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

In this Report, the terms "Company," "we," "us" and "our" refer to Grandparents.com, Inc. and its subsidiaries, unless the context otherwise requires. In addition, the term "Annual Report" refers to the Company's Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the SEC on April 16, 2013.

The following discussion and analysis is based on, should be read with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes thereto included in this Report. The following discussion and analysis should also be read in conjunction with the disclosure under "Cautionary Note Regarding Forward-Looking Statements" and the risk factors contained in our Annual Report.

   Our Business   

Our website, www.grandparents.com, is a family-oriented social media website with a core mission of enhancing relationships between the generations and enriching the lives of grandparents by providing tools to foster connections among grandparents, parents, and grandchildren. We primarily target the approximately 70 million grandparents in the U.S., but we also target the approximately 50 million "boomers" and seniors that are not grandparents. We believe that our website is one of the leading online communities for our market and that our website is the premier social media platform targeting active, involved grandparents. As of the date of this Report, our website now has nearly 2 million registered members with approximately 890,000 unique monthly visits according to Google Analytics. In addition to operating our website, we plan to offer and sell Medicare and other insurance products.

Like most developing companies, we face substantial financial challenges. We continue to focus on creating more significant revenue opportunities in the insurance area, advertising and e-commerce. Although we have not been able to generate significant revenue from these endeavors to date, we expect our efforts will begin to come to fruition in the future. While we have made a strong effort to reduce our overhead, we have incurred additional expenses in connection with our obligations under our strategic alliance agreements. We continue to seek capital to fund ongoing operations. Since the beginning of the fourth quarter of 2012, we raised $950,000 under a secured bridge loan, $450,000 pursuant to promissory notes (of which $250,000 was repaid), and an additional $400,000 on an unsecured basis from members of our Board of Directors and an advisor to the Company. In April 2013, we raised $475,000 from the issuance of our common stock to four accredited investors. Going forward, we will need to raise significant capital in order to successfully implement our business plans.

Revenue for the three months ended March 31, 2013 was $122,859, which reflected an increase of $56,065, or 83.9%, compared to revenue of $66,794 for the comparable period in 2012. Total operating expenses for three months ended March 31, 2013 decreased $1,897,555, or 41.7%, to $2,647,743 compared to $4,545,298 for the comparable period in 2012. The decrease in operating expenses during the three months ended March 31, 2013 was primarily attributable to that fact that we incurred $2,924,592 in transaction costs during the three months ended March 31, 2012 in connection with the asset contribution transaction described below, which were not present in the comparable 2013 period. In addition, a signification portion of our operating expenses for the three months ended March 31, 2013 was attributable to non-cash charges related to equity-based compensation.

We incurred net losses of $2,744,400 in the three months ended March 31, 2013 compared to $4,507,197 in the comparable period in 2012. During the three months ended March 31, 2013, we used $695,816 in cash for operating activities and $12,543 in cash for investing activities, offset by $650,000 in cash provided by financing activities. We had a working capital deficit of <money>$4,042,836 as of March 31, 2013.

Without additional capital from existing or outside investors or further financing, our ability to continue to implement our business plan may be limited. These conditions raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements included in this Report do not include any adjustments that might result from the outcome of this uncertainty.

    Grand Deals    

Our website features our "Grand Deals" program which offers discounts and other benefits to our members on a variety of consumer products and services including insurance, financial and other products and services provided by our marketing partners. The Grand Deals business model is similar to that of AARP Services, Inc., a marketing arm of AARP®. We seek to apply the AARP business model to our business by engaging marketing partners, particularly in the insurance and financial industries, in a strategic relationship in which our website will become a co-brand for marketing insurance and financial products. The lines we intend to market through our Grandparents Insurance Plans® division will include traditional insurance products with group discounts such as health, life, personal lines and specialty, and over time, we plan to develop and market family-oriented insurance products, with family discounts.

