UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
 SECURITIES EXCHANGE ACT OF 1934 
   
 For the quarterly period ended June 30, 2017March 31, 2018 
   
 OR 
   
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
 SECURITIES EXCHANGE ACT OF 1934 
For the transition period from  to  
Commission file number: 001-33105
The Meet Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware86-0879433
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
100 Union Square Drive 
New Hope, Pennsylvania18938
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number: (215) 862-1162
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒ 
  
Non-accelerated filer ☐ (Do not check if a smaller reporting company)Smaller reporting company ☐ 
  
 Emerging growth company ☐ 
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Class Outstanding as of August 1, 2017April 30, 2018
Common Stock, $0.001 par value per share 71,798,10072,494,857
shares


THE MEET GROUP, INC. AND SUBSIDIARIES
INDEX

PART I. FINANCIAL INFORMATION 
 
Item 1.
Financial Statements
3
 
Condensed Consolidated Balance Sheets as of June 30, 2017March 31, 2018 (Unaudited) and December 31, 20162017
3
 
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited) for the three and six months ended June 30,March 31, 2018 and 2017 and 2016
4
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the sixthree months ended June 30, 2017March 31, 2018 (Unaudited) and the year ended December 31, 20162017
5
 
Condensed Consolidated Statements of Cash Flows (Unaudited) for the sixthree months ended June 30,March 31, 2018 and 2017 and 2016
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2728
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
38
Item 4.
Controls and Procedures
39
PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
40
Item 1A.
Risk Factors
40
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
40
Item 3.
Defaults Upon Senior Securities
40
Item 4.
Mine Safety Disclosures
40
Item 5.
Other Information
40
Item 6.
Exhibits
41
SIGNATURES
42
CERTIFICATIONS
INDEX TO EXHIBITS



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

THE MEET GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)  (Unaudited)  
June 30,
2017		 December 31,
2016		March 31,
2018		 December 31,
2017
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents$32,252,734
 $21,852,531
$27,969,456
 $24,158,444
Accounts receivable, net of allowance of $309,000 and $283,000 at June 30, 2017 and December 31, 2016, respectively20,810,796
 23,737,254
Accounts receivable, net of allowance of $519,306 and $527,958 at March 31, 2018 and December 31, 2017, respectively20,365,174
 26,443,675
Prepaid expenses and other current assets5,353,355
 1,489,267
3,417,675
 3,245,174
Total current assets58,416,885
 47,079,052
51,752,305
 53,847,293
Restricted cash894,057
 393,484
500,000
 894,551
Goodwill150,088,783
 114,175,554
152,185,979
 150,694,135
Property and equipment, net3,491,539
 2,466,110
4,149,034
 4,524,118
Intangible assets, net37,236,258
 17,010,565
46,094,182
 48,719,428
Deferred taxes27,562,319
 28,253,827
16,007,054
 15,521,214
Other assets584,292
 110,892
1,863,590
 1,144,032
Total assets$278,274,133
 $209,489,484
$272,552,144
 $275,344,771
LIABILITIES AND STOCKHOLDERS’ EQUITY      
CURRENT LIABILITIES:      
Accounts payable$3,552,147
 $5,350,336
$4,666,271
 $6,277,846
Accrued liabilities12,770,565
 8,395,060
21,868,691
 19,866,438
Current portion of long-term debt7,500,000
 —
15,000,000
 15,000,000
Current portion of capital lease obligations81,761
 221,302
227,678
 254,399
Deferred revenue1,188,881
 434,197
5,225,506
 4,433,450
Total current liabilities25,093,354
 14,400,895
46,988,146
 45,832,133
Long-term capital lease obligations, less current portion, net157,365
 192,137
Long-term debt5,625,000
 —
36,973,633
 40,637,106
Long-term derivative liability4,512,878
 2,995,657
Other liabilities114,051
 147,178
Total liabilities30,718,354
 14,400,895
88,746,073
 89,804,211
Commitments and contingencies (see Note 7)—
 —
STOCKHOLDERS’ EQUITY:      
Preferred stock, $.001 par value; authorized - 5,000,000 shares; 0 shares issued and outstanding at June 30, 2017 and December 31, 2016—
 —
Common stock, $.001 par value; authorized - 100,000,000 shares; 71,794,766 and 58,945,607 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively71,798
 58,949
Preferred stock, $.001 par value; authorized - 5,000,000 shares; 0 shares issued and outstanding at March 31, 2018 and December 31, 2017—
 —
Common stock, $.001 par value; authorized - 100,000,000 shares; 72,106,997 and 71,915,018 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively72,104
 71,918
Additional paid-in capital403,025,701
 351,873,801
410,105,207
 408,029,068
Accumulated deficit(155,541,720) (156,844,161)(225,632,074) (221,435,888)
Accumulated other comprehensive loss(739,166) (1,124,538)
Total stockholders’ equity247,555,779
 195,088,589
183,806,071
 185,540,560
Total liabilities and stockholders’ equity$278,274,133
 $209,489,484
$272,552,144
 $275,344,771

See notes to condensed consolidated financial statements.



THE MEET GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
THREE AND SIX MONTHS ENDED JUNE 30,MARCH 31, 2018 AND 2017 AND 2016
(UNAUDITED)

Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
2017 2016 2017 20162018 2017
Revenues$31,329,468
 $16,388,991
 $51,388,265
 $29,710,662
$37,637,793
 $20,058,797
Operating costs and expenses:          
Sales and marketing4,599,842
 3,226,344
 9,705,350
 5,547,767
7,047,993
 5,105,508
Product development and content16,526,905
 6,214,062
 24,984,399
 11,922,162
22,101,537
 8,457,494
General and administrative5,160,799
 1,867,590
 8,023,226
 4,215,758
5,469,178
 2,862,427
Depreciation and amortization2,965,175
 753,918
 4,650,014
 1,505,182
3,629,603
 1,684,839
Acquisition and restructuring3,769,425
 1,160,349
 5,269,854
 1,160,349
3,349,951
 1,500,429
Total operating costs and expenses33,022,146
 13,222,263
 52,632,843
 24,351,218
41,598,262
 19,610,697
(Loss) income from operations(1,692,678) 3,166,728
 (1,244,578) 5,359,444
(3,960,469) 448,100
Other income (expense):          
Interest income1,400
 6,447
 3,970
 11,562
7,208
 2,570
Interest expense(175,254) (5,360) (177,586) (12,105)(607,686) (2,332)
Change in warrant liability—
 (787,391) —
 (545,614)
(Loss) gain on foreign currency adjustment(9,229) 18,201
 (11,429) 34,553
Gain (loss) on foreign currency transactions103,043
 (2,200)
Other(6,944) —
Total other expense(183,083) (768,103) (185,045) (511,604)(504,379)
(1,962)
(Loss) income before income taxes(1,875,761) 2,398,625
 (1,429,623) 4,847,840
Benefit from income taxes2,732,356
 27,219,764
 2,732,064
 27,125,446
Net income$856,595
 $29,618,389
 $1,302,441
 $31,973,286
(Loss) income before income tax benefit (expense)(4,464,848) 446,138
Income tax benefit (expense)252,187
 (292)
Net (loss) income$(4,212,661) $445,846
          
Basic and diluted net income per common stockholders:       
Basic net income per common stockholders$0.01
 $0.61
 $0.02
 $0.67
Diluted net income per common stockholders$0.01
 $0.55
 $0.02
 $0.59
Basic and diluted net (loss) income per common stockholder:   
Basic net (loss) income per common stockholder$(0.06) $0.01
Diluted net (loss) income per common stockholder$(0.06) $0.01
          
Weighted average shares outstanding:          
Basic70,122,234
 48,218,184
 65,632,962
 47,838,466
71,981,487
 61,093,810
Diluted74,885,903
 54,061,306
 70,569,243
 53,863,966
71,981,487
 66,204,620
          
Comprehensive income$856,595
 $29,618,389
 $1,302,441
 $31,973,286
Comprehensive (loss) income:   
Net (loss) income$(4,212,661) $445,846
Other comprehensive income (loss):   
Reclassification of losses on derivative financial instruments, net of tax benefit of $231,5141,102,446
 —
Unrealized gains on derivative financial instruments, net of tax of expense of $417,896970,415
 —
Foreign currency translation adjustment(1,687,489) —
Other comprehensive income385,372
 —
Comprehensive (loss) income$(3,827,289) $445,846

See notes to condensed consolidated financial statements.



THE MEET GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
SIXTHREE MONTHS ENDED JUNE 30, 2017MARCH 31, 2018 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 20162017 
 
Common Stock 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
Common Stock 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 Accumulated Other Comprehensive (Loss) Income 
Total
Stockholders’
Equity
Shares Amount Shares Amount 
Balance-December 31, 201547,179,486
 $47,183
 $300,725,791
 $(198,102,612) $102,670,362
Vesting of stock options for compensation—
 —
 3,567,987
 —
 3,567,987
Exercise of stock options4,693,918
 4,694
 8,841,370
 —
 8,846,064
Exercise of warrants1,763,340
 1,763
 6,368,305
 —
 6,370,068
Issuance of common stock for Skout
acquisition		5,222,017
 5,222
 32,371,283
 —
 32,376,505
Issuance of common stock for vested RSAs934,991
 935
 (935) —
 —
Repurchase and retirement of common stock(848,145) (848) —
 (5,010,167) (5,011,015)
Net income—
 —
 —
 46,268,618
 46,268,618
Balance-December 31, 201658,945,607
 $58,949
 $351,873,801
 $(156,844,161) $195,088,589
58,945,607
 $58,949
 $351,873,801
 $(156,844,161) $—
 $195,088,589
Vesting of stock options for compensation—
 —
 3,502,350
 —
 3,502,350
—
 —
 8,467,278
 —
 —
 8,467,278
Exercise of stock options2,060,964
 2,061
 2,776,115
 —
 2,778,176
2,080,648
 2,081
 2,814,654
 —
 —
 2,816,735
Exercise of warrants675,000
 675
 2,395,575
 —
 2,396,250
675,000
 675
 2,395,575
 —
 —
 2,396,250
Issuance of common stock9,200,000
 9,200
 42,986,171
 —
 42,995,371
9,200,000
 9,200
 42,986,171
 —
 —
 42,995,371
Issuance of common stock for vested RSAs913,195
 913
 (913) —
 —
1,013,763
 1,013
 (1,013) —
 —
 —
RSAs withheld to cover taxes—
 —
 (507,398) —
 (507,398)—
 —
 (507,398) —
 —
 (507,398)
Other comprehensive loss        (1,124,538) (1,124,538)
Net loss—
 —
 —
 (64,591,727) —
 (64,591,727)
Balance-December 31, 201771,915,018
 $71,918
 $408,029,068
 $(221,435,888) $(1,124,538) $185,540,560
Adoption of ASC Topic 606 (Note 1)—
 —
 —
 16,475

—
 16,475
Vesting of stock options for compensation—
 —
 2,168,925
 —
 —
 2,168,925
Issuance of common stock for vested RSAs191,979
 186
 (186) —
 —
 —
RSAs withheld to cover taxes—
 —
 (92,600) —
 —
 (92,600)
Other comprehensive loss—
 —
 —
 —
 385,372
 385,372
Net income—
 —
 —
 1,302,441
 1,302,441
—
 —
 —
 (4,212,661) —
 (4,212,661)
Balance-June 30, 201771,794,766
 $71,798
 $403,025,701
 $(155,541,720) $247,555,779
Balance-March 31, 201872,106,997
 $72,104
 $410,105,207
 $(225,632,074) $(739,166) $183,806,071

See notes to condensed consolidated financial statements.



THE MEET GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2018 AND 2017 AND 2016 
(UNAUDITED)

Six Months Ended June 30,Three Months Ended March 31,
2017 20162018 2017
Cash flows from operating activities:      
Net income$1,302,441
 $31,973,286
Adjustments to reconcile net income to net cash provided by operating activities:   
Net (loss) income$(4,212,661) $445,846
Adjustments to reconcile net (loss) income to net cash provided by operating activities:   
Depreciation and amortization4,650,014
 1,505,182
3,629,603
 1,684,839
Vesting of stock options for compensation3,502,350
 1,643,352
Stock based compensation expense2,168,925
 1,134,158
Deferred taxes(444,230) (27,269,800)(539,231) (17,465)
Loss (gain) on cumulative foreign currency11,429
 (34,553)
(Gain) loss on foreign currency transactions(103,043) 2,200
Bad debt expense (recovery)26,000
 (4,000)213,598
 (27,000)
Amortization of loan origination costs34,342
 —
86,527
 —
Revaluation of warrant liability—
 545,614
Changes in operating assets and liabilities:      
Accounts receivable5,862,051
 3,098,088
5,988,039
 7,942,814
Prepaid expenses, other current assets and other assets1,610,514
 (2,300,347)(793,908) 97,899
Accounts payable and accrued liabilities161,914
 1,136,350
273,716
 (2,577,771)
Deferred revenue(54,560) 17,997
723,907
 2,359
Net cash provided by operating activities16,662,265
 10,311,169
7,435,472
 8,687,879
Cash flows from investing activities:      
Purchase of property and equipment(595,126) (494,744)(172,642) (150,510)
Acquisition of if(we), Inc., net of cash and restricted cash acquired(65,802,792) —
Net cash used in investing activities(66,397,918) (494,744)(172,642) (150,510)
Cash flows from financing activities:      
Proceeds from exercise of stock options2,778,176
 3,134,604
—
 764,547
Proceeds from issuance of common stock42,995,371
 —
—
 43,000,424
Proceeds from exercise of warrants2,396,250
 —
—
 443,750
Payments of capital leases(139,541) (214,585)(73,317) (69,817)
Proceeds from long-term debt15,000,000
 —
Payments for restricted stock awards withheld for taxes(507,398) —
(92,600) —
Payments on long-term debt(1,875,000) —
(3,750,000) —
Net cash provided by financing activities60,647,858
 2,920,019
Net cash (used in) provided by financing activities(3,915,917) 44,138,904
Change in cash, cash equivalents, and restricted cash prior to effects of foreign currency exchange rate10,912,205
 12,736,444
3,346,913
 52,676,273
Effect of foreign currency exchange rate(11,429) 34,553
Effect of foreign currency exchange rate (translation)69,548
 (2,200)
Net increase in cash, cash equivalents, and restricted cash10,900,776
 12,770,997
3,416,461
 52,674,073
Cash, cash equivalents, and restricted cash at beginning of period22,246,015
 19,298,038
25,052,995
 22,246,015
Cash, cash equivalents, and restricted cash at end of period$33,146,791
 $32,069,035
$28,469,456
 $74,920,088
Supplemental disclosure of cash flow information:      
Cash paid for interest$140,911
 $12,105
$516,940
 $2,332

See notes to condensed consolidated financial statements.



THE MEET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1-1— Description of Business, Basis of Presentation and Summary of Significant Accounting Policies 

The Meet Group, Inc. (the “Company,” “The Meet Group,” “us”“us,” or “we”) is a fast-growing portfolio of mobile social entertainment apps that brings together people around the world for new connections. Our mission isdesigned to meet the universal need for human connection.  We leverage a powerful live-streaming video platform, empowering our global community to forge meaningful connections. Our primary apps are MeetMe®, LOVOO®, Skout®, and Tagged®.

We operate location-based social networks for meeting new people, primarily on mobile platforms, including on iPhone, Android, iPad and other tablets, and on the web that facilitate interactions among users and encourage users to connect, communicate and chatengage with each other. Given consumer preferences to use more than a single mobile application,In 2017, we are adopting a brand portfolio strategy, throughlaid the foundation for and launched live video, which we offer products that collectively appealbelieve is the most compelling product we have ever offered. We have historically generated revenue primarily through advertising; today, however, live video and other forms of user-pay monetization, including subscriptions and in-app purchases, are becoming an increasingly larger component of total revenue. We believe revenues from video are more sustainable, can grow faster, and are more aligned with the quality of the user experience than revenues from advertising.

We launched live video monetization on two of our apps in 2017 and have seen strong early interest from our users, including increasing engagement and revenue. We also added two additional apps to the broadest spectrum of consumers. We are consolidating the fragmented mobile meeting sector through strategic acquisitions, leveraging economies and innovation to drive growth.The Meet Group portfolio. On October 3, 2016, we completed our acquisition of Skout, Inc. (“Skout”), and on April 3, 2017, we completed our acquisition of Ifwe Inc. (“if(we)”), both of which owneda leading global mobile networksnetwork for meeting new people.people, and on October 19, 2017, we completed our acquisition of Lovoo GmbH (“Lovoo”), a leading dating app provider in Germany. We believe these acquisitions, in addition to our acquisition of Skout, Inc. (“Skout”) on October 3, 2016, provide significant scale for the future global growth of our social entertainment platform, and we are hard at work today integrating our video technology into our two newest properties.

