 from cash on hand. As a result of the foregoing, at our current burn rate and as a result of the significant decrease in our debt, our cash on hand, together with the $100,000 per month that we will received pursuant to the sale of our finder site weedmaps.com, will last approximately 12 to 15 months. Sources and Uses of Cash Operations We had net cash used in operating activities of $97,000 for the three months ended March 31, 2013, as compared to net cash from operating activities of $725,000 for the three months ended March 31, 2012. For the three months ended March 31, 2013, the net cash used by operating activities consisted primarily of a net loss of $639,000 (including discontinued operations) which included a $8,000 loss related to the discontinued operations of General Health Solutions, and a slight decrease in accounts payable and accrued liabilities of $1,100, an increase in prepaid expenses and deposits of $213,000, plus non-cash amortization and depreciation expense of $36,000 and $1,200, respectively. For the three months ended March 31, 2012, the net cash provided by operating activities consisted primarily of net income of $3.42 million (including discontinued operations), an increase in accounts payable and accrued liabilities of $124,000, a decrease in prepaid expenses and deposits of $138,000, and an decrease in accounts receivable of $11,000, plus non-cash amortization and depreciation expense of $44,000 and $98,000, respectively. 32 -------------------------------------------------------------------------------- Investments We had net cash used in investing activities of $96,000 for the three months ended March 31, 2013, as compared to $303,000 for the three months ended March 31, 2012. For the three months ended March 31, 2013, the net cash used in investing activities was primarily related to purchases of furniture and computers and other equipment of $11,000, plus purchases of intangible assets of $85,000. For the three months ended March 31, 2012, the net cash from investment activities was primarily a result of purchases of furniture and computers and other equipment of $106,000, plus purchases of intangible assets of $197,000. Financing We had net cash used in financing activities of $23,000 for the three months ended March 31, 2013, as compared to net cash used in financing activities of $502,000 for the three months ended March 31, 2012. For the three months ended March 31, 2013, our net cash used in financing activities consisted solely of payments on notes payable related to our recent domain name acquisitions. For the three months ended March 31, 2012, our net cash used in financing activities consisted of payment on notes payable - related party related to the WeedMaps acquisition and payments on notes payable related to the marijuana.com acquisition. Debt Instruments, Guarantees, and Related Covenants We have no disclosure required by this Item. Critical Accounting Estimates Goodwill In accordance with Goodwill and Other Intangible Assets, goodwill is defined as the excess of the purchase price over the fair value assigned to individual assets acquired and liabilities assumed and is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis in our fourth fiscal quarter or more frequently if indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of our reporting units with each respective reporting unit's carrying amount, including goodwill. The fair value of reporting units is generally determined using the income approach. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, the second step of the goodwill impairment test is performed to determine the amount of any impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. No amortization is recorded for goodwill with indefinite useful life. No goodwill impairment was recognized during the three months ended March 31, 2013 and 2012, respectively. Intangible Assets In accordance with Goodwill and Other Intangible Assets, intangible assets that are determined not to have an indefinite useful life are subject to amortization. We amortize intangible assets using the straight-line method over their estimated useful lives. 33 -------------------------------------------------------------------------------- Impairment of Long-Lived and Intangible Assets In accordance with Accounting for the Impairment or Disposal of Long-Lived Assets, we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. We assess the recoverability of the long-lived and intangible assets by comparing the carrying amount to the estimated future undiscounted cash flow associated with the related assets. No impairment of intangible assets was recognized during the three months ended March 31, 2013. No impairment of long-lived assets was recognized during the three months ended March 31, 2013. Contingent Consideration - Earn-outs Contingent consideration, the earn-out provisions, which are classified as a liability, pursuant to ASC 805, are required to be remeasured to fair value at each reporting date and any changes in fair value subsequent to the acquisition date are recognized in earnings which could cause a material impact to, and volatility in, our operating results. The primary inputs in determining the fair value of the earn-outs that are remeasured to fair value are the quoted price of the underlying shares of our common stock and the probabilities for the three different scenarios in determining the likelihood of common share payouts. For the three months ended March 31, 2012, we recorded a non-cash gain on change in fair value of the earn-out liability of $2.95 million. Net Loss For the three months ended March 31, 2013 and 2012, we had a net loss of $639,000 and net income of $3.42 million, respectively. The net loss we experienced during the three months ended March 31, 2013 was primarily because we are no longer advertising to and providing listing services to the medicinal cannabis industry vertical as a result of our sale of our finder site weedmaps.com, and also as a result of our efforts to expand our operations serving the tattoo industry as well as other industries in which we expect to operate in during the year ended 2013. The net income we experienced during the quarter ended March 31, 2012 is primarily attributed to the $2.95 million non-cash gain on change in fair value of the earn-our liability. |