   13        Insurance   

We plan to offer and sell Medicare and other health insurance products offered by Humana through Grandparents Health Plans, LLC ("GHP"), which is 90% owned by us and operated as a joint venture with Denver Management Associates, Inc. We also plan to offer and sell all other insurance products through Grandparents Insurance Plans LLC, which is our wholly owned subsidiary, or one or more of our other wholly owned subsidiaries.

In January 2013, we entered into a strategic alliance agreement with Starr under which Starr agreed to provide certain services to the Company, including developing strategic business and investment relationships for the Company and providing business consulting services to the Company. In exchange for the services, the Company agreed to pay Starr a monthly fee of $80,000 during the term of the agreement, which commenced in March 2013, as well as fees to be agreed upon by the Company and Starr for Starr's arranging agreements with insurance companies. The initial term of the agreement extends until February 28, 2014 and will automatically renew for subsequent one-year periods each year thereafter unless either party terminates the agreement prior to the expiration of the then-current term.

In April 2013, we entered into an amendment to the strategic alliance agreement which provides for additional compensation payable to Starr in the form of a warrant to acquire up to 25% of the outstanding equity of the Company based on the number of shares of the Company's common stock outstanding as of January 8, 2013. The amendment provides that the warrant will vest as follows: (i) one-fourth of the warrant will vest upon issuance, and (ii) the unvested portion of the warrant will vest in three equal annual installments commencing on March 1, 2014, provided, that the unvested portion of the warrant will immediately cease to vest upon the termination or expiration of the strategic alliance agreement. The warrant has not yet been issued.

Pursuant to our Marketing and Distribution Agreement with Humana MarketPoint, Inc., Humana granted to GHP the right to offer and sell certain Medicare supplement, major medical, short term medical, term life, dental and vision insurance products as well as financial protection products in any area in which Humana is authorized under applicable law to sell and GHP is licensed under applicable law and appointed by Humana to sell the products. GHP will receive certain commissions from Humana on sales of the products. In addition, Humana will pay GHP administrative fees and/or overrides as consideration for certain administrative services performed by GHP. The agreement also provides that Humana is responsible for all service requirements and administration regarding issued products, including, but not limited to, claims processing, policy issuance, policy changes, pricing, and sales made through Humana's call center and websites. The agreement became effective on September 1, 2012 and has a term of three (3) years from that date. No commissions have been earned to date from Humana, however we expect that open-enrollment period commencing in October 2013 will be a significant opportunity to generate commissions.

   Grand Card ®   

In late 2011, the "Grand Card" was conceptualized as a member rewards program that will provide cash rebate benefits on a debit card when cardholders purchase pharmaceutical products and consumer goods and services offered participating merchants. In March 2013, Grand Card, LLC, our wholly owned subsidiary, entered into an alliance agreement with Cegedim, Inc. (U.S. subsidiary of Cegedim, S.A.) regarding the formation of an alliance for the purpose of developing the "Grand Card." Cegedim has developed proprietary processes and technologies which will be customized and adapted to the Grand Card for rebate programs.

Under the terms of the alliance agreement, Grand Card will act as primary marketer and lead contractor in concluding agreements and arrangements with participating sponsors and other customers and has primary responsibility for marketing and promotion of the programs, membership procurement and procurement of business partners and sponsors. Cegedim will act as the "back-end" provider and shall have primary responsibility for management of sponsor data and the related processing of rebate claims. Revenues derived from the alliance (after deduction for certain operating costs borne by the parties) shall be allocated 75% to Grand Card and 25% to Cegedim. The Agreement further provides that all costs for marketing and promoting will be borne by Grand Card and that all other costs and funding, subject to certain exceptions, shall be borne 75% by Grand Card and 25% by Cegedim. The terms of the Agreement also provide that Cegedim shall have an option to purchase a 25% ownership interest in Grand Card at any time within one year of the Effective Date, in which event each party will have equal voting rights over Grand Card and the business and operations of the Alliance will be conducted as an entity controlled 75% of by the Company and 25% by Cegedim.