The Meet Group’s platforms monetize through advertising, in-app purchases, and paid subscriptions. The Company offersWe also offer online marketing capabilities, which enable marketers to display their advertisements in different formats and in different locations. We offer significant scale to our advertising partners, with hundreds of millions of daily impressions across our active and growing global user base, and sophisticated data science for highly effective hyper-targeting. The Company worksWe work with itsour advertisers and advertising networks to maximize the effectiveness of their campaigns by optimizing advertisement formats and placement.placements.

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, The Meet Group is creating the social entertainment network not of the people you know but of the people you want to know. Nimble, fast-moving and fast-moving, already in more than 100 countries, we are challenging the dominant player in our space, Match Group. Group, Inc., and differentiating ourselves with live video, which is not offered by many of our direct competitors. Modeled after the video products offered by Chinese dating app providers, but enhanced in order to appeal to western audiences, our live video product is aimed at the nexus of entertainment and community, where we believe our apps exhibit natural strength.

Our vision extends beyond dating.dating and entertainment. We focus on building quality products to satisfy the universal need for human connection among all people, everywhere-noteverywhere — not just paying subscribers. We believe meeting new people is a basic human need, especially for users aged 18-34, when so many long-lasting relationships are made. We use advanced technology to engineer serendipitous connections among people who otherwise might never have met - a sort of digital coffeehouse where everyone belongs. Over the years, The Meet Group’s apps have originated untold numbers of chats, shares, good friends,friendships, dates, romantic relationships - even marriages.

We believe that we have significant growth opportunities as people increasingly use their mobile devicesenabled through our social entertainment platform. We believe our scale provides unique advantages to discover the people around them. Given the importance ofgrow video monetization, while also 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 Meet Group’s networks grow and the number of users in a location increases, we believe that users who are seeking to meet new people will incrementally benefit from the quantity of relevant connections.

Basis of Presentation 

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The condensed consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the date of the condensed consolidated financial statements. Normally, a controlling financial interest reflects ownership of a majority of the voting interests.

The condensed consolidated financial statements include the accounts of The Meet Group (formerly known as MeetMe) and its wholly-owned subsidiaries, Quepasa.com de Mexico, Quepasa Serviços em Solucoes de Publicidade E Tecnologia Ltda (inactive), MeetMe Online S/S Ltda, which was dissolved during the fourth quarter of 2016, Skout and if(we).subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.



Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2017.2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2016,2017, filed with the SEC on March 9, 2017.

16, 2018.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of business combinations, revenue recognition, accounts receivable valuation, the fair value of financial instruments, the valuation of long-lived assets, valuation of deferred tax assets, income taxes, contingencies, goodwill and intangible assets and stock-based compensation. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. The Company’s estimates often are based on complex judgments, probabilities and assumptions that it believes to be reasonable but that are inherently uncertain and unpredictable. For any given individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable.

The Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment. As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause it to change those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency rates and economic downturn, can increase the uncertainty already inherent in its estimates and assumptions. The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in the Company’s condensed consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. The Company is also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in competition, litigation, legislation and regulations.

Revenue Recognition

TheOn January 1, 2018, the Company recognizes revenue when persuasive evidenceadopted ASC Topic 606, “Revenue from Contracts with Customers,” (“ASC 606”) using the cumulative effect method (modified retrospective method) and applied to those contracts with customers which were not completed as of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinableJanuary 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are unadjusted and collectability is reasonably assured. The Company earns revenue from the display of advertisements on its mobile apps and website, primarily based on a cost per thousand (“CPM”) model. The Company recognizes revenuecontinue to be reported in accordance with Accounting Standards Codification (“ASC”) 605, “RevenueRecognition,” and ASC 605-45 “PrincipalAgent Considerations” (together, the “ASC Guidance”). Revenue from advertising on the Company’s website and mobile apps is generally recognized on a net basis, since the majority of its advertising revenues come from advertising agencies. The guidance provides indicators for determining whether “gross” or “net” presentation is appropriate. While all indicators should be considered, the Company believes that whether it acted as a primary obligor in its agreements with advertising agencies is the strongest indicator of whether gross or net revenue reporting is appropriate.historic accounting under ASC Topic 605, “Revenue Recognition,” (“ASC 605”).

During the six months ended June 30, 2017 and 2016, the Company had transactions with several partners that qualify for principal agent considerations. The Company recognizesrecorded a net reduction to opening deferred revenue netand a corresponding increase to retained earnings of amounts retained by third party entities, pursuant to revenue sharing agreements with advertising networks for advertising and with other partners for royalties on product sales. The Company considered two key factors when making its revenue recognition determinations: (1) whether the Company performed a service for a fee, similar to an agent or a broker; and (2) whether the Company was involved in the determination$0.02 million as of product or service specifications. The Company focused on the substance of the agreements and determined that net presentation was representationally faithfulJanuary 1, 2018 due to the substance, as well ascumulative impact of adopting ASC 606. The impact was related to MeetMe+ subscriptions, which were previously recognized using the form, of the agreements. The form of the agreements was such that the Company provided services in exchangerevenue policy for a fee. In addition, the Company has no latitude in establishing price, and the advertising agencies were solely responsible for determining pricing with third party advertisers. The Company determined only the fee for providing its services to advertising agencies.

In instances in which the Company works directly with an advertiser,credits under ASC 605. Under ASC 606, MeetMe+ subscription revenue is recognized on a gross basis. The Company is the primary obligor in arrangements made with direct advertisers, as there is no third party facilitating or managing the sales process. The Company is solely responsible for determining price, product or service specifications, and which advertisers to use. The Company assumes all credit risk in the sales arrangements made with direct advertisers.

During the six months ended June 30, 2017 and 2016, the Company’s revenue was generated from two principal sources: revenue earned from the sales of advertising on the Company’s mobile applications and website and revenue earned from in-app products.


Advertising Revenue

Advertising and custom sponsorship revenues consist primarily of advertising fees earned from the display of advertisements on the Company’s mobile applications and website. Revenue from advertising is generally recognized as advertisements are delivered. The Company recognizes advertising revenue from customers that are advertising networks on a net basis, while advertising revenues earned directly from advertisers are recognized on a gross basis. Approximately 76% and 86% of the Company’s revenue came from advertising during the six months ended June 30, 2017 and 2016, respectively.

In-App Purchases

Revenue is earned from in-app purchase products sold to our mobile application and website users. The Company offers in-app products such as Credits, Points and Gold. Users buy Credits, Points or Gold to purchase the Company’s virtual products. These products put users in the spotlight, helping users to get more attention from the community in order to meet more people faster. Revenue from these virtual products iswill be recognized over time. Credits, Points or Gold can be purchasedthe subscription period using iTunes and Google checkouta mid-month convention beginning on mobile applications. Platform users do not own the Credits, Points or Gold but have a limited right to use themJanuary 1, 2018. See Note 12—Revenue for further detail on virtual products offered for sale on the Company’s platforms. Credits, Points and Gold are non-refundable, the Company may change the purchase price of them at any time, and the Company reserves the right to stop issuing Credits, Points or Gold in the future. The Company’s in-app products are not transferable, cannot be sold or exchanged outside our platform, are not redeemable for any sum of money, and can only be used on the Company’s platforms. In-app products are recorded in deferred revenue when purchased and recognized as revenue when: (i) the Credits, Points or Gold are used by the customer; or (ii) the Company determines the likelihood of the Credits, Points or Gold being redeemed by the customer is remote (breakage) and there is not a legal obligation to remit the unredeemed Credits, Points or Gold to the relevant jurisdiction. The determination of the breakage rate is based upon Company-specific historical redemption patterns. Breakage is recognized in revenue as the Credits and Gold are used on a pro rata basis over a three month period (life of the user) beginning at the date of the sale and are included in revenue in the consolidated statements of operations and comprehensive income. Breakage recognized during the six months ended June 30, 2017 and 2016 was $664,665 and $651,000, respectively. For “MeetMe+” and other subscription based products, the Company recognizes revenue over the term of the subscription.

The Company also earns revenue from advertisement products from currency engagement actions (i.e. sponsored engagement advertisements) by users on all of the Company’s platforms, including cost-per-action (“CPA”) currency incented promotions and sales on its proprietary cross-platform currency monetization product, “Social Theater.” The Company controls and develops the Social Theater product and CPA promotions and acts as a user’s principal in these transactions and recognizes the related revenue on a gross basis when collections are reasonably assured and upon delivery of the Credits to the user’s account. When a user performs an action, the user earns Credits and the Company earns product revenue from the advertiser.

Social Theater is a product that allows the Company to offer advertisers a way to leverage the third party platforms through guaranteed actions by their user bases. Social Theater is also hosted on the Company’s platform. Typical guaranteed actions available to advertisers are video views, fan page growth, quizzes and surveys. Social Theater revenue is recognized when persuasive evidence of an arrangement exists, the sales price is fixed or determinable, collectability is reasonably assured, and the service has been rendered. Social Theater prices are both fixed and determinable based on the contract with the advertiser. The user completes an action and the electronic record of the transaction triggers the revenue recognition. The collection of the Social Theater revenue is reasonably assured by contractual obligation and historical payment performance. The delivery of virtual currency from the hosting platform to a user evidences the completion of the action required by the customer that the service has been rendered for Social Theater revenue recognition.

Fair Value Measurements

The fair values of the Company’s financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The carrying amounts of the Company’s financial instruments of cash, and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities and deferred revenue approximate fair value due to their short maturities. Certain common stock warrantsderivatives are carried at fair value as disclosed in Note 3-3— Fair Value Measurements. The Company has evaluated the estimated fair value


of financial instruments using available market information and management’s estimates. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.

In addition, the Company carries its contingent consideration liabilities related to acquisitions at fair value. In accordance with the three-tier fair value hierarchy, the Company determined the fair value of its contingent consideration liabilities using the income approach with assumed discount rates and payment probabilities. The income approach uses Level 3, or unobservable, inputs as


defined under the accounting guidance for fair value measurements. At both June 30, 2017March 31, 2018 and December 31, 2016,2017, the Company’s contingent consideration liability had a fair value of $3.0 million.$5.0 million, respectively. See Note 2-2— Acquisitions for more information regarding the Company’s contingent consideration liability.

As part of the Lovoo Acquisition the Company amended and restated its term loan and revolving credit facility. The Company also carries a term loan facility that was entered into as part of the acquisition of if(we). As of June 30, 2017, the Company hadwith an outstanding balance at March 31, 2018 and December 31, 2017 of $13.1$52.5 million on its term loan facility.and $56.3 million, respectively. The outstanding balance as of June 30,March 31, 2018 and December 31, 2017 approximates fair value due to the variable market interest rates and relatively short maturity associated with the Term Loan Facility. See Note 6-6— Long-Term Debt for more information regarding the Company’s credit facilities.

The Company leases certain fixed assets under capital leases that expire through 2021. The capital leases are for the Company's data centers, printers and other furniture in the Company's German offices. The outstanding balance as of March 31, 2018 and December 31, 2017 approximates fair value due to the fixed interest rates and relatively short maturity associated with these capital leases.

Foreign Currency

The functional currency of our foreign subsidiaries is the local currency. The financial statements of these subsidiaries are translated to U.S. dollars using period-end rates of exchange for assets and liabilities and average quarterly rates of exchange for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity. Net gains and losses resulting from foreign exchange transactions are included in other income (expense). The Company’s foreign operations were substantially liquidated in the first quarter of 2015. Due to our current reporting metrics, providing revenues from users attributed to the U.S. and revenues from users attributed to all other countries is impracticable.

Net (Loss) Income per Share

Basic net (loss) income per share is computed by dividing net (loss) income attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net (loss) income per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares and common stock equivalents outstanding, calculated under the treasury stock method for options and warrants using the average market prices during the period.

The following table shows the computation of basic and diluted net (loss) income per share for the following:

Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
2017 2016 2017 20162018 2017
Numerator:          
Net income$856,595
 $29,618,389
 $1,302,441
 $31,973,286
Net (loss) income$(4,212,661) $445,846
          
Denominator:          
Weighted-average shares outstanding70,122,234
 48,218,184
 65,632,962
 47,838,466
Weighted-average shares outstanding— basic71,981,487
 61,093,810
Effect of dilutive securities4,763,669
 5,843,122
 4,936,281
 6,025,500
—
 5,110,810
Weighted-average diluted shares74,885,903
 54,061,306
 70,569,243
 53,863,966
Weighted-average shares outstanding— diluted71,981,487
 66,204,620
          
Basic income per share$0.01
 $0.61
 $0.02
 $0.67
$(0.06) $0.01
Diluted income per share$0.01
 $0.55
 $0.02
 $0.59
$(0.06) $0.01



The following table summarizes the number of dilutive securities, which may dilute future earnings per share, outstanding for each of the periods presented, but not included in the calculation of diluted lossearnings per share:

Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
2017 2016 2017 20162018 2017
Stock options4,013,425
 5,320,564
 3,840,813
 5,020,092
5,394,809
 3,815,725
Unvested restricted stock awards3,403,617
 —
Warrants—
 2,031,425
 —
 2,149,519
—
 384,595
Total4,013,425
 7,351,989
 3,840,813
 7,169,611
8,798,426
 4,200,320

Significant Customers and Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and accounts receivable. The Company invests its excess cash in high-quality, liquid money market funds maintained by major U.S. banks and financial institutions. The Company has not experienced any losses on its cash equivalents.


equivalents, including restricted cash or money market funds.

The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company has no recent history of significant losses from uncollectible accounts. During the sixthree months ended June 30,March 31, 2018 and 2017, two and 2016, threefour customers, all of which were advertising aggregators which(which represent thousands of advertisers,advertisers) and customer payment processors, comprised approximately 46%47% and 53%63% of total revenues, respectively. Three and five customers, all of which were advertising aggregators and customer payment processors, comprised of approximately 46%50% and 49%61% of accounts receivable as of June 30, 2017March 31, 2018 and December 31, 2016,2017, respectively.

The Company does not expect its current or future credit risk exposure to have a significant impact on its operations, however, there can be no assurance that the Company’s business will not experience any adverse impact from credit risk in the future.

Recent Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” This update also requires significantly expanded disclosures related to revenue recognition. In March 2016, the FASB issued Accounting Standards Update No. 2016-08: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), amending the principal-versus-agent implementation guidance set forth in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued Accounting Standards Update No. 2016-10: Identifying Performance Obligations and Licensing (“ASU 2016-10”), which amends certain aspects of the guidance set forth in the FASB’s new revenue standard related to identifying performance obligations and licensing implementation. In May 2016, the FASB issued Accounting Standards Update No. 2016-12: Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), amending certain aspects of ASU 2014-09 to address implementation issues identified by the FASB’s transition resource group and clarify the new revenue standard’s core revenue recognition principles. In December 2016, the FASB issued Accounting Standards Update No. 2016-20: Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”), which clarified or corrected unintended application of certain aspects of the new revenue guidance. ASU 2014-09 will be effective for the Company in fiscal year 2018 following the issuance of Accounting Standards Update No. 2015-14: Deferral of the Effective Date in August 2015, which deferred the effective date of ASU 2014-09 by one year.

The Company is in the process of evaluating the qualitative and quantitative disclosure requirements of ASU 2014-09 to identify possible enhancements to the Company’s financial statements that will enable users to better understand the nature, amount, timing and uncertainty of revenues and cashflows arising from contracts with customers, including significant judgments, changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The Company expects the adoption of ASU 2014-09, as amended, to have an impact to its business processes, financial reporting disclosures, and internal controls over financial reporting (“ICFR”). As part of the assessment performed through the date of this filing, the Company has created an implementation working group, which includes internal and third-party resources.

As part of its implementation plan, the Company has developed an implementation project plan that allows the Company to properly and timely adopt the new revenue accounting standard on its effective date. The Company is in the process of assessing the appropriate changes to its business processes and controls to support revenue recognition and disclosures under the new standard. The Company plans to adopt the new standard using the modified retrospective method.

The project plan for the adoption of ASU 2014-09 includes a phased implementation project plan, an understanding of the new revenue accounting standard and its requirements, and an assessment of the Company’s revenue streams and contracts. The Company will continue to monitor any modifications, clarifications and interpretations issued by the FASB, which may impact its assessment of the standard.