   14        Grand Corps

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

Recent Capital Raising Activities

In December 2012 and January 2013, we issued an aggregate of $950,000 of our 12% secured convertible promissory notes (the "Existing Bridge Notes") and warrants to purchase an aggregate of 950,000 shares of our common stock (the "Existing Bridge Warrants") in a private offering. The Existing Bridge Notes accrue interest at the rate of 12% per annum and, unless previously prepaid or converted, principal and interest under the New Bridge Notes is payable on the earlier of (i) June 1, 2013, or (ii) the closing of an equity financing by the Company for gross cash proceeds to the Company of not less than $7,000,000. At the closing of an equity financing for $7,000,000, each holder of an Existing Bridge Note shall have the option of being repaid the principal and all accrued interest on such holder's Existing Bridge Note, or converting such holder's Existing Bridge Note (principal and interest) into the securities being offered in connection with such financing, provided that such holder shall be entitled to convert such holder's Existing Bridge Note based on a conversion price equal to a 25% discount to the offering price of the securities in the financing. If a holder of an Existing Bridge Note elects to convert in connection with a qualified financing, such holder will have the same registration rights as investors in such financing. The Existing Bridge Notes are secured by a first priority security interest in all assets of the Company and are jointly and severally guaranteed by Steven Leber, Joseph Bernstein and Dr. Robert Cohen (the "Existing Bridge Notes Guaranty"). The Company executed an indemnification in favor or Messrs. Leber, Bernstein and Dr. Cohen indemnifying them against losses incurred in connection with the Existing Bridge Notes Guaranty (the "Guaranty Indemnification Agreement"). Each Existing Bridge Warrant is exercisable for a period of five years from the date of issuance at an exercise price of $0.50 per shares. However, the number of shares for which an Existing Bridge Warrant is exercisable will be automatically reduced by 50% if such investor's Existing Bridge Note is repaid in full or if such investor does not convert such investor's Existing Bridge Note in connection with a Qualified Financing. The Company terminated this offering in February 2013.

In February 2013, we entered into a promissory note (each, a "February Note" and collectively, the "February Notes") with each of Steven Leber, the Company's Chairman and Co-Chief Executive Officer, Joseph Bernstein, the Company's Co-Chief Executive Officer, Chief Financial Officer and Treasurer, Dr. Robert Cohen, a member of the Company's Board of Directors, and Mel Harris, a current security holder and advisor to the Company evidencing loans made by each lender to the Company to fund operations. Each February Note was issued in the original principal amount of $100,000. Accordingly, the Company received an aggregate of $400,000 from the lenders upon issuance of the February Notes. The February Notes are unsecured, accrue interest at a rate of 10% per annum and mature on the earlier of March 1, 2014 or the closing of a single transaction (whether debt, equity or a combination of both) that results in aggregate gross proceeds to the Company of $10,000,000. In connection with the issuance of the February Notes, the Company issued to each lender a five-year warrant to purchase 100,000 shares of the Company's common stock at an exercise price of $0.50 per share. The February Notes will convert into securities issued in the Company's Current Offering, as described below, at a conversion price equal to the price per such securities paid by the other investors in the Current Offering. The Company may not prepay the February Notes without the holder's consent.

In April 2013, the Company sold 1,900,000 shares of common stock at a price per share of $0.25 in separate private transactions with four accredited investors for an aggregate purchase price of $475,000. In connection with such sales, the Company issued five-year warrants to purchase an aggregate of 475,000 shares of common stock at an exercise price of $0.25 per share.

The Company is in the process of commencing a private offering (the "Current Offering") of up to $7.5 million of units, each consisting of a 12% convertible promissory note in the principal amount of $50,000 (collectively, the "New Bridge Notes") and a five-year warrant to purchase 50,000 shares of the Company's common stock at an exercise price of $0.50 per share (collectively, the "New Bridge Warrants"). The New Bridge Notes will accrue interest at the rate of 12% per annum and, unless previously prepaid or converted, principal and interest under the New Bridge Notes is payable on the earlier of (i) June 1, 2014 or (ii) the closing of an equity financing by the Company for gross cash proceeds to the Company of not less than $10,000,000. At the closing of an equity financing for $10,000,000, each holder of a New Bridge Note shall have the option of being repaid the principal and all accrued interest on such holder's New Bridge Note, or converting such holder's New Bridge Note (principal and interest) into the securities being offered in connection with such financing, provided that such holder shall be entitled to convert such holder's New Bridge Note based on a conversion price equal to a 25% discount to the offering price of the securities in the financing. If a holder of a New Bridge Note elects to convert in connection with a qualified financing, such holder will have the same registration rights as investors in such financing. Proceeds from this offering are expected to be used, in part, to repay the Existing Bridge Notes to the extent the same are not previously repaid or converted. Upon repayment or conversion of the Existing Bridge Notes, the New Bridge Notes will become secured by a first priority security interest in all assets of the Company. The Company does not contemplate that the New Bridge Notes will be guaranteed. Each New Bridge Warrant will be exercisable for a period of five years from the date of issuance at an exercise price of $0.50 per shares. We have not raised any capital from the Current Offering as of the date of this Report and there can be no guarantee that we will be able to do so. Even if we are able to raise capital from the Current Offering, the proceeds may not be sufficient to fund our operating needs for an extended period, particularly if we raise less than the maximum amount offered.

   15        Sources of Revenue   

Historically, we have generated revenue through the sale of advertisements on our website. We intend to expand our revenue sources to include commissions, fees or royalties on offerings by our insurance, financial services and other marketing partners.

We expect that Grand Deals, particularly insurance and financial products, will be our primary revenue source in the future. However, as of the date of this Report, we have not yet generated any revenue from this program. In 2011, in order to accelerate the buildup of marketing partners, we accepted pilot programs and waived revenue sharing arrangements. Through this pilot program, we attracted more than 300 marketing partners as of the date of this Report. As we build our membership base, we will seek to enter into revenue sharing arrangements with existing and new marketing partners. We expect that each revenue sharing arrangement will be negotiated based on the category of the product and service and the accompanying discount or benefits offered to our members.

As discussed above, we entered into a Strategic Alliance Agreement with Starr and GHP entered into a Marketing and Distribution Agreement with Humana. However, we have not received any revenue to date with respect to these agreements nor can there be any guarantee that we will be able to do so. Even if we are able to generate revenue, such revenue may be limited in the near term. Furthermore, there can be no guarantee that we will be able to enter into similar agreements or other revenue arrangements with other insurance, financial services or other marketing partners or that, if we are, the terms of such arrangements will be on terms advantageous to us. To the extent we are able to enter into such agreements, revenues, if any, from such arrangements may be limited in the near term.

In addition, we hope to derive revenue from the Grand Card. However, the can be no guarantee that we will be able to further develop this concept or, that if we are able to do so, that we will be able to generate significant revenue from it.

Certain Factors Affecting our Performance

In addition to the risk factors discussed in our Annual Report, we consider the following to be significant factors affecting our future performance and financial results.

Our Ability to Attract and Retain Members.We must attract and retain members in order to increase revenue and achieve profitability. We expect revenue to be generated in part from the purchase of products and services by our members and advertisements on our website. If we are unable to attract and retain members, we may not be able to attract marketing and commercial sponsors or advertisers to our website.

Volatility or Declines in Insurance Premiums. Our insurance business will derive revenue from commissions and fees from its insurance agency and brokerage services. Commission and fees are based, in part, on a percentage of insurance premiums paid by customers for insurance products. Accordingly, such commissions are dependent on insurance premium rates charged by insurance companies. Insurance premiums are cyclical in nature and may vary widely based on market conditions. Our brokerage revenues and profitability can be volatile or remain depressed for significant periods of time. In addition, insurance companies may seek to further minimize their expenses by reducing the commission rates payable to insurance agents or brokers. The reduction of these commission rates, along with general volatility and/or declines in premiums, may significantly affect our margins.