Significant assessment and implementation matters to be addressed prior to adopting ASU 2014-09 include completing a review of customer contracts and related policies and procedures, determining the impact the new accounting standard will have on the Company’s financial statements and related disclosures, and updating, as needed, the Company’s business policies, processes, systems, and controls required to comply with ASU 2014-09 upon its effective date of January 1, 2018. The Company will update the implementation status related to the impact of ASU 2014-09 on the financial statements and related footnotes in the future quarterly and year-end disclosures.



Specific considerations made to date on the impact of adopting ASU 2014-09 includes:

Arrangements with Multiple Performance Obligations - ASU 2014-09 states that the transaction price for contracts with more than one performance obligation should be allocated to each performance obligation. This guidance may impact certain contracts the Company has with its customers, which include multiple performance obligations.
Principal vs Agent Relationships - ASU 2014-09 modified some of the existing principal and agent considerations. This update may result in changes to gross vs net treatment of revenue and expenses; however, this update would not affect net income.
Contract Costs - The Company is continuing to assess the impact of ASU 2014-09 on the costs to acquire and fulfill its customer contracts, including whether the Company can apply the practical expedient of expensing contract costs when incurred if the amortization period of the asset that would have been recognized is one year or less. Currently, the Company’s accounting policy is to expense contract costs as they are incurred.
Upon completion of the Company’s implementation plan and evaluation of the remaining revenue contracts, the Company plans to adopt additional controls around ICFR and its business processes for any new revenue arrangements that the Company enters. The Company is on target to complete its assessment of ASU 2014-09 and its impact on the Company’s consolidated financial statements and related disclosures as of January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU No. 2016-2 is effective for annual periods beginning after December 15, 2018, and annual and interim periods thereafter, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, providing additional guidance on several cash flow classification issues, with the goal of the update to reduce the current and potential future diversity in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of ASU No. 2016-15 did not have any impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendment allows an entity to elect to reclassify the stranded tax effects resulting from the change in income tax rate from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.  The amendments in this update are effective for periods beginning after December 15, 2018.  Early adoption is permitted.  The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which amended the existing accounting standards for the statement of cash flows by requiring restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The Company has early adopted this new standard beginning in the fourth quarter of 2016 and it has been applied retrospectively to all periods presented.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-01 will be effective in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU 2017-09 will be effective in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.



Note 2-2— Acquisitions

if(we)Lovoo

On March 3,October 19, 2017, the Company and its wholly-owned subsidiary, Two Sub One, Inc.,acquired from Bawogo Ventures GmbH & Co. KG, a Delaware corporation, entered into a definitive agreement and planlimited partnership organized under the laws of merger (the “Merger Agreement”) with if(we), a Delaware corporation and leading global mobile network for meeting new people, pursuant to which the Company agreed to acquire 100%Germany, all of the outstanding shares of capital stockLovoo, a limited liability company incorporated under the laws of if(we)Germany (the


“Lovoo Acquisition”), for total consideration of $74.5$86.1 million in cash, subject to closing adjustments. The transaction closed on April 3, 2017.including working capital. The Company does not expect goodwill to be deductible for tax purposes.

Included in the total consideration of $86.1 million is a $5.0 million contingent consideration in the form of an earn-out which was subject to certain conditions set forth in the Purchase Agreement, including the successful achievement of an Adjusted EBITDA target by Lovoo for the year ended December 31, 2017. Based on the probability of achieving the financial targets, the Company has determined that the fair value of the contingent consideration at the closing date was $5.0 million. The Company fundedpaid the acquisition from cash on hand, and from a $15.0 million term credit facility from J.P. Morgan Chase Bank, N.A., pursuant to a Credit Agreement entered into on March 3, 2017. See Note 6-Long-Term Debtfor further details.full amount of the contingent consideration in April 2018.

AtThe Company incurred a total of $1.4 million in transaction costs in connection with the closingLovoo Acquisition, which were expensed as incurred in the consolidated statement of operations for the if(we) acquisition, the Company granted options to purchase an aggregate of up to 75,000 shares of its common stock and restricted stock awards representing an aggregate of 717,500 shares of common stock to 83 former if(we) employees as an inducement material to becoming non-executive employees of the Company.year ended December 31, 2017.

The acquisition-date fair value of the consideration transferred is as follows:
At April 3, 2017
 At October 19, 2017
Cash consideration (1)
$60,000,000
$65,000,000
Contingent consideration5,000,000
Net working capital adjustment14,467,379
16,148,750
Total estimated consideration$74,467,379
Total consideration$86,148,750
(1) Cash consideration includes a $6.0$6.5 million and a $4.0 million escrow payment to be paid out 1224 months and 36 months, respectively, from the date of the transaction.

The following is a preliminary purchase price allocation as of the April 3,October 19, 2017 acquisition date:

At April 3, 2017At October 19, 2017
Cash and cash equivalents$8,164,587
$20,717,202
Accounts receivable2,961,593
3,677,708
Prepaid expenses and other current assets5,588,308
843,930
Restricted cash500,000
Property and equipment1,476,010
1,014,716
Other assets394,037
Intangible assets23,830,000
16,970,000
Accounts payable(1,632,306)(1,100,837)
Accrued expenses and other current liabilities(783,096)(4,652,757)
Deferred revenue(809,244)(1,594,641)
Deferred tax liability(1,135,739)(3,862,337)
Capital leases(542,112)
Net assets acquired$38,554,150
$31,470,872
Goodwill35,913,229
54,677,878
Total consideration$74,467,379
$86,148,750

The fair valuevalues of the if(we)Lovoo trademarks were determined using an income approach, the fair value of software acquired, which represents the primary platform on which the if(we)Lovoo apps operate, was determined using a cost approach and the fair value of customer relationships was determined using an excess earnings approach. These values are subject to change based on the final assessment of the deferred taxes acquired. The preliminary amounts assigned to the identifiable intangible assets are as follows:

Fair ValueFair Value Weighted Average
Amortization Period
(Years)
Trademarks$9,895,000
Trademark$12,090,000
 10.0
Software13,205,000
1,335,000
 2.0
Customer relationships730,000
3,545,000
 8.7
Total identifiable intangible assets$23,830,000
$16,970,000
 9.1

The operating results of if(we) for the period from April 3, 2017 to June 30, 2017, including revenues of $11.2 million and net loss of $0.9 million, have been included in the Company’s consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2017. The Company incurred a total of $1.7 million in transaction costs in connection with the acquisition, which were included in acquisition and restructuring costs within the consolidated statement of operations and comprehensive income for the six months ended June 30, 2017.

The following pro forma information shows the results of the Company’s operations for the three and six months ended June 30, 2016 as if the if(we) acquisition had occurred on January 1, 2016. The pro forma information also includes the results of Skout as if the acquisition of Skout occurred on January 1, 2015 for comparability purposes. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisition had been made as of that date.

 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
Revenues$31,478,167
 $33,892,589
 $62,169,230
 $64,135,130
Net income$989,468
 $28,673,169
 $621,700
 $30,204,527
Basic earnings per share$0.01
 $0.59
 $0.01
 $0.63
Diluted earnings per share$0.01
 $0.53
 $0.01
 $0.56

Skout

On June 27, 2016, The Meet Group, and its wholly-owned subsidiaries, MeetMe Sub I, Inc., a Delaware corporation, and MeetMe Sub II, LLC, a Delaware limited liability corporation, (together, “The Meet Group”) entered into a merger agreement with Skout, a California corporation, pursuant to which The Meet Group agreed to acquire 100% of the issued and outstanding shares of common stock of Skout for estimated cash consideration of $30.3 million, net of cash acquired of $2.9 million, 5,222,017 shares of The Meet Group common stock, and $3.0 million in contingent consideration liability. The transaction closed October 3, 2016. The Company does not expect goodwill to be deductible for tax purposes.

The following is a summary of the consideration transferred:

 
At October 3,
2016
Cash consideration (1)
$33,155,532
Equity consideration32,376,505
Contingent consideration3,000,000
Total estimated consideration$68,532,037
(1) Cash consideration includes a $2.9 million escrow payment to be paid out 18 months from the date of the transaction.



The following is the purchase price allocation as of the October 3, 2016 acquisition date:

 
At October 3,
2016
Cash and cash equivalents$2,851,338
Accounts receivable4,146,927
Prepaid expenses and other current assets280,379
Restricted cash393,261
Property and equipment396,998
Deferred tax asset157,111
Intangible assets18,230,000
Accounts payable(1,055,802)
Accrued expenses and other current liabilities(208,628)
Deferred revenue(189,066)
Net assets acquired$25,002,518
Goodwill43,529,519
Total consideration$68,532,037

The fair value of the Skout trademark was determined using an income approach, the fair value of software acquired, which represents the primary platform on which the Skout apps operate, was determined using a cost approach and the fair value of customer relationships was determined using an excess earnings approach. The amounts assigned to the identifiable intangible assets are as follows:

 Fair Value
Trademark$7,155,000
Software2,500,000
Customer relationships8,575,000
Total identifiable intangible assets$18,230,000

The acquisition of Skout calls for contingent consideration of up to $1.5 million for each founder, $3.0 million in total, based on the Company achieving certain financial targets. The payment of the contingent consideration is due one year from closing. Based on the probability of achieving the financial targets, the Company has determined that the fair value of the contingent consideration at closing and at both June 30, 2017 and December 31, 2016 is $3.0 million.

The Company incurred a total of $2.5 million in transaction costs in connection with the acquisition, which were included in acquisition and restructuring costs within the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2016.

Note 3-Fair3—Fair Value Measurements

Accounting Standards Codification Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

Level 1-Valuations1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.



Level 2-Valuations2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3-Valuations3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Derivative Financial Instruments

Currently, the Company uses an interest rate swap, interest rate cap and a cross currency swapto manage its interest raterisk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of the interest rate swap and the cross currency swap are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The fair value of the interest rate cap is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the cap. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. In accordance with the FASB’s fair value measurement guidance in (ASU 2011-04), the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of March 31, 2018 and December 31, 2017 were classified as Level 2 of the fair value hierarchy. See Note 11—Derivatives and Hedging Activities for further discussion on derivative financial instruments.



Recurring Fair Value Measurements

Items measured at fair value on a recurring basis include money market mutual funds, restricted cash, warrants to purchase common stock,derivatives and hedging instruments and contingent consideration. During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs. The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis:

Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
June 30, 2017       
March 31, 2018       
Assets              
Money market$3,855,336
 $—
 $—
 $3,855,336
$1,390,586
 $—
 $—
 $1,390,586
Restricted cash894,057
 —
 —
 894,057
500,000
 —
 —
 500,000
Derivative asset—
 817,504
 —
 817,504
Total assets$4,749,393
 $—
 $—
 $4,749,393
$1,890,586
 $817,504
 $—
 $2,708,090
Liabilities              
Contingent consideration—
 —
 3,000,000
 3,000,000
$—
 $—
 $5,000,000
 $5,000,000
Derivative liability—
 4,512,878
 —
 4,512,878
Total liabilities$—
 $—
 $3,000,000
 $3,000,000
$—
 $4,512,878
 $5,000,000
 $9,512,878
December 31, 2016       
December 31, 2017       
Assets              
Money market$7,586,810
 $—
 $—
 $7,586,810
$1,390,714
 $—
 $—
 $1,390,714
Restricted cash393,484
 —
 —
 393,484
894,551
 —
 —
 894,551
Derivative asset—
 739,606
 —
 739,606
Total assets$7,980,294
 $—
 $—
 $7,980,294
$2,285,265
 $739,606
 $—
 $3,024,871
Liabilities              
Contingent consideration$—
 —
 3,000,000
 3,000,000
$—
 $—
 $5,000,000
 $5,000,000
Derivative liability—
 3,067,572
 —
 3,067,572
Total liabilities$—
 $—
 $3,000,000
 $3,000,000
$—
 $3,067,572
 $5,000,000
 $8,067,572

The following table sets forth a summary of changes in the fair value of the Company’s Common Stock warrantcontingent consideration liability, which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs:


Contingent
Consideration
Balance as of December 31, 2016$3,000,000
Changes in estimated fair value—
Balance as of June 30, 2017$3,000,000

Contingent
Consideration
Balance as of December 31, 2017$5,000,000
Changes in estimated fair value—
Balance as of March 31, 2018$5,000,000

The contingent consideration is recorded in accrued expenses on the accompanying condensed consolidated balance sheet as of March 31, 2018 and December 31, 2017. Changes, if any, in the estimated fair value is recorded in accrued expenses and changes in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheet as of March 31, 2018 and December 31, 2017 and condensed consolidated statement of cash flows for the three months ended March 31, 2018 and 2017, respectively.

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the levels of the fair value hierarchy during the sixthree months ended June 30, 2017March 31, 2018 and the year ended December 31, 2016.2017.



The following table sets forth a summary of changes in the fair value of the Company’s Common Stock warrant liability, which represents a recurring measurement that was classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs. On June 30, 2016, Venture Lending & Leasing VI and VII provided notification of the surrender of their outstanding 341,838 liability classified warrants, which were net settled into common shares in the third quarter of 2016. As a result of the warrant exercise, no remeasurement of the warrant liability occurred subsequent to the exercise and no warrants were outstanding as of September 30, 2016.

 
Convertible
Common Stock
Warrant
Liability
Balance as of December 31, 2015$1,035,137
Changes in estimated fair value545,614
Balance as of June 30, 2016$1,580,751

The fair value of the warrants on the date of issuance and on each re-measurement date classified as liabilities is estimated using the Black-Scholes option pricing model using the following assumptions: contractual life according to the remaining terms of the warrants, no dividend yield, weighted average risk-free interest rate of 1.49% at June 30, 2016 and weighted average volatility of 83.64%. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s various classes of preferred stock, stock price volatility, the contractual term of the warrants, risk-free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement. The warrant liability was recorded in other liabilities on the Company’s consolidated balance sheets. The warrant liability is marked-to-market each reporting period with the change in fair value recorded on the statement of operations and comprehensive income until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument.

Note 4 -4— Intangible Assets and Goodwill

Intangible assets consist of the following:

March 31, 2018
June 30,
2017		 December 31,
2016		Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Trademarks and domain names$22,909,494
 $13,014,494
$35,535,774
 $(10,135,684) $25,400,090
Customer relationships10,470,000
 9,740,000
14,164,230
 (4,702,749) 9,461,481
Software17,430,000
 4,225,000
18,821,198
 (7,588,587) 11,232,611
50,809,494
 26,979,494
Less accumulated amortization(13,573,236) (9,968,929)
Intangible assets - net$37,236,258
 $17,010,565
Total$68,521,202
 $(22,427,020) $46,094,182

 December 31, 2017
 Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Trademarks and domain names$35,204,638
 $(8,952,725) $26,251,913
Customer relationships14,067,457
 (3,677,895) 10,389,562
Software18,784,755
 (6,706,802) 12,077,953
Total$68,056,850
 $(19,337,422) $48,719,428

Amortization expense was approximately $2.4$3.1 million and $0.4$1.2 million for the three months ended June 30,March 31, 2018 and 2017, and 2016 and $3.6 million and $0.8 million for the six months ended June 30, 2017 and 2016, respectively. The weighted average amortizable life of the intangible assets was approximately 6.8 years as of June 30, 2017.



Annual future amortization expense for the Company’s intangible assets is as follows:

Year ending December 31,
Amortization
Expense
Amortization
Expense
Remaining in 2017$4,623,214
20188,391,414
Remaining in 2018$8,590,075
20196,946,377
9,678,071
20205,797,947
7,678,479
20214,964,280
6,653,100
20224,053,626
Thereafter6,513,026
9,440,831
Total$37,236,258
$46,094,182

The changes in the carrying amount of goodwill for the three months ended March 31, 2018 are as follows:

 March 31, 2018
Balance at December 31, 2017$150,694,135
Foreign currency translation adjustments1,491,844
Balance at March 31, 2018152,185,979



Note 5 -5— Property and Equipment

Property and equipment consist of the following:
June 30,
2017		 December 31,
2016		March 31,
2018		 December 31,
2017
Servers, computer equipment and software$12,159,742
 $10,273,823
$14,204,981
 $14,044,505
Office furniture and equipment294,704
 232,217
554,585
 521,233
Leasehold improvements565,853
 443,123
667,770
 663,356
13,020,299
 10,949,163
15,427,336
 15,229,094
Less accumulated depreciation(9,528,760) (8,483,053)(11,278,302) (10,704,976)
Property and equipment - net$3,491,539
 $2,466,110
$4,149,034
 $4,524,118

Property and equipment depreciation expense was approximately $0.6 million and $0.4$0.5 million for the three months ended June 30,March 31, 2018 and 2017, and 2016 and $1.0 million and $0.7 million for the six months ended June 30, 2017 and 2016, respectively.

Note 6-6— Long-Term Debt

Credit Facilities

On March 3,September 18, 2017, in connection with the if(we) mergerLovoo Acquisition, as discussed in Note 2-2— Acquisitions (the “Merger”), the Company entered into aan amended and restated credit agreement (the “Credit“Amended and Restated Credit Agreement”) with the several banks and other financial institutions party thereto (the “Lenders”) and JPMorgan Chase Bank, N.A., as administrative agent (the “Agent”)., amending and restating the Credit Agreement, dated March 3, 2017. The Amended and Restated Credit Agreement provides for a $15.0$20.0 million revolving credit facility (the “Revolving“New Revolving Credit Facility”) and a $15.0$60.0 million delayed draw term loan facility (the “Term“New Term Loan Facility,” and together with the “Revolving“New Revolving Credit Facility,”Facility”, the “Credit“New Credit Facilities”). On October 18, 2017, the Company drew down $60.0 million from its New Term Loan Facility in connection with the Lovoo Acquisition. Fees and direct costs incurred for the New Credit Facilities were $0.6 million and are offset against long-term debt on the accompanying balance sheet as of March 31, 2018. On March 7, 2018, the Company entered into an amendment to the Amended and Restated Credit Agreement, that among other things, amends the definition of “Applicable Rate” and “EBITDA” and makes certain changes to the financial covenants.

The Company intends to use the proceeds underof the Credit Facilities for general purposes, including the Merger. The Company will also use proceeds of theNew Revolving Credit Facility to finance working capital needs and for general corporate purposes. Amounts under the New Revolving Credit Facility may be borrowed, repaid and re-borrowed from time to time until the maturity date of the Credit Agreement on March 3, 2019.September 18, 2020. The New Term Loan Facility is subject to quarterly amortizationpayments of principal in an amount equal to $1,875,000 per quarter$3,750,000 commencing June 30,December 31, 2017 and continuing through maturity. At the Company’s election, loans made under the New Credit Facilities will bear interest at either (i) a base rate (“Base Rate”) plus an applicable margin or (ii) a London interbank offered rate (“LIBO Rate”) plus an applicable margin, subject to adjustment if an event of default under the Amended and Restated Credit Agreement has occurred and is continuing. The Base Rate means the highest of (a) the Agent’s “prime rate,” (b) the federal funds effective rate plus 0.50% and (c) the LIBO Rate for an interest period of one month plus 1%. The Company’s present and future domestic subsidiaries (the “Guarantors”) will guarantee the obligations of the Company and its subsidiaries under the New Credit Facilities. The obligations of the Company and its subsidiaries under the New Credit Facilities are secured by all of the assets of the Company and the Guarantors, subject to certain exceptions and exclusions as set forth in the Amended and Restated Credit Agreement and other loan documents.

The New Term Loan Facility consisted of the following:

 March 31, 2018 December 31, 2017
Principal$52,500,000
 $56,250,000
Less: Debt discount, net(526,367) (612,894)
Net carrying amount$51,973,633
 $55,637,106
Less: current portion15,000,000
 15,000,000
Long-term debt, net$36,973,633
 $40,637,106



The weighted average interest rate at March 31, 2018 was 4.68%. As of March 31, 2018, the Company did not have an outstanding balance on its Revolving Credit Facility.

On March 3, 2017, in connection with the acquisition of if(we), the Company entered into a credit agreement (the “Credit Agreement”) with the several banks and other financial institutions party thereto and JPMorgan Chase Bank, N.A., the Agent. The Credit Agreement provides for a $15.0 million revolving credit facility (the “Revolving Credit Facility”) and a $15.0 million term loan facility (the “Term Loan Facility,” and together with the “Revolving Credit Facility,” the “Credit Facilities”). On April 3, 2017, the Company drew down $15.0 million from its Term Loan Facility in connection with the Merger. As of June 30,if(we) Acquisition. On September 18, 2017, the Company had an outstanding balance of $13.1 million on its Term Loan Facility. The weighted average interest rate at June 30, 2017 was 3.69%. Remaining unamortized fees and direct costs incurred forpaid in full the Company’s Credit Facilities were $0.1 million. As of June 30, 2017, the Company did not have an outstanding balance on its Revolving Creditthe Term Loan Facility.



Note 7-7— Commitments and Contingencies

Capital Leases

The Company leases certain fixed assets under capital leases that expire through 2021. The capital leases are for the Company’s data centers, printers and other furniture in the Company’s German offices. Principal and interest are payable monthly at interest rates ranging from 3.9% to 7.8% per annum, rates varying based on the type of leased asset.  The Company did not enter into any new capital lease agreements for the quarter ended March 31, 2018.

Operating Leases

The Company leases its operating facilities in the U.S. under certain noncancelable operating leases that expire through 2022. The Company also leases operating facilities in Germany under certain noncancelable operating leases that expire through 2020. These leases are renewable at the Company’s option.

Rent expense for the operating leases was approximately $1.7 million and $0.4 million for the three months ended June 30, 2017 and 2016 and $2.4 million and $0.8 million for the six months ended June 30, 2017 and 2016, respectively.

Capital Leases

The Company leases certain fixed assets under capital leases that expire in 2017. In 2012,German subsidiary of the Company executed twoalso stores a majority of its user and business data in the Google Cloud Platform under a noncancelable master lease agreements, one with Dell Financial Services and one with HP Financial Services. Both are for the purchase or lease of equipment for the Company’s data centers. Principal and interest are payable monthly at interest rates ranging from 4.5% to 8.0% per annum, rates varying based on the type of equipment purchased. The capital leases are secured by the leased equipment, and outstanding principal and interest are due monthlyminimum commitment agreement that expires through October 2017. During the six months ended June 30, 2017, the Company did not enter into any new capital lease agreements.2023.

A summary of minimum future rental payments required under capital and operating leases as of June 30, 2017March 31, 2018 are as follows:
Capital
Leases
 
Operating
Leases
Remaining in 2017$82,512
 $2,639,060
2018—
 3,959,618
For the Years Ending December 31, 
Capital
Leases
 
Operating
Leases
 Cloud Data Storage
Remaining in 2018 $199,605
 $3,418,621
 $94,748
2019—
 1,827,943
 156,303
 2,451,287
 478,506
2020—
 432,758
 41,828
 967,326
 682,329
2021—
 445,741
 5,173
 612,619
 1,014,517
2022—
 112,253
 —
 283,302
 1,115,969
Thereafter —
 —
 1,227,566
Total minimum lease payments$82,512
 $9,417,373
 $402,909
 $7,733,155
 $4,613,635
Less: Amount representing interest751
  
Less: amount representing interest 17,866
    
Total present value of minimum payments81,761
   385,043
    
Less: Current portion of such obligations81,761
  
Less: current portion of capital lease obligations 227,678
    
Long-term capital lease obligations$—
   $157,365
    

Rent expense for the operating leases was approximately $1.1 million and $0.7 million for the three months ended March 31, 2018 and 2017, respectively.





New Term Loan Facility

A summary of minimum future principal payments under our New Term Loan Facility as of March 31, 2018 are as follows: 
For the Years Ending December 31, 
New Term Loan Facility(1)
Remaining in 2018 $11,250,000
2019 15,000,000
2020 26,250,000
Total minimum loan payments $52,500,000
(1)Interest rates on the New Term Loan Facility are variable in nature, however, the Company is party to a fixed-pay amortizing interest rate swap having a remaining notional amount of $37.5 million and a non-amortizing interest rate cap with a notional amount of $15.0 million. If interest rates were to remain at the March 31, 2018 level, we would make interest payments of $0.1 million in 2019 and 2020, respectively, of net settlements on the fixed-pay amortizing interest rate swap.

Litigation

From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. We operate our business online, which is subject to extensive regulation by federal and state governments.

On April 30, 2015, plaintiff F. Stephen Allen served a complaint on the Company that he filed on April 23, 2015, in the United States District Court for the Northern District of Oklahoma accusing the Company of breach of contract for its alleged failure to maintain the effectiveness of a registration statement for warrant shares. The complaint sought damages of not less than $4 million. On December 22, 2015, the Company entered into a Settlement Agreement and Release of Claims (the “Settlement and Release of Claims”) with F. Stephen Allen, resolving all claims relating to F. Stephen Allen v. MeetMe, Inc., Cause No. 4:15-cv-210-GKF-TLW. Pursuant to the Settlement and Release of Claims, the Company (i) paid F. Stephen Allen $225,000, (ii) entered into a one-year consulting agreement in exchange for a grant of 50,000 stock options, (iii) modified the terms of his outstanding Series 2 and Series 3 warrants, to reduce the amount outstanding under the Series 2 by 50,000 and to extend the expiration date on both Series 2 and Series 3 by 15 months to June 21, 2017, prior to which all Series 2 and Series 3 warrants were exercised. On December 23, 2015, the Court dismissed the litigation with prejudice.

On September 29, 2015, the Company filed suit in the Court of Common Pleas of Philadelphia County, Pennsylvania, against Beanstock Media, Inc. (“Beanstock”) and Adaptive Medias, Inc. (“Adaptive”) for collection of approximately $10 million, in the aggregate, due under the Media Publisher Agreement (the “Web Agreement”) entered into on September 25, 2013 and the Advertising Agreement (the “Mobile Agreement”) entered into on December 23, 2014.



Pursuant to the Web Agreement, Beanstock had the exclusive right and obligation to fill all of the Company’s remnant desktop in-page display advertising inventory on www.meetme.com (the “Site”), excluding, (i) any inventory sold to a third party under an insertion order that was campaign or advertiser specific, (ii) any inventory the Company reserved in existing and future agreements with third parties for barter transactions and as additional consideration as part of larger business development transactions, and (iii) any inventory reserved for premium advertising for the Site. Pursuant to the Mobile Agreement, Beanstock had the right and obligation to fill substantially all of the Company’s advertising inventory on its MeetMe mobile app for iOS and Android, as well as the Site when accessed using a mobile device and as optimized for mobile devices (collectively, the “App”). The Mobile Agreement did not apply to interstitially placed advertisements, advertisements on versions of the App specific to the iPad and other Apple tablet devices, other mobile apps or in-app products or features on the App, including, without limitation, offer wall features and the Company’s Social Theater business.

On September 28, 2015, Adaptive filed suit in the Superior Court of California, County of Orange, against the Company, Beanstock, et al., alleging, in pertinent part, that the Company “aided and abetted” an individual who was an officer and director of Adaptive to breach his fiduciary duty to Adaptive with respect to Adaptive’sAdaptive joining the Mobile Agreement. Adaptive’s complaint seekssought from the Company $600,000 plus unspecified punitive damages. The Company believes Adaptive’s allegations against it are without merit, and intends to defend against them and to pursue its collection action against Beanstock and Adaptive vigorously. On January 20, 2016, the Company received notice from the United States Bankruptcy Court, District of Delaware, that a Chapter 7 bankruptcy case against Beanstock had been filed on October 7, 2015. Both of the state court actions have beenwere stayed by the courts as a result of the bankruptcy filing against Beanstock. Adaptive’s suit against the Company remained stayed until Adaptive indicated that it no longer wanted to pursue the matter and, on or about November 20, 2017, filed a voluntary request for dismissal without prejudice of the action and all claims against the parties, including the Company, which dismissal was entered by the Court on the same day. The Company was not required to take any action or pay any sum in connection with the dismissal. Adaptive’s suit against the Company is, therefore, resolved.

Future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

Retirement Plan

The Company maintains the MeetMe,The Meet Group, Inc. 401(k) Retirement Plan (the “Plan”), which is a savings and investment plan intended to be qualified under the Internal Revenue Code. The Plan covers the majority of the employees of the Company. In January 2014, the Company began providing company matching contributions to the plan,Plan, based on a participant’s contribution. The Company’s 401(k) match expense totaled $0.3$0.2 million and $0.2$0.1 million for the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, respectively. The expense is included in sales and marketing, product development and content, and general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.



Note 8-8— Stockholder’s Equity

Preferred Stock

The total number of shares of preferred stock, $.001 par value, that the Company is authorized to issue is 5,000,000.

The Board of Directors may, without further action by the stockholders, issue a series of preferred stock and fix the rights and preferences of those shares, including the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, terms of redemption, redemption price or prices, liquidation preferences, the number of shares constituting any series and the designation of such series.

On March 1, 2017, the Company filed with the Secretary of State of the State of Delaware a Certificate of Elimination of the 1,000,000 shares of Series A-1 Preferred Stock that effectuated the elimination of the Series A-1 Preferred Stock, which then resumed the status of authorized but unissued shares of preferred stock. As of June 30,March 31, 2018 and December 31, 2017 there were no longer any Series A-1 shares authorized orof preferred stock issued and outstanding.

Common Stock

The total number of shares of common stock, $0.001 par value, that the Company is authorized to issue is 100,000,000.

In March 2017, the Company completed the underwritten public offering and sale of 9,200,000 shares (the “Shares”) of common stock at a price to the public of $5.00 per share. The net proceeds from the sale of the Shares, after deducting the underwriters’ discount and other offering expenses, were approximately $43.0 million.



The Offering was conducted pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-190535) filed with the SEC under the Securities Act of 1933, as amended (the “Securities Act”) and declared effective on April 18, 2014.

The Company issued shares of common stock of 2,060,964191,979 and 4,693,9181,013,763 related to restricted stock awards during the three months ended March 31, 2018 and the year ended December 31, 2017, respectively. The Company issued 2,080,648 related to exercises of stock options 913,195 and 934,991 related to restricted stock awards and 675,000 and 1,763,340 related to the exercise of warrants during the six months ended June 30, 2017 andin the year ended December 31, 2016, respectively. During the year ended December 31, 2016, 200,0002017. No stock options or warrants expired. No warrants expiredwere exercised during the sixthree months ended June 30, 2017.

On August 29, 2016, the Board of Directors authorized a $15 million share repurchase program (the “2016 Repurchase Program”). Repurchases under the 2016 Repurchase Program will be made in the open market or through privately negotiated transactions intended to comply with SEC Rule 10b-18, subject to market conditions, applicable legal requirements, and other relevant factors. The 2016 Repurchase Program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended at any time at the Company’s discretion. During the year ended DecemberMarch 31, 2016, the Company repurchased 848,145 shares for an aggregate purchase price of $5.0 million. These shares were immediately retired. Unless extended by the Board of Directors, the 2016 Repurchase Program will terminate on August 29, 2017. The Company did not repurchase any shares during the six months ended June 30, 2017.2018.

Stock-Based Compensation

The fair values of share-based payments are estimated on the date of grant using the Black-Scholes option pricing model, based on weighted average assumptions. Expected volatility is based on historical volatility of the Company’s common stock. The risk-free rate is based on the U.S. Treasury yield curve in effect over the expected term at the time of grant. Compensation expense is recognized on a straight-line basis over the requisite service period of the award. During 2017 and 2016, theThe Company continued to useuses the simplified method to determine the expected option term since the Company’s stock option exercise experience does not provide a reasonable basis upon which to estimate the expected option term.

The Company began granting restricted stock awards (“RSAs”) to its employees in April 2013. The cost of the RSAs is determined using the fair value of the Company’s common stock on the date of grant. Stock-based compensation expense for RSAs is amortized on a straight-line basis over the requisite service period. RSAs generally vest over a three-year period with 33% vesting at the end of one year and the remaining vesting annually thereafter.

The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.

Stock-based compensation expense includes incremental stock-based compensation expense and is allocated on the condensed consolidated statementstatements of operations and comprehensive income as follows:

Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
2017 2016 2017 20162018 2017
Sales and marketing$101,035
 $95,295
 $202,304
 $155,732
$118,547
 $101,269
Product development and content1,428,743
 403,956
 1,930,043
 707,653
1,114,067
 501,300
General and administrative838,414
 416,321
 1,370,003
 779,967
936,311
 531,589
Total stock-based compensation expense$2,368,192
 $915,572
 $3,502,350
 $1,643,352
$2,168,925
 $1,134,158

As of June 30, 2017,March 31, 2018, there was approximately $7.6$3.3 million of total unrecognized compensation cost relating to stock options, which is expected to be recognized over a period of approximately two1.9 years. As of June 30, 2017,March 31, 2018, the Company had approximately $12.2$6.8 million of unrecognized stock-based compensation expense related to RSAs, which will be recognized over the remaining weighted-average vesting period of approximately two1.9 years.