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

Competition. We compete with companies in the social networking industry such as Facebook, Twitter and Google and other companies that specifically target the age 50+ market, in particular AARP. These competitors compete with us for visitor traffic, members, advertising dollars and partners, including marketing and commercial sponsors, and many of our competitors have competitive advantages over us. It is also possible that new competitors may emerge and acquire significant market share. In addition, the insurance intermediary business in which our insurance business operates is highly competitive and numerous firms actively compete for customers and insurance partners.

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Additional Financing. To effectively implement our business plan, we need to obtain additional financing. If we obtain financing, we would expect to accelerate our business plan and increase our advertising and marketing budget, hire additional staff members and increase our office space and operations all of which we believe would result in the generation of revenue and development of our business. Inability to obtain additional financing may delay the implementation of our business plan and may cause us to reduce our budget and capital expenditures.

Asset Contribution Transaction

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

Simultaneously with the closing of the Transaction, we entered into a Securities Purchase Agreement with certain accredited investors for the issuance and sale in a private placement (the "February Private Placement") of 3,000,000 shares of the Company's Series B Convertible Preferred Stock for aggregate gross proceeds to the Company of $3,000,000. On May 9, 2012, we amended our Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of our capital stock to 155,000,000, consisting of 150,000,000 shares of common stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01 per share. Upon filing the amendment, the one share of the Company's Series A Convertible Preferred Stock issued to GP.com LLC pursuant to the Transaction automatically converted into 55,887,491 shares of common stock and the 3,000,000 shares of the Company's Series B Convertible Preferred Stock issued to the purchasers in the February Private Placement automatically converted into 12,897,172 shares of common stock.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including, among others, those affecting revenue, the allowance for doubtful accounts, and the useful lives of tangible and intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates.

We have identified below some of our accounting policies that we consider critical to our business operations and the understanding of our results of operations. For detailed information and discussion on our critical accounting policies and estimates, see our financial statements and the accompanying notes included in this Report. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed below and elsewhere in this Report. We do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances. See "Cautionary Note Regarding Forward-Looking Statements" contained in this Report.

Included in our Annual Report, we identified four of our accounting policies that we consider critical to our business operations and an understanding of our results of operations:

     · revenue recognition;   

· fair value of measurements;

· equity-based compensation; and

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· impairment of long-lived assets.

We included in our Annual Report a brief discussion of some of the judgments, estimates and uncertainties that can impact the application of these policies and the specific dollar amounts reported on our financial statements. This is neither a complete list of all of our accounting policies, nor does it include all the details surrounding the accounting policies we identified, and there are other accounting policies that are significant to us. For detailed information and discussion on our critical accounting policies and estimates, see our financial statements and the accompanying notes included in this Report and in our Annual Report. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed below and elsewhere in this Report and in our Annual Report. We do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances. See "Cautionary Note Regarding Forward-Looking Statements" contained in this Report.

Certain amounts in the 2012 condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current period condensed consolidated financial statements. These reclassifications had no effect on previously reported results.

Results of Operations for Three-Month Periods Ended March 31, 2013 and 2012

   Revenue   

Revenue for the three months ended March 31, 2013 increased $56,065, or 83.9%, to $122,859 compared to $66,794 for the comparable period in 2012. Revenue for each period was derived solely from advertisements on our website. The increase in revenue for the current year period was due to two advertising contracts which were not in place in the prior year period.

   Operating Expenses   

Total operating expenses for the three months ended March 31, 2013 decreased $1,897,555, or 41.7%, to $2,647,743 compared to $4,545,298 for the comparable period in 2012.

Selling and marketing. Selling and marketing expense increased $47,503, or 116.6%, to $88,229 for the three months ended March 31, 2013 compared to $40,726 for the comparable period in 2012. In the three months ended March 31, 2013, we significantly increased our marketing expenditures in order to attract new members to our website.