Stock Option Plans

Amended and Restated 2012 Omnibus Incentive Plan

On December 16, 2016, the Company’s stockholders approved the Amended and Restated 2012 Omnibus Incentive Plan (the “2012 Plan”), providing for the issuance of up to 10.5 million shares of the Company’s common stock, including approximately 2.1 million shares previously approved by the Company’s stockholders under the Company’s Amended and Restated 2006 Stock Incentive Plan (the “2006 Stock Plan”), less one share of common stock for every one share of common stock that was subject to an option or other award granted after December 31, 2011 under the 2006 Stock Plan, plus an additional number of shares of common stock equal to the number of shares previously granted under the 2006 Stock Plan that either terminate, expire, or are forfeited after December 31, 2011. As of June 30, 2017,March 31, 2018, there were approximately 2.01.3 million shares of common stock available for grant.

The Company recorded stock-based compensation expense related to options of approximately $0.7 million and $0.3 million for the three months ended June 30, 2017 and 2016, respectively, and $1.1 million and $0.6 million for the six months ended June 30, 2017 and 2016, respectively. A summary of stock option activity under the 2012 Plan during the sixthree months ended June 30, 2017March 31, 2018 is as follows:

Options 
Number of
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic Value
 
Number of
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2016 2,822,855
 $2.42
    
Outstanding at December 31, 2017 3,724,892
 $3.07
    
Granted 1,110,351
 4.97
   —
 —
  
Exercised (80,331) 2.13
   —
 —
  
Forfeited or expired (44,966) 3.45
   (10,000) 4.79
  
Outstanding at June 30, 2017 3,807,909
 $3.16
 8.3 $7,308,114
Exercisable at June 30, 2017 1,972,801
 $2.32
 7.4 $5,380,295
Outstanding at March 31, 2018 3,714,892
 $3.07
 7.5 $428,781
Exercisable at March 31, 2018 2,570,764
 $2.55
 7.0 $399,203

The total intrinsic values of options exercised were $0.2 million and $0.3$0.04 million during the sixthree months ended June 30, 2017March 31, 2017. No options were exercised during the three months ended March 31, 2018. The Company recorded stock-based compensation expense related to options of approximately $0.4 million for each of the three months ended March 31, 2018 and 2016, respectively.2017.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the sixthree months ended June 30, 2017March 31, 2018 and 2016:2017:

Six Months Ended June 30,Three Months Ended March 31,
2017 20162018 2017
Risk-free interest rate1.89% 1.39%—% 1.93%
Expected term (in years)6.0 6.00 6.0
Expected dividend yield— —— —
Expected volatility83% 84%—% 85%



Restricted Stock Awards Under 2012 Omnibus Incentive Plan

The Company granted 1,304,271449,500 RSAs during the sixthree months ended June 30, 2017.March 31, 2018. Shares are forfeited if not vested within three years from the date of grant and vest in three equal annual increments. The Company recorded stock-based compensation expense related to RSAs of approximately $1.0$1.2 million and $0.6 million for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, and $1.6 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively.

A summary of RSA activity under the 2012 Plan during the sixthree months ended June 30, 2017March 31, 2018 is as follows:

RSAs
Number of
RSAs
 
Weighted-Average
Stock Price
Number of
RSAs
 
Weighted-Average
Stock Price
Outstanding at December 31, 20161,794,115
 $2.46
Outstanding at December 31, 20172,292,308
 $3.77
Granted1,304,271
 4.95
449,500
 2.17
Vested(999,832) 2.34
(60,000) 4.87
Forfeited or expired(93,450) 3.79
(94,900) 3.71
Outstanding and unvested at June 30, 20172,005,104
 $4.07
Outstanding and unvested at March 31, 20182,586,908
 $3.47

2006 Stock Incentive Plan

On June 27, 2007, the Company’s stockholders approved the 2006 Stock Plan, providing for the issuance of up to 3,700,000 shares of common stock plus an additional number of shares of common stock equal to the number of shares previously granted under the 1998 Stock Option Plan that either terminate, expire, or lapse after the date of the Board of Directors’ approval of the 2006 Stock Plan. All options granted and outstanding have been fully expensed prior to 2016.

A summary of stock option activity under the 2006 Stock Plan during the sixthree months ended June 30, 2017March 31, 2018 is as follows:

Options 
Number of
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted Average
Remaining
Contractual Life
 
Aggregate Intrinsic
Value
 
Number of
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted Average
Remaining
Contractual Life
 
Aggregate Intrinsic
Value
Outstanding at December 31, 2016 3,041,686
 $2.62
    
Outstanding at December 31, 2017 1,194,081
 $4.08
    
Granted —
 —
   —
 —
  
Exercised (1,664,177) 1.31
   —
 —
  
Forfeited or expired (183,428) 4.94
   —
 —
  
Outstanding at June 30, 2017 1,194,081
 $4.08
 4.3 $1,260,386
Exercisable at June 30, 2017 1,149,902
 $4.09
 4.4 $1,200,744
Outstanding at March 31, 2018 1,194,081
 $4.08
 3.5 $2,183
Exercisable at March 31, 2018 1,149,902
 $4.09
 3.6 $2,183

The total intrinsic values of options exercised were $6.3 million and $6.1$2.6 million during the sixthree months ended June 30, 2017 and 2016, respectively.March 31, 2017. No options were exercised during the three months ended March 31, 2018.

Amended and Restated 2016 Inducement Omnibus Incentive Plan

On October 3, 2016, in connection with the closing of the acquisition of Skout, acquisition, the Company’s Board of Directors adopted the 2016 Inducement Omnibus Incentive Plan in accordance with NASDAQ Listing Rule 5635(c)(4). At the closing of the acquisition of Skout, acquisition, the Company granted stock options to purchase an aggregate of up to 355,000 shares of its common stock to 25 former Skout employees as an inducement material to becoming non-executive employees of the Company. On February 27, 2017, the Company amended and restated the 2016 Inducement Omnibus Incentive Plan (as so amended and restated, the “2016 Stock Plan”) authorized an additional 2,000,000 shares of common stock under the 2016 Stock Plan. At the closing of the acquisition of if(we) acquisition,, the Company granted options to purchase an aggregate of up to 75,000 shares of its common stock and restricted stock awards representing an aggregate of 717,500 shares of common stock to 83 former if(we) employees as an inducement material to becoming non-executive employees of the Company. At the closing of the Lovoo Acquisition, the Company granted restricted stock awards representing an aggregate of 531,500 shares of common stock to 96 former Lovoo employees as an inducement material to becoming non-executive employees of the Company.



Options under the 2016 Stock Plan

A summary of stock option activity under the 2016 Stock Plan during the three months ended March 31, 2018 is as follows:

Options 
Number of
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2017 734,168
 $5.18
    
Granted —
 —
    
Exercised —
 —
    
Forfeited or expired (248,332) 5.16
    
Outstanding at March 31, 2018 485,836
 $5.19
 8.8 $—
Exercisable at March 31, 2018 272,502
 $5.27
 8.8 $—

The Company recorded stock-based compensation expense related to options of approximately $0.2 million and $0.4$0.1 million for the three and six months ended June 30,March 31, 2018 and 2017, respectively. A summary of stock option activity under the 2016 Stock Plan during the six months ended June 30, 2017 is as follows:

Options 
Number of
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2016 310,000
 $6.02
    
Granted 575,000
 4.95
    
Exercised —
 —
    
Forfeited or expired (67,500) 5.92
    
Outstanding at June 30, 2017 817,500
 $5.27
 9.6
 $110,900
Exercisable at June 30, 2017 —
 —
 —
 —


The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the sixthree months ended June 30,March 31, 2018 and 2017:

Six Months Ended June 30,
2017
Risk-free interest rate1.89%
Expected term (in years)6.0
Expected dividend yield—
Expected volatility84%
 Three Months Ended March 31,
 2018 2017
Risk-free interest rate—% 1.89%
Expected term (in years)0 6.0
Expected dividend yield— —
Expected volatility—% 84%

Restricted Stock Awards under the 2016 Stock Plan

The Company granted 1,007,750no RSAs during the sixthree months ended June 30, 2017.March 31, 2018. Shares are forfeited if not vested within three years from the date of grant, and vest in three equal annual increments. The Company recorded stock-based compensation expense related to RSAs of approximately $0.4 million and $0.5 million for each of the three and six months ended June 30, 2017, respectively. March 31, 2018 and 2017.

A summary of RSA activity under the 2016 Stock Plan during the sixthree months ended June 30, 2017March 31, 2018 is as follows:

RSAs 
Number of
RSAs
 
Weighted-Average
Stock Price
Outstanding at December 31, 2016 —
 $—
Granted 1,007,750
 5.47
Vested —
 —
Forfeited or expired (55,250) 5.74
Outstanding and unvested at June 30, 2017 952,500
 $5.45



Non-Plan Options

The Board of Directors has approved and our stockholders have ratified the issuance of stock options outside of our stock incentive plans. A summary of Non-Plan option activity during the six months ended June 30, 2017 is as follows:

Options 
Number of
Stock
Options
 
Weighted-
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2016 316,456
 $1.34
  
  
Granted —
 —
  
  
Exercised (316,456) 1.34
  
  
Forfeited or expired —
 —
  
  
Outstanding at June 30, 2017 —
 —
 —
 $—

The total intrinsic values of options exercised were $1.0 million and $0.4 million during the six months ended June 30, 2017 and 2016, respectively.
RSAs 
Number of
RSAs
 
Weighted-Average
Stock Price
Outstanding at December 31, 2017 1,242,250
 $4.62
Granted —
 —
Vested (166,498) 5.19
Forfeited or expired (259,043) 5.34
Outstanding and unvested at March 31, 2018 816,709
 $4.28

Note 9-9— Warrant Transactions

Below is a summary of the number of shares issuable upon exercise of outstanding warrants and the terms and accounting treatment for the outstanding warrants:

 Warrants as of Weighted-Average Exercise Price   Balance Sheet Classification as of
 June 30, 2017 December 31, 2016  Expiration June 30, 2017 December 31, 2016
Allen, F. Stephen Series 3—
 425,000
 $3.55
 6/21/2017 Equity Equity
OTA LLC Series 2—
 250,000
 $3.55
 6/21/2017 Equity Equity
All warrants—
 675,000
        

In March 2006, the Company issued warrants to purchase 1,000,000 shares of common stock each at exercise prices of $4.00 and $7.00 as compensation for certain strategic initiatives. On February 19, 2010, the Company reduced the exercise price of the remaining 1,000,000 outstanding warrants to $3.55 per share. On December 22, 2015, in conjunction with a litigation settlement, the Company repurchased 50,000 Series 2 warrants and extended the warrant expiration date to June 21, 2017.  The fair value of the warrant modification was determined by comparing the fair value of the modified warrant with the fair value of the unmodified warrant on the modification date.
In 2016, F. Stephen Allen exercised 275,000 warrants with an exercise price of $3.55 per share, with the Company issuing 275,000 shares of common stock. He sold 250,000 warrants to Warberg WF IV LP (“Warberg”), and as of December 31, 2016, Allen had 425,000 warrants remained outstanding. In March, April and May 2017, F. Stephen Allen exercised the remaining 425,000 warrants with an exercise price of $3.55 resulting in the Company issuing 425,000 shares of common stock.

In 2016, Warberg sold all of its 250,000 warrants to OTA LLC. In June 2017, OTA LLC exercised the remaining 250,000 warrants with an exercise price of $3.55 resulting in the Company issuing 250,000 shares of common stock. As of March 31, 2018 and December 31, 2017, there were no warrants issued and outstanding.




A summary of warrant activity for the six months ended June 30, 2017 is as follows:

WarrantsNumber of warrants Weighted-Average
Exercise Price
Outstanding at December 31, 2016675,000
 $3.55
Granted—
 —
Exercised(675,000) $3.55
Forfeited or expired—
 —
Outstanding and exercisable at June 30, 2017—
 —

Note 10 -10— Income Taxes

As of June 30, 2017, the Company’s annual effective tax rate (ETR) from operations is 41.11%, which is higher than the previous year due to the release of the valuation allowance in 2016. Our effective tax rate is higher than the previous quarter due to an increase in permanent differences, mainly transaction costs, related to the recent acquisition of if(we).

The Company recorded a net income tax benefit of approximately $2.7$0.3 million and $27.2 millionan immaterial expense for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, and a benefit of $2.7 million and $27.1 million for the six months ended June 30, 2017 and 2016, respectively. The net income tax benefit recorded during the three and six months ended June 30, 2016,March 31, 2018 is primarily related to the loss before income tax expense.

For the three months ended March 31, 2018, the Company’s effective tax rate (AETR) from operations is (5.6)%, compared to (0.1)% for the three months ended March 31, 2017. The difference between the Company’s effective tax rate and the current U.S. statutory rate of 21% is primarily related to permanent items. The difference in the effective tax rate for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 is as a releaseresult of the entire valuation allowance.a discrete item related to a windfall tax benefit from stock based compensation.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets (primarily federal and state net operating losses (NOLs). In the second quarterAs of 2016, in part becauseMarch 31, 2018 and December 31, 2017, the Company achieved three years of cumulative pretax income inhas a valuation allowance related to acquired state NOLs that the U.S. federal tax jurisdiction, management determined that thereCompany believes it is sufficient positive evidence to conclude that it isnot more likely than not that net deferred tax assets of $33.6 million are realizable. As of June 30, 2017 and December 31, 2016, the Company did not record any valuation allowances related to deferred tax assets.will be realized.

During the three and six months ended June 30,March 31, 2018 and 2017, and 2016, the Company had no material changes in uncertain tax positions.

The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on the accumulated earnings of certain
foreign subsidiaries, and creates new taxes on certain foreign-sourced earnings. At December 31, 2017, the Company made a reasonable estimate of the one-time transition tax on accumulated foreign earnings as well as the impact of the Act on its existing deferred tax balances. As discussed below, the Company has not completed its accounting for the tax effects of the Act as of March 31, 2018.

The one-time transition tax is based on the Company’s total post-acquisition earnings and profits (“E&P”) of its German subsidiaries in October 2017, for which the accrual of U.S. income taxes had previously been deferred. The Company recorded a provisional amount for its one-time transition tax liability at December 31, 2017 which was considered immaterial, and has not adjusted this amount as of March 31, 2018. The Company has not yet completed its calculation of the total foreign E&P for these foreign subsidiaries. Further, the transition tax is impacted in part by the amount of those earnings held in cash and other specified assets. Accordingly, the Company’s estimate of the one-time transition tax may change when it finalizes the calculation of the foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets.

At December 31, 2017, the Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. A provisional tax benefit of $7.7 million was recorded, and no adjustment was recorded to this estimate in during the three months ended March 31, 2018. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances.

The global intangible low-taxed income (GILTI) provisions of the Act impose a tax on the GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. No estimate was recorded for GILTI as of December 31, 2017. At March 31, 2018, the Company determined the tax expense resulting from GILTI provisions and future income subject to the GILTI provisions, resulting in an inconsequential expense for the three months ended March 31, 2018.

Note 11— Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.



Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain liabilities in terms of its functional currency, the U.S. dollar.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During 2018, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive (loss) income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election. The earnings recognition of excluded components is presented in interest expense. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Between March 31, 2018 and March 31, 2019, the Company estimates that an additional $0.1 million will be reclassified as a decrease to interest expense.

As of March 31, 2018, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

  Number of At Inception At March 31, 2018
Interest Rate Derivative Instruments Notional Notional
Interest rate swaps 1 $45,000,000 $37,500,000
Interest rate caps 1 $15,000,000 $15,000,000

Cash Flow Hedges of Foreign Exchange Risk

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the US dollar. The Company uses foreign currency derivatives including cross-currency interest rate swaps to manage its exposure to fluctuations in the USD-EUR exchange rate. Cross-currency interest rate swaps involve exchanging fixed rate interest payments for fixed rate interest receipts both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instrument. The Company designates these derivatives as cash flow hedges of foreign exchange risks.

For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in accumulated other comprehensive (loss) income and subsequently reclassified in the period(s) during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the next 12 months, the Company estimates that an additional $0.8 million will be reclassified as a decrease to interest expense.


As of March 31, 2018, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:

Foreign Currency Derivative Number of Instruments Pay Fixed Notional Receive Fixed Notional
Cross-currency interest rate swap 1 €42,000,517 $48,750,000
    (amortizing to €40,277,419 as of March 31, 2018) (amortizing to $46,750,000 as of March 31, 2018)

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of March 31, 2018 and December 31, 2017.

    Fair Value of Derivative Instruments
    Asset Derivatives Liability Derivatives
    March 31, 2018 December 31, 2017 March 31, 2018 December 31, 2017
Derivatives Designated as Hedging Instruments Balance Sheet Location Fair Value Fair Value Fair Value Fair Value
Interest rate products Other assets/liabilities - current $108,877
 $243
 $—
 $(71,915)
Interest rate products Other assets - non-current 205,468
 84,058
 —
 —
Cross currency contract Other assets - current 503,159
 655,305
 —
 —
Cross currency contract Long-term derivative liability —
 —
 (4,512,878) (2,995,657)
Total derivatives designated as hedging instruments   $817,504
 $739,606
 $(4,512,878) $(3,067,572)

The tables below presents the effect of cash flow hedge accounting on accumulated other comprehensive (loss) income for the three months ended March 31, 2018 and 2017.

Derivatives in Subtopic 815-20 Hedging Relationships Amount of Gain or (Loss) Recognized in OCI on Derivatives
  Three Months Ended March 31,
  2018 2017
Derivatives in Cash Flow Hedging Relationships    
Interest rate products $268,549
 $—
Cross currency contract 1,119,762
 —
Total $1,388,311
 $—



Location of Gain or (Loss) Reclassified from Accumulated OCI into Income Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
  Three Months Ended March 31,
  2018 2017
Interest expense $(38,279) $—
Interest expense 219,500
 —
Gain (loss) on foreign currency transactions (1,283,667) —
Total $(1,102,446) $—

The table below presents the effect of the Company’s derivative financial instruments on the income statement for the three months ended March 31, 2018 and 2017.

 Three Months Ended March 31,
 2018
 Interest Expense Foreign Currency Adjustment
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded$(607,686) $103,043
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20   
Interest contracts   
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income$181,221
 $(1,283,667)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring$—
 $—

 Three Months Ended March 31,
 2017
 Interest Expense Foreign Currency Adjustment
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded$(2,332) $(2,200)
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20   
Interest contracts   
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income$—
 $—
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring$—
 $—

As of March 31, 2018, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $4.1 million. As of March 31, 2018, the Company had not


posted any collateral related to these agreements. If the Company had breached any of credit-risk related provisions at March 31, 2018, it could have been required to settle its obligations under the agreements at their termination value of $4.1 million.
Note 12— Revenue

The Company recognizes revenue when control of the promised good or service is transferred to the customer in an amount that the Company expects to be entitled in exchange for the good or service.

In accordance with the requirements of ASC 606, the disclosure of the impact of adoption on the Company’s consolidated income statement and balance sheet is as follows:

 For the Three Months Ended March 31, 2018
 ASC 606 ASC 605 Effect of Change
Income Statement     
   Revenues$37,637,793
 $37,638,876
 $(1,083)

The following table presents the Company’s revenues disaggregated by revenue source for the three months ended March 31, 2018 and 2017:

 Three Months Ended March 31,
 2018 
2017(1)
 $ % $ %
User pay revenue$22,405,530
 59.5% $1,598,296
 8.0%
Advertising15,232,263
 40.5% 18,460,501
 92.0%
Total revenue$37,637,793
 100.0% $20,058,797
 100.0%
(1) Prior period amounts have not been adjusted under the modified retrospective adoption method.

User Pay Revenue

User pay revenue is earned from in-app purchase products and subscriptions sold to mobile application and website users. The Company offers in-app products such as Credits, Points, Gold and Icebreakers. Users purchase these products to exchange for the Company’s virtual products. These products allow users to engage with other users on the applications and in live video, and put users in the spotlight, helping them get more attention from the community in order to meet more people faster. Platform users do not own the Credits, Points, Gold or Icebreakers but have a limited right to use the Credits, Points, Gold or Icebreakers on virtual products offered for sale on the Company’s platforms. Credits may be gifted to other user accounts in the form of Diamonds, and Diamonds may be redeemed for cash. Except for Diamonds, the Company’s in-app products are not transferable, cannot be sold or exchanged outside of the Company’s platforms, are not redeemable for any sum of money, and can only be used on the Company’s platforms. In-app products are recorded in deferred revenue when purchased and recognized as revenue over time when: (i) the Credits, Points, Gold or Icebreakers are used by the customer; or (ii) the Company determines the likelihood of the Credits, Points, Gold or Icebreakers being redeemed by the customer is remote (breakage) and there is not a legal obligation to remit the unredeemed Credits, Points, Gold or Icebreakers to the relevant jurisdiction. The determination of the breakage rate is based upon Company-specific historical redemption patterns. Breakage is recognized in revenue as the Credits, Points, Gold and Icebreakers are used on a pro rata basis over a three or six-month period (life of the user) beginning at the date of the sale and are included in revenue in the condensed consolidated statements of operations and comprehensive income. Breakage recognized during the three months ended March 31, 2018 and 2017 was $0.7 million and $0.3 million, respectively. For MeetMe+, Tagged, Skout and Lovoo subscription based products, the Company recognizes revenue over the term of the subscription.

Under ASC 606, user pay revenue has a single performance obligation. Subscriptions provide customers with premium access to the application and include credits on MeetMe+ while in app purchases are satisfied by standing ready to allow users to exchange credits for virtual products. The consideration received for these services is fixed at the time of purchase. The customer simultaneously receives and consumes the benefits of user pay features as the Company performs the services. Revenue is recorded in deferred revenue when purchased by customer and recognized as revenue over time as the performance obligation is satisfied.



The adoption of ASC 606 primarily affected the timing of revenue recognition for MeetMe+ subscriptions, which were historically recognized using the revenue recognition methodology for credits. MeetMe+ subscription revenue will be recognized over the subscription period using a mid-month convention beginning on January 1, 2018. The change in revenue recognition methodology resulted in a cumulative-effect adjustment of $0.02 million recognized as a credit to retained earnings and a reduction to deferred revenue on January 1, 2018. The adoption of ASC 606 did not have an impact on the: (i) subscription revenue for Tagged, Skout and Lovoo or (ii) in-app purchases revenue for MeetMe, Tagged, Skout and Lovoo.

Advertising Revenue
Advertising revenue is comprised of mobile and web advertising. Within each revenue stream, the Company has one performance obligation to publish advertisements as specified by the respective contracts. The amount of consideration that the Company expects to receive for the services is variable based on the volume of advertisement impressions. The Company does not offer any discounts or free impressions and has not historically experienced any collectability issues.

The Company also recognizes revenue from cross-platform/social theater and cost-per-action (“CPA”) offers. Each of these revenue streams has one performance obligation. For cross-platform/social theater contracts, the consideration promised is fixed per ad campaign and term, and required services to be delivered. However, the monthly revenue could vary depending on the actual delivery of impressions throughout the contract term. These contracts are typically based on cost per thousand (CPM) rates and number of impressions served due to traffic volume and the specific ad campaign. For CPA offers, the consideration promised is variable based on a revenue share rate, and/or based on the number of actions delivered per the agreement. As such, the Company recognizes all actual advertising revenues from impressions or actions delivered on a monthly basis rather than estimating revenue at the beginning of the period.

The Company has transactions with several partners that qualify for principal agent considerations. The Company recognizes revenue, net of amounts retained by the third-party partners, pursuant to revenue sharing agreements with advertising networks. The form of the agreements was such that the Company provided services in exchange for a fee. The Company determines only the fee for providing its services to advertising agencies and has no latitude in establishing prices with third party advertisers.
In instances where the Company works directly with an advertiser, revenue is recognized on a gross basis. The Company is the primary obligor in arrangements made with direct advertisers, as there is no third-party facilitating or managing the sales process. The Company is solely responsible for determining price, product or service specifications, and which advertisers to use. The Company assumes all credit risk in the sales arrangements made with direct advertisers.

The Company has determined that the performance obligation under the advertising revenue streams is recognized ratably over time utilizing the “Right to Invoice” practical expedient as customers simultaneously consume and receive benefits of the advertisement impressions.

The adoption of ASC 606 did not result in a transition adjustment on the recognition of advertising revenues as the Company’s revenue recognition under ASC 605 is consistent with the guidance under ASC 606.

Deferred Revenue
The Company records deferred revenue when the consideration for a good or service is received in advance of its performing the obligation. The deferred revenue balance for the three months ended March 31, 2018 increased $22.7 million due to subscription and in-app purchases consideration received in advance of providing the good or service to the customers. This amount was offset by $22.4 million revenue recognized from the deferred revenue balance as of December 31, 2017 due to performance obligations satisfied during the three months ended March 31, 2018.

ASC 606 Practical Expedient Elections
The Company elected the following practical expedients in applying ASC 606 to its revenue streams:

Portfolio Approach - Contracts within each revenue stream have similar characteristics and the Company expects that the effects on the financial statements would not differ materially from applying this guidance to the individual contracts. As such, the Company applied the portfolio approach to its contracts.

Sales Tax Exclusion from Transaction Price - The Company does not collect sales tax for advertising revenue. Sales taxes are added to the transaction price by the payment processors for subscription and in-app purchases, when applicable. However, these sales taxes are not included in the Company’s consideration amount.

Contract Costs - The Company does not incur costs to obtain or fulfill contracts in most revenue streams. There are sales commissions incurred for Social Theater contracts, however these contracts are typically for a period of less than a year. As the costs are expected


to be recognized is one year or less, these costs are recorded within sales and marketing expenses rather than being deferred and recognized over the term of the contract.

Right to Invoice - Revenue from advertising contracts is recognized over time based on the Company’s performance completed to date. The Company will apply the invoice expedient and recognize revenue in the amount to which the entity has a right to invoice as measured by the amount of impressions or actions delivered within each period.

Unsatisfied Performance Obligations - The Company’s disclosures exclude the value of unsatisfied performance obligations for (i) its contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for performance to date.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Note Regarding Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 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:

Liquidity;
Capital expenditures;
Opportunities for our expectations regarding user engagement patterns;business;

Growth of our business; and
ourAnticipations and expectations regarding mobile usage by our users;

the impact of increased mobile usage and Social Theater competition on revenues and financial results;

the impact of seasonality on our operating results;

our expectations relating to advertising and the effects of advertising and mobile monetization on our revenues;

our expectations regarding our ability to manage and fill our advertising inventory internally;

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;

our ability to successfully pursue collection actions;

our expectations regarding the cost and outcome of our current and future litigation;

the impact of new accounting policies; and

our plans for capital expenditures for the remainder of the year ending December 31, 2017.monetization.

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,” “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 and engage in our App upgrades and new features, the risk that unanticipated events affect the functionality of our App with popular mobile operating systems, any changes in such operating systems that degrade our App’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 make pay for Credits, Points, or Gold.Gold and Icebreakers. 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. MD&A contains 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, 2016.2017. 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.



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, 20162017 (“Annual Report”), as well as our condensed consolidated financial statements and the accompanying notes included in this report.



Company Overview

The Meet Group, Inc. (the “Company,” “The Meet Group,” “us,” or “we”) is a fast-growing portfolio of mobile social entertainment apps that brings together people around the world for new connections. Our mission isdesigned to meet the universal need for human connection.  We leverage a powerful live-streaming video platform, empowering our global community to forge meaningful connections. Our primary apps are MeetMe®, LOVOO®, Skout®, and Tagged®.

We operate location-based social networks for meeting new people, primarily on mobile platforms, including on iPhone, Android, iPad and other tablets, and on the web that facilitate interactions among users and encourage users to connect, communicate and chatengage with each other. Given consumer preferences to use more than a single mobile application,In 2017, we are adopting a brand portfolio strategy, throughlaid the foundation for and launched live video, which we offer products that collectively appealbelieve is the most compelling product we have ever offered. We have historically generated revenue primarily through advertising; today, however, live video and other forms of user-pay monetization, including subscriptions and in-app purchases, are becoming an increasingly larger component of total revenue. We believe revenues from video are more sustainable, can grow faster, and are more aligned with the quality of the user experience than revenues from advertising.

We launched live video monetization on two of our apps in 2017 and have seen strong early interest from our users, including increasing engagement and revenue. We also added two additional apps to the broadest spectrum of consumers. We are consolidating the fragmented mobile meeting sector through strategic acquisitions, leveraging economies and innovation to drive growth.The Meet Group portfolio. On October 3, 2016 we completed our acquisition of Skout, Inc. (“Skout”), and on April 3, 2017, we completed our acquisition of Ifwe Inc. (“if(we)”), both of which owneda leading global mobile networksnetwork for meeting new people.people, and on October 19, 2017, we completed our acquisition of Lovoo GmbH (“Lovoo”), a leading dating app provider in Germany. We believe these acquisitions, in addition to our acquisition of Skout, Inc. (“Skout”) on October 3, 2016, provide significant scale for the future global growth of our social entertainment platform, and we are hard at work today integrating our video technology into our two newest properties.

The Meet Group’s platforms monetize through advertising, in-app purchases, and paid subscriptions. The Company offersWe also offer online marketing capabilities, which enable marketers to display their advertisements in different formats and in different locations. We offer significant scale to our advertising partners, with hundreds of millions of daily impressions across our active and growing global user base, and sophisticated data science for highly effective hyper-targeting. The Company worksWe work with itsour advertisers and advertising networks to maximize the effectiveness of their campaigns by optimizing advertisement formats and placement.placements.

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, The Meet Group is creating the social entertainment network not of the people you know but of the people you want to know. Nimble, fast-moving and fast-moving, already in more than 100 countries, we are challenging the dominant player in our space, Match Group. Group, Inc., and differentiating ourselves with live video, which is not offered by many of our direct competitors. Modeled after the video products offered by Chinese dating app providers, but enhanced in order to appeal to western audiences, our live video product is aimed at the nexus of entertainment and community, where we believe our apps exhibit natural strength.

Our vision extends beyond dating.dating and entertainment. We focus on building quality products to satisfy the universal need for human connection among all people, everywhere-noteverywhere — not just paying subscribers. We believe meeting new people is a basic human need, especially for users aged 18-34, when so many long-lasting relationships are made. We use advanced technology to engineer serendipitous connections among people who otherwise might never have met - a sort of digital coffeehouse where everyone belongs. Over the years, The Meet Group’s apps have originated untold numbers of chats, shares, good friends,friendships, dates, romantic relationships - even marriages.

We believe that we have significant growth opportunities as people increasingly use their mobile devicesenabled through our social entertainment platform. We believe our scale provides unique advantages to discover the people around them. Given the importance ofgrow video monetization, while also 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 Meet Group’s networks grow and the number of users in a location increases, we believe that users who are seeking to meet new people will incrementally benefit from the quantity of relevant connections.



Operating Metrics

We measure website and application activity in terms of monthly active users (“MAUs”) and daily active users (“DAUs”). We define a MAU as a registered user of one of our platforms who has logged in and visited within the last month of measurement. We define a DAU as a registered user of one of our platforms who has logged in and visited within the day of measurement. For the quarters ended June 30,March 31, 2018 and 2017, and 2016, the total Company MAUs were approximately 13.8716.17 million and 5.838.77 million, respectively, and total Company DAUs were approximately 3.434.85 million and 1.292.03 million, respectively.

 Monthly Average for the Quarter Ended
 June 30,
 2017 2016
MAU13,869,145
 5,834,642
 Monthly Average for the Quarter Ended
 March 31,
 2018 2017
MAU16,167,271
 8,769,785

      For the Quarter Ended
 June 30,
 2017 2016
DAU3,432,355
 1,291,146


      For the Quarter Ended
 March 31,
 2018 2017
DAU4,848,392
 2,034,614

Second
First Quarter of 20172018 Highlights

MobileTotal revenue was $23.3$37.6 million for the first quarter of 2018, up 87.6% from $20.1 million in the secondfirst quarter of 2017, up 55% from $15.1 million in the second quarter of 2016.2017.

Net incomeloss for the secondfirst quarter of 20172018 was $0.9$4.2 million. Adjusted EBITDA was $7.4$5.2 million for the secondfirst quarter of 2017.2018. (See the important discussion about the presentation of non-GAAP financial measures, and reconciliation tofrom the most directly comparable GAAP financial measures, below.)

Cash and cash equivalents totaled $32.3$28.0 million at June 30, 2017.March 31, 2018.



Trends in Our Metrics

In addition to MAUs and DAUs, we measure activity on the Company’s apps in terms of average revenue per user (“ARPU”) and average daily revenue per daily active user (“ARPDAU”). We define ARPU as the average quarterly revenue per average MAU. We define ARPDAU as the average quarterlydaily revenue per DAU. We define mobile MAU as a user who accessed our sites by one of our mobile applications for all platforms or by the mobile optimized version of our websitewebsites for MeetMe, Skout and Skout,Lovoo, whether on a mobile phone or tablet during the month of measurement. We define a mobile DAU as a user who accessed our sites by one of our mobile applications for all platforms or by the mobile optimized version of our websitewebsites for MeetMe, Skout and Skout,Lovoo, whether on a mobile phone or tablet during the day of measurement. Visits represent the number of times during the measurement period that users came to the website or mobile applications for distinct sessions. A page view is a page that a user views during a visit.