Salaries. Salary expense increased $115,599, or 30.7%, to $492,007 for the three months ended March 31, 2013 compared to $376,408 for the comparable period in 2012. The increase was primarily due to salary paid to our executive officers. In connection with the closing of the Transaction, we entered into employment agreements with each of Messrs. Leber and Bernstein which provide for a monthly salary of approximately $18,750. Prior to the closing of the Transaction, GP.com LLC did not pay salary directly to Messrs. Leber or Bernstein and instead paid a monthly management fee to an entity controlled by Messrs. Leber and Bernstein. As discussed below, payment of the monthly management fee ceased upon closing of the Transaction. In addition, the increase in salary expense for the three months ended March 31, 2013 was partially due to salary paid to an officer who was not an employee of the Company during the comparable period in 2012. Salary expense for the three months ended March 31, 2013 includes $118,750 in salary deferred during the period by members of management.

Rent. Rent expense increased $1,025, or 2.5%, to $42,025 for the three months ended March 31, 2013 compared to $41,000 for the comparable period in 2012.

Accounting, legal, and SEC Filing Fees.Accounting, legal, and SEC filing expense decreased $182,208, or 57.7%, to $133,683 for the three months ended March 31, 2013 compared to $315,891 for the comparable period in 2012. We incurred significant legal, compliance and accounting expenses in the first three months of 2012 in connection with the Transaction, our capital raising activities and by virtue of being a public company.

Consulting. Non-recurring consulting expense was $155,835 for the three months ended March 31, 2013 compared to $70,825 for the comparable period in 2012. The increase was due in part to consulting fees paid in March 2013 pursuant to the alliance agreement with Starr.

Equity-based compensation. Equity-based compensation expense increased $1,161,002, or 553.7%, to $1,378,548 for the three months ended March 31, 2013 compared to $217,546 for the comparable period in 2012. The increase was comprised primarily of a charge of $802,500 incurred in connection with the issuance of warrants for services rendered during the period. The increase also relates to recurring charges incurred in connection with equity awards granted during fiscal 2012 under our 2012 Stock Incentive Plan which are expensed over the life over the grant.

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At March 31, 2013, GP.com LLC had outstanding options to purchase 466,667 Class A units of GP.com LLC under its 2010 Stock Option Plan. In addition, GP.com LLC had outstanding warrants to purchase 437,500 Class A units of GP.com LLC. Since the employees and consultants to whom these options and warrants were granted continue to provide services to the Company, the Company continued to record an equity compensation charge of $28,582 for the three months ended March 31, 2013.

At March 31, 2013, there were 300,000 options outstanding under our 2005 Stock Incentive Plan. In accordance with the terms of the Contribution Agreement, these options became fully vested and exercisable as of February 23, 2012, the closing date of the Transaction. Due to the immediate vesting provision, and since these employees no longer provide services to us, we recorded a charge in the amount of $98,190 during the three months ended March 31, 2012. There is no remaining unrecognized compensation charge related to these options and therefore no such charge was recorded for the comparable period in 2013.

Management fees. We had no management fees expense for the three months ended March 31, 2013 compared to $100,000 for the comparable period in 2012. GP.com LLC paid a management fee to an entity controlled by Messrs. Leber and Bernstein for management services provided to GP.com LLC prior to the closing of the Transaction. Two payments of $50,000 each were payable in 2012 prior to the Transaction. The payments ceased upon the closing of the Transaction.

Transaction costs. We incurred $2,924,592 in transaction costs for the three months ended March 31, 2012 due to the issuance of warrants to our investment banking advisor in connection with the Transaction. There were no transaction costs for the comparable period in 2013.

Other general and administrative.Other general and administrative expense decreased $118,489, or 47.8%, to $129,275 for the three months ended March 31, 2013 compared to $247,764 for the comparable period in 2012. During the first three months of 2013, we implemented a cost-cutting program and consolidated certain operations which resulted in a decrease in other general and administrative expenses. The decrease was primarily attributable