In the quarter ended June 30, 2017,March 31, 2018, the Company averaged 10.6713.64 million mobile MAUs and 13.8716.17 million total MAUs, on average, as compared to 4.848.26 million mobile MAUs and 5.838.77 million total MAUs on average in the quarter ended June 30, 2016,March 31, 2017, a net increase of 5.835.38 million or 120%65% for mobile MAUs and a net increase of 8.047.40 million or 138%84% for total Company MAUs. Mobile DAUs were 2.704.21 million for the quarter ended June 30, 2017,March 31, 2018, a 122%111% increase from 1.221.99 million in the quarter ended June 30, 2016.March 31, 2017. For the quarter ended June 30, 2017,March 31, 2018, the Company averaged 3.434.85 million total DAUs, as compared to 1.292.03 million total DAUs on average for the quarter ended June 30, 2016,March 31, 2017, a net increase of approximately 2.142.82 million total DAUs, or 166%138%.

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In the quarter ended June 30, 2017,March 31, 2018, the Company earned an average of $1.45$1.55 ARPU on the web and $2.19$2.25 ARPU inon our mobile applications, as compared to $0.36$0.38 ARPU on the web and $3.11$2.29 in mobile ARPU for the quarter ended June 30, 2016.March 31, 2017. In the quarter ended June 30, 2017,March 31, 2018, the Company earned an average of $0.086$0.088 in web ARPDAU and $0.095$0.081 in mobile ARPDAU, as compared to $0.053$0.044 in web ARPDAU and $0.136$0.105 in mobile ARPDAU for the quarter ended June 30, 2016.March 31, 2017.

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Factors Affecting Our Performance

We believe the following factors affect our performance:

Number of MAUs and DAUs: We believe our 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 subscriptions and in-app purchases, as well as our expenses and capital expenditures.

User Engagement: We believe changes in user engagement patterns affect our revenue and financial performance. Specifically, the number of visits and page viewsthe amount of time spent by 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. In addition, the number of users that make in-app purchases and the amounts that they purchase directly impact our revenue. We continue to create new features and enhance existing features to drive additional engagement. The percent of MAU and DAU that engage with our video products and their conversion to paying users also affects the amount of in-app purchase revenue we are able to earn.

Advertising Rates: We believe 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. In 2017, we experienced declining advertising rates, which negatively affected out revenue. We expect to continue investing in new types of advertising and new placements, especially in our mobile applications.placements. Additionally, we are prioritizing initiatives that generate revenue directly from users, including new in-app purchases 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 U.S. and Canada is significantly higher than in Latin America. We plan to continue to invest in user growth across the world, including in geographies where current per user monetization rates are relatively lower than in the U.S. and Canada.



New User Sources: The percentage of our new users that are acquired through inorganic, paid sources impacts 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 make in-app purchases. 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 generate more revenue per impression. Our Social Theater campaign expenses are materially dependent on the percentage of Social Theater campaigns that run on MeetMe versus the percentage that run on other networks. We work to maximize the share of Social Theater campaigns that run on MeetMe and run campaigns on other networks only when necessary.

Google Play Store and Apple App Store: Our mobile applications are distributed through the Google Play Store and the Apple App Store. Our business will suffer if we are unable to maintain good relationships with Google and Apple, if their terms and conditions or pricing change to our detriment, if we violate, or either company believes that we have violated, its terms and conditions, or if either of these platforms are unavailable for a prolonged period of time.

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 networks other than The Meet Group networks. A recent increase in competitors offering similar technology solutions, and in some cases their own cross-platform distribution networks, has made it more 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: AdvertisingHistorically, advertising spending ishas traditionally been seasonal with a peak in the fourth quarter of each year. With the decline in advertising rates in 2017, we did not experience this seasonality consistent with prior years. We believe that this seasonality in advertising spending affects our quarterly results, which generally reflecthistorically have reflected 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 each year. Growth trends in web and mobile MAUs and DAUs affect our revenue and financial results by influencing the number of advertisements we are able to show, the value of those advertisements, the volume of payments transactions, as well as our expenses and capital expenditures.

Business Combinations: Acquisitions have been an important part of our growth strategy. During the two years in the period ended December 31, 2017, we acquired three companies (Skout, if(we) and Lovoo), representing four significant brands for our portfolio (Skout, Tagged, Hi5 and Lovoo). Our ability to integrate these apps into our portfolio will impact our financial performance. As a consequence of the contributions of these businesses and acquisition-related expenses, our consolidated results of operations may not be comparable between periods.

Growth trends in web and mobile MAUs and DAUs affect our revenue and financial results by influencing the number of advertisements we are able to show, the value of those advertisements, 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 video broadcasts, status posts, messages, or photos) or generate feedback increases as our user base grows. We continue to create new and improved features to drive 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 the 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, filed with the SEC on March 9, 2017.16, 2018. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the sixthree months ended June 30, 2017,March 31, 2018, compared to those discussed in our Annual Report. 



Recent Accounting Pronouncements

For detailed information regarding recently issued accounting pronouncements and the expected impact on our financial statements, see Note 1-1— Description of Business, Basis of Presentation and Summary of Significant Accounting Policies in the accompanying notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.




Results of Operations

Comparison of the three months ended June 30,March 31, 2018 and 2017 and 2016

The following table sets forth our condensed consolidated statements of operations for the three months ended June 30,March 31, 2018 and 2017 and 2016 that is used in the following discussions of our results of operations:
Three Months Ended June 30, Change From Prior YearThree Months Ended March 31, Change From Prior Year
2017 2016 ($) %2018 2017 ($) %
Revenues$31,329,468
 $16,388,991
 $14,940,477
 91.2 %$37,637,793
 $20,058,797
 $17,578,996
 87.6 %
Operating costs and expenses:              
Sales and marketing4,599,842
 3,226,344
 1,373,498
 42.6 %7,047,993
 5,105,508
 1,942,485
 38.0 %
Product development and content16,526,905
 6,214,062
 10,312,843
 166.0 %22,101,537
 8,457,494
 13,644,043
 161.3 %
General and administrative5,160,799
 1,867,590
 3,293,209
 176.3 %5,469,178
 2,862,427
 2,606,751
 91.1 %
Depreciation and amortization2,965,175
 753,918
 2,211,257
 293.3 %3,629,603
 1,684,839
 1,944,764
 115.4 %
Acquisition and restructuring costs3,769,425
 1,160,349
 2,609,076
 224.9 %
Acquisition and restructuring3,349,951
 1,500,429
 1,849,522
 123.3 %
Total operating costs and expenses33,022,146
 13,222,263
 19,799,883
 149.7 %41,598,262
 19,610,697
 21,987,565
 112.1 %
(Loss) income from operations(1,692,678) 3,166,728
 (4,859,406) (153.5)%(3,960,469) 448,100
 (4,408,569) (983.8)%
Other income (expense):              
Interest income1,400
 6,447
 (5,047) (78.3)%7,208
 2,570
 4,638
 180.5 %
Interest expense(175,254) (5,360) (169,894) (3,169.7)%(607,686) (2,332) (605,354) (25,958.6)%
Change in warrant liability—
 (787,391) 787,391
 100.0 %
(Loss) gain on foreign currency adjustment(9,229) 18,201
 (27,430) (150.7)%
Gain (loss) on foreign currency transactions103,043
 (2,200) 105,243
 4,783.8 %
Other(6,944) —
 (6,944) (100.0)%
Total other expense(183,083) (768,103) 585,020
 76.2 %(504,379) (1,962) (502,417) (25,607.4)%
(Loss) income before income taxes(1,875,761) 2,398,625
 (4,274,386) (178.2)%
Benefit from income taxes2,732,356
 27,219,764
 (24,487,408) (90.0)%
Net income$856,595
 $29,618,389
 $(28,761,794) (97.1)%
(Loss) income before income tax benefit (expense)(4,464,848) 446,138
 (4,910,986) (1,100.8)%
Income tax benefit (expense)252,187
 (292) 252,479
 86,465.4 %
Net (loss) income$(4,212,661) $445,846
 $(4,658,507) (1,044.9)%

Revenues

Our revenues were approximately $31.3$37.6 million for the three months ended June 30, 2017,March 31, 2018, an increase of $14.9$17.6 million or 91.2%87.6% compared to $16.4$20.1 million for the three months ended June 30, 2016. March 31, 2017. The following table presents our revenues disaggregated by revenue source for the three months ended March 31, 2018 and 2017:

 Three Months Ended March 31,
 2018 2017
 $ % $ %
User pay revenue$22,405,530
 59.5% $1,598,296
 8.0%
Advertising15,232,263
 40.5% 18,460,501
 92.0%
Total revenue$37,637,793
 100.0% $20,058,797
 100.0%

The increase in revenue is attributable to an $8.3a $20.8 million increase in mobileuser pay revenue, partially offset by a $6.1$3.2 million decrease in advertising revenue. The increase in web revenue is primarily attributable to the acquisition of if(we) and a $0.5 millionthe Lovoo Acquisition, both occurring subsequent to the first quarter of 2017. The increase in cross-platform revenue. We believeuser pay revenue is attributed to the increaserelease of MeetMe Live and Skout Live. The decrease in mobilead revenue is primarily due to increased mobilethe decrease in advertising impressions and increased in-app purchases, as a result of the Skout and if(we) acquisitions. The increased web revenue is primarily due to user generated revenue and subscription revenue from the if(we) acquisition.rates.



Operating Costs and Expenses

Sales and Marketing: Sales and marketing expenses increased approximately $1.4$1.9 million, or 42.6%38.0%, to $4.6$7.0 million for the three months ended June 30, 2017March 31, 2018 from $3.2$5.1 million for the three months ended June 30, 2016.March 31, 2017. The net increase in sales and marketing expenses, including the Skoutif(we) and if(we)Lovoo sales and marketing related expense, is due to increased advertising spend of approximately $1.0$1.3 million and increased employee expenses of approximately $0.3$0.5 million. The increase in employee expenses is primarily due to the Skoutif(we) Acquisition and if(we) acquisitions.the Lovoo Acquisition.

Product Development and Content: Product development and content expenses increased approximately $10.3$13.6 million, or 166.0%161.3%, to $16.5$22.1 million for the three months ended June 30, 2017March 31, 2018 from $6.2$8.5 million for the three months ended June 30, 2016.March 31, 2017. The net increase in product development and content expense, including the Skoutif(we) and if(we)Lovoo product development related expense,expenses, is attributable to an increase of mobile content costs of $6.1 million, employee expenses of $4.5$3.8 million, data center and technical operations of $2.5$1.9 million, and stock-based compensation of $1.0 million, mobile content cost of $0.8 million and Social Theater content costs of $0.5$0.6 million. The increase in employee expenses, data center and technical operations and stock-based compensation and mobile content costs isare attributable to the Skoutif(we) Acquisition and if(we) acquisitions.Lovoo Acquisition. The increase in Social Theatermobile content costs is due to increased Social Theater revenue.the acquisition of if(we) and the Lovoo Acquisition as well as the roll out of MeetMe Live and Skout Live.

General and Administrative: General and administrative expenses increased $3.3$2.6 million or 176.3%91.1%, to $5.2$5.5 million for the three months ended June 30, 2017March 31, 2018 from $1.9$2.9 million for the three months ended June 30, 2016.March 31, 2017. The net increase in general and


administrative expense, including the Skoutif(we) and if(we)Lovoo general and administrative related expense,expenses, is primarily due to an increase of employee expenses of $0.9$0.7 million, stock-based compensation of $0.4 million, professional fees of $0.4 million, business and franchise taxes of $0.2 million and office related expenses of $0.3 million, and travel related costs of $0.2 million. These increases are attributable primarily to the if(we) Acquisition and the Lovoo Acquisition.

Depreciation and Amortization: Depreciation and amortization expenses increased $1.9 million or 115.4%, to $3.6 million for the three months ended March 31, 2018 from $1.7 million for the three months ended March 31, 2017. The increase in depreciation and amortization expense is primarily attributable to the Skoutamortization of intangibles related to the if(we) Acquisition and if(we) acquisitions.the Lovoo Acquisition.

Acquisition and Restructuring: Acquisition and restructuring expenses increased $1.8 million or 123.3%, to $3.3 million for the three months ended March 31, 2018 from $1.5 million for the three months ended March 31, 2017. Acquisition and restructuring costs include the employee retention bonuses in connection with the acquisitions, employee related restructuring costs, the accrual of the exit cost of non-cancellable leases and employee exit and relocation costs.

Comparison of Stock-Based Compensation and Other Costs and Expenses

Stock-BasedStock Based Compensation

Stock-based compensation expense, included in the operating expense by category, increased approximately $1.5$1.0 million to $2.4$2.2 million for the three months ended June 30, 2017March 31, 2018 from $0.9$1.1 million for the three months ended June 30, 2016.March 31, 2017. Stock-based compensation expense represented 7%5.2% and 5.8% of operating expenses for both the three months ended June 30,March 31, 2018 and 2017, and 2016.respectively.

As of June 30, 2017,March 31, 2018, there was approximately $7.6$3.3 million and $12.2$6.8 million of unrecognized compensation cost related to stock options and unvested restricted stock awards, respectively, which is expected to be recognized over a period of approximately two years.

Three Months Ended June 30, Change from Prior YearThree Months Ended March 31, Change from Prior Year
2017 2016 ($)2018 2017 ($)
Sales and marketing$101,035
 $95,295
 $5,740
$118,547
 $101,269
 $17,278
Product development and content1,428,743
 403,956
 1,024,787
1,114,067
 501,300
 612,767
General and administrative838,414
 416,321
 422,093
936,311
 531,589
 404,722
Total stock-based compensation expense$2,368,192
 $915,572
 $1,452,620
$2,168,925
 $1,134,158
 $1,034,767

Depreciation and Amortization Expense

Depreciation and amortization expense was $3.0 million and $0.8 million for the three months ended June 30, 2017 and 2016, respectively. The increase in depreciation and amortization expense is primarily attributable to the amortization of intangibles related to the Skout and if(we) acquisitions.

Acquisition and Restructuring Costs

Acquisition and restructuring costs were approximately $3.8 million and $1.2 million for the three months ended June 30, 2017 and 2016, respectively. Acquisition and restricting costs include the transaction costs, including legal and diligence costs, for the acquisition of if(we), the accrual of the exit cost of non-cancellable leases and employee exit and relocation costs. The Company paid approximately $0.9 million in transaction costs in connection with the acquisition of if(we) in the three months ended June 30, 2017.

Income Tax Benefit from Income Taxes(Expense)

Benefit from income taxes was $2.7$0.3 million and $27.2 millionan immaterial expense for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively. OurFor the three months ended March 31, 2018, the our effective tax rate (AETR) from operations is (5.6)%, compared to (0.1)% for the three months ended June 30, 2017 was higher thanMarch 31, 2017. The difference between our effective tax rate and the current U.S. statutory rate of 21% is primarily related to permanent items. The difference in the effective tax rate for the three months ended June 30, 2016 dueMarch 31, 2018 compared to the stock based compensation tax deductions in excess of book expense and an increase in permanent differences, mainly transaction costs, related to the recent acquisition of if(we). The net income tax benefit recorded during the three months ended June 30, 2016 primarilyMarch 31, 2017 is as a result of a discrete item related to a reversal of the entire valuation allowance of $33.6 million.



Comparison of the six months ended June 30, 2017 and 2016

The following table sets forth our condensed consolidated statements of operations for the six months ended June 30, 2017 and 2016 that is used in the following discussions of our results of operations:
 Six Months Ended June 30, Change From Prior Year
 2017 2016 ($) %
Revenues$51,388,265
 $29,710,662
 $21,677,603
 73.0 %
Operating costs and expenses:       
Sales and marketing9,705,350
 5,547,767
 4,157,583
 74.9 %
Product development and content24,984,399
 11,922,162
 13,062,237
 109.6 %
General and administrative8,023,226
 4,215,758
 3,807,468
 90.3 %
Depreciation and amortization4,650,014
 1,505,182
 3,144,832
 208.9 %
Acquisition and restructuring costs5,269,854
 1,160,349
 4,109,505
 354.2 %
Total operating costs and expenses52,632,843
 24,351,218
 28,281,625
 116.1 %
(Loss) income from operations(1,244,578) 5,359,444
 (6,604,022) (123.2)%
Other income (expense):       
Interest income3,970
 11,562
 (7,592) (65.7)%
Interest expense(177,586) (12,105) (165,481) 1,367.0 %
Change in warrant liability—
 (545,614) 545,614
 (100.0)%
(Loss) gain on foreign currency adjustment(11,429) 34,553
 (45,982) (133.1)%
Total other expense(185,045) (511,604) 326,559
 (63.8)%
(Loss) income before income taxes(1,429,623) 4,847,840
 (6,277,463) (129.5)%
Benefit from income taxes2,732,064
 27,125,446
 (24,393,382) (89.9)%
Net income$1,302,441
 $31,973,286
 $(30,670,845) (95.9)%

Revenues

Our revenues were approximately $51.4 million for the six months ended June 30, 2017, an increase of $21.7 million or 73.0% compared to $29.7 million for the six months ended June 30, 2016. The increase in revenue is attributable to a $15.3 million increase in mobile revenue, a $5.7 million increase in web revenue, and a $0.6 million increase in cross platform revenue. We believe the increase in mobile revenue is primarily due to increased mobile advertising impressions and increased in-app purchases resultingwindfall tax benefit from the Skout and if(we) acquisitions, and the increased web revenue is primarily due to user generated revenue and subscription revenue from the if(we) acquisition.

Operating Costs and Expenses

Sales and Marketing: Sales and marketing expenses increased approximately $4.2 million, or 74.9%, to $9.7 million for the six months ended June 30, 2017 from $5.5 million for the six months ended June 30, 2016. The net increase in sales and marketing expenses, including the Skout and if(we) sales and marketing related expense, is due to increased advertising spend of approximately $3.6 million, and increased employee expenses of approximately $0.4 million. The increase in employee expenses is primarily due to the Skout and if(we) acquisitions.

Product Development and Content: Product development and content expenses increased approximately $13.1 million, or 109.6%, to $25.0 million for the six months ended June 30, 2017 from $11.9 million for the six months ended June 30, 2016. The net increase in product development and content expense, including the Skout and if(we) product development related expense, is attributable to an increase of employee expenses of $5.4 million, data center and technical operations of $3.3 million, stock-based compensation of $1.2 million, mobile content cost of $0.9 million, and Social Theater content costs of $0.7 million. The increase in employee expenses, data center and technical operations, stock-based compensation, and mobile content costs is attributable to the Skout and if(we) acquisitions. The increase in Social Theater content costs is due to increased Social Theater revenue.

General and Administrative: General and administrative expenses increased $3.8 million or 90.3%, to $8.0 million for the six months ended June 30, 2017 from $4.2 million for the six months ended June 30, 2016. The net increase in general and administrative expense, including the Skout and if(we) general and administrative related expense, is primarily due to an increase of employee expenses of $1.2 million, stock-based compensation of $0.6 million, office related expenses of $0.4 million, professional fees of


$0.4 million, business and franchise taxes of $0.4 million and travel related costs of $0.2 million. These increases are attributable primarily to the Skout and if(we) acquisitions.

Comparison of Stock-Based Compensation and Other Costs and Expenses

Stock-Based Compensation

Stock-based compensation expense, included in the operating expense by category, increased approximately $1.9 million to $3.5 million for the six months ended June 30, 2017 from $1.6 million for the six months ended June 30, 2016. Stock-based compensation expense represented 7% of operating expenses for both the six months ended June 30, 2017 and 2016.

As of June 30, 2017, there was approximately $7.6 million and $12.2 million of unrecognized compensation cost related to stock options and unvested restricted stock awards, respectively, which is expected to be recognized over a period of approximately two years.

 Six Months Ended June 30, Change from Prior Year
 2017 2016 ($)
Sales and marketing$202,304
 $155,732
 $46,572
Product development and content1,930,043
 707,653
 1,222,390
General and administrative1,370,003
 779,967
 590,036
Total stock-based compensation expense$3,502,350
 $1,643,352
 $1,858,998

Depreciation and Amortization Expense

Depreciation and amortization expense was $4.7 million and $1.5 million for the six months ended June 30, 2017 and 2016, respectively. The increase in depreciation and amortization expense is primarily attributable to the amortization of intangibles related to the Skout and if(we) acquisitions.

Acquisition and Restructuring Costs

Acquisition and restructuring costs were approximately $5.3 million and $1.2 million for the six months ended June 30, 2017 and 2016, respectively. Acquisition and restricting costs include the transaction costs including legal and diligence costs for the acquisition of if(we), the accrual of the exit cost of non-cancellable leases and employee exit and relocation costs. The Company paid approximately $1.7 million in transaction costs in connection with the acquisition of if(we) in the six months ended June 30, 2017.

Benefit from Income Taxes

Benefit from income taxes was $2.7 million and $27.1 million for the six months ended June 30, 2017 and 2016, respectively. Our annual effective tax rate (“ETR”) for six months ended June 30, 2017 was 41.11%, which is higher than the effective tax rate for the six months ended June 30, 2016 due to the stock based compensation tax deductions in excess of book expense and an increase in permanent differences, mainly transaction costs, related to the recent acquisition of if(we). The ETR is also higher due to the release of the entire valuation allowance in 2016.compensation.

Liquidity and Capital Resources

Six Months Ended June 30,Three Months Ended March 31,
2017 20162018 2017
Net cash provided by operating activities$16,662,265
 $10,311,169
$7,435,472
 $8,687,879
Net cash used in investing activities(66,397,918) (494,744)(172,642) (150,510)
Net cash provided by financing activities60,647,858
 2,920,019
Net cash (used in) provided by financing activities(3,915,917) 44,138,904
$10,912,205
 $12,736,444
$3,346,913
 $52,676,273

Net cash provided by operations was approximately $16.7$7.4 million for the sixthree months ended June 30, 2017March 31, 2018 compared to approximately $10.3$8.7 million for the sixthree months ended June 30, 2016.March 31, 2017.

For the sixthree months ended June 30, 2017,March 31, 2018, net cash provided by operations consisted primarily of net incomeloss of approximately $1.3$4.2 million adjusted for certain non-cash expenses of approximately $4.7$3.6 million of depreciation and amortization expense and $3.5$2.2 million related to stock based compensation for the vestingexpense, offset by approximately $0.5 million of stock options.deferred taxes. Additionally, changes in working capital increased the net cash provided by operations. These changes included decreases in accounts receivable of approximately $5.9$6.0 million resulting from collections and decreasesincreases of $1.6$0.7 million in deferred revenue, offset by an increase of $0.8 million in prepaid expenses, and other current assets and other assets.

Net cash used in investing activities in the sixthree months ended June 30, 2017 ofMarch 31, 2018 was primarily due to the acquisitionapproximately $0.2 million of if(we) of $65.8 million, net of cash and restricted cash acquired, as well as approximately $0.6 million due to capital expenditures for computer equipment to increase capacity and improve performance.

Net cash provided byused in financing activities in the sixthree months ended June 30, 2017March 31, 2018 of approximately $60.6$3.9 million was due to approximately $43.0 million of proceeds from a common stock offering, $15.0 million of proceeds from debt, $2.8 million from the exercise of stock options and $2.4 million from the exercise of warrants. These increases in cash were partially offset by $1.9$3.8 million payments of debt, $0.5$0.1 million of payments for restricted stock awards withheld for taxes and $0.1 million of capital lease payments.

June 30,
2017		 December 31,
2016		March 31,
2018		 December 31,
2017
Cash and cash equivalents$32,252,734
 $21,852,531
$27,969,456
 $24,158,444
Total assets$278,274,133
 $209,489,484
$272,552,144
 $275,344,771
Percentage of total assets11.6% 10.4%10.3% 8.8%

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 June 30, 2017,March 31, 2018, we had positive working capital of approximately $33.3$4.8 million. 

DuringOn March 3, 2017, in connection with the six months ended June 30,acquisition of if(we), we entered into a Credit Agreement with the several banks and other financial institutions party thereto and JPMorgan Chase Bank, N.A., the Agent. The Credit Agreement provided for a Revolving Credit Facility of $15.0 million and a Term Loan Facility of $15.0 million. On April 3, 2017, we drew down $15.0 million from our Term Loan Facility in connection with the if(we) Acquisition. On September 18, 2017, we paid in full the outstanding balance on the Term Loan Facility.

On September 18, 2017, in connection with the Lovoo Acquisition, as discussed in Note 2—Acquisitions, we entered into an Amended and Restated Credit Agreement with the several banks and other financial institutions party thereto and JPMorgan Chase Bank, N.A., as the Agent, amending and restating the Credit Agreement, dated March 3, 2017. The Amended and Restated Credit


Agreement provides a New Revolving Credit Facility for $20.0 million and a New Term Loan Facility of $60.0 million. On October 18, 2017, the we drew down $60.0 million from its New Term Loan Facility in connection with the Lovoo Acquisition. Fees and direct costs incurred for the New Credit Facilities were $0.6 million and are offset against long-term debt on the accompanying balance sheet as of March 31, 2018.

We intend to use the proceeds of the New Revolving Credit Facility to finance working capital needs and for general corporate purposes. Amounts under the New Revolving Credit Facility may be borrowed, repaid and re-borrowed from time to time until the maturity date of the Credit Agreement on September 18, 2020. The New Term Loan Facility is subject to quarterly payments of principal in an amount equal to $3,750,000 commencing December 31, 2017 and continuing through maturity. At the Company’s election, loans made under the New Credit Facilities will bear interest at either (i) Base Rate plus an applicable margin or (ii) LIBO Rate plus an applicable margin, subject to adjustment if an event of default under the Amended and Restated Credit Agreement has occurred and is continuing. The Base Rate means the highest of (a) the Agent’s “prime rate,” (b) the federal funds effective rate plus 0.50% and (c) the LIBO Rate for an interest period of one month plus 1%. The Company’s Guarantors will guarantee the obligations of the Company and its subsidiaries under the New Credit Facilities. The obligations of the Company and its subsidiaries under the New Credit Facilities are secured by all of the assets of the Company and the Guarantors, subject to certain exceptions and exclusions as set forth in the Amended and Restated Credit Agreement and other loan documents. On March 7, 2018, the Company entered into an amendment to the Amended and Restated Credit Agreement, that among other things, amends the definition of “Applicable Rate” and “EBITDA” and makes certain changes to the financial covenants. See Note 6—Long-Term Debtfor details on an amendment to the Amended and Restated Credit Agreement.

As of March 31, 2018, we had an outstanding balance of $52.5 million on our New Term Loan Facility. The weighted average interest rate at March 31, 2018 was 4.68%. Remaining unamortized fees and direct costs incurred for our Credit Facilities were $0.5 million. As of March 31, 2018, the Company did not have an outstanding balance on its Revolving Credit Facility.

We did not enter into any additionalnew capital leases.lease agreements for the three months ended March 31, 2018. As of June 30, 2017,March 31, 2018, capital leases that were previously entered intoassumed in connection with the Lovoo Acquisition had approximately $0.1$0.4 million in principal amount of capital lease indebtedness, all of which isare due in the remainder of 2017.

We believe that with its current available cash, anticipated revenues and collections on its accounts receivables and its access to capital through various financing options, the Company will have sufficient funds to meet its anticipated cash needs for at least the next 12 months from the date of this filing.by 2021.

We have budgeted capital expenditures of approximately $3.4$1.2 million for the remainder of 2017,2018, which we believe will support our growth of domestic and international business through increased capacity, performance improvement and expanded content.

Off-Balance Sheet Arrangements

As of June 30, 2017,March 31, 2018, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.



Non-GAAP - Financial Measure

The following discussion and analysis includes both financial measures in accordance with GAAP, as well as adjustedAdjusted EBITDA, which is a non-GAAP financial measure. 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 our historical operating results nor are they 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 stockholders benefit from referring to adjustedAdjusted EBITDA in planning, forecasting, and analyzing future periods. We use this non-GAAP financial measure in evaluating our financial and operational decision making and as a means to evaluate period-to-period comparison.

We define Adjusted EBITDA as earnings (or loss) from operations before interest expense, benefit or provision for income taxes, depreciation and amortization, stock-based compensation, changes in warrant obligations, nonrecurring acquisition, restructuring or other expenses, gain or loss on cumulative foreign currency translation adjustment, gains on sales of assets, bad debt expense outside the normal range, and goodwill and long-lived asset impairment charges, if any. We exclude stock-based compensation because it is non-cash in nature. We believe Adjusted EBITDA is an important measure of our operating performance because it allows management, investors, and analysts to evaluate and assess our core 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. We recognize that Adjusted EBITDA has inherent limitations because of the excluded items.

We have included a reconciliation of our net (loss) income, which is the most comparable financial measure calculated in accordance with GAAP, to Adjusted EBITDA. We believe that providing this non-GAAP financial measure, together with the reconciliation from GAAP, helps investors make comparisons between us 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 measure and the corresponding GAAP measure provided by each company under applicable SEC rules.

The following table presents a reconciliation of net income, a GAAP financial measure, to Adjusted EBITDA:

Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
ADJUSTED EBITDA2017 2016 2017 20162018 2017
Net income$856,595
 $29,618,389
 $1,302,441
 $31,973,286
Net (loss) income$(4,212,661) $445,846
Interest expense175,254
 5,360
 177,586
 12,105
607,686
 2,332
Change in warrant liability—
 787,391
 —
 545,614
Benefit from income taxes(2,732,356) (27,219,764) (2,732,064) (27,125,446)
Income tax (benefit) expense(252,187) 292
Depreciation and amortization2,965,175
 753,918
 4,650,014
 1,505,182
3,629,603
 1,684,839
Stock-based compensation expense2,368,192
 915,572
 3,502,350
 1,643,352
2,168,925
 1,134,158
Acquisition and restructuring3,769,425
 1,160,349
 5,269,854
 1,160,349
3,349,951
 1,500,429
Loss (gain) on foreign currency adjustment9,229
 (18,201) 11,429
 (34,553)
(Gain) loss on foreign currency transactions(103,043) 2,200
ADJUSTED EBITDA$7,411,514
 $6,003,014
 $12,181,610
 $9,679,889
$5,188,274
 $4,770,096

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. Our cash balance as of June 30, 2017March 31, 2018 was held in insured depository accounts, of which $30.0$22.8 million exceeded insurance limits.




Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Controls Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2017,March 31, 2018, noted during the evaluation of controls as of the end of the period covered by this report, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, exceptreporting.

Beginning January 1, 2018, we implemented ASC Topic 606, “Revenue from Contracts with Customers.” Although the new revenue standard had an immaterial impact on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies and updates to existing control activities based on the five-step model provided in the new revenue standard, ongoing contract review requirements, and gathering of information provided for the acquisition of if(we).disclosures.

Limitations on the Effectiveness of Controls 

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The Company’s management, including its Principal Executive Officer and its Principal Financial Officer, do not expect that the Company’s disclosure controls will prevent or detect all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. There are currently no such pending proceedings to which we are a party that our management believes will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods. See Note 7-7— Commitments and Contingencies to the unaudited condensed consolidated financial statements contained in this report for information on specific matters.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 20162017 filed with the SEC on March 9, 2017 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 include16, 2018 includes detailed discussions of our risk factors under the headings “Part I, Item 1A. Risk Factors” and “Part II, Item 1A. Risk Factors” respectively. You should carefully consider the risk factors discussed in our Annual Report on Form 10-K and Quarterly Report on Form 10-Q, as well as the other information in this report, which could materially harm our business, financial condition, results of operations, or the value of our common sharesshares.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information

Not applicable.



Item 6. EXHIBITS

          
Filed or
Furnished
Herewith
    Incorporated by Reference 
Exhibit No. Exhibit Description Form Date Number 
           
31.1
 Certification of Principal Executive Officer (Section 302)       Filed
31.2
 Certification of Principal Financial Officer (Section 302)       Filed
32.1
 Certification of Principal Executive Officer (Section 906)       Furnished*
32.2
 Certification of Principal Financial Officer (Section 906)       Furnished*
101.INS XBRL Instance Document       **
101.SCH XBRL Taxonomy Extension Schema Document       **
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document       **
101.DEF XBRL Taxonomy Extension Definition Linkbase Document       **
101.LAB XBRL Taxonomy Extension Label Linkbase Document       **
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document       **

* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

** Attached as Exhibit 101 to this report are the Company’s financial statements for the quarter ended June 30, 2017March 31, 2018 formatted in XBRL (eXtensible Business Reporting Language). The XBRL-related information in Exhibit 101 in this report shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of those sections.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 

 THE MEET GROUP, INC.
   
August 4, 2017May 7, 2018By:/s/Geoffrey Cook
  Geoffrey Cook
  Chief Executive Officer
  (Principal Executive Officer)
   
August 4, 2017May 7, 2018By:/s/ David ClarkJames Bugden
  David ClarkJames Bugden
  Chief Financial Officer
  (Principal Financial Officer)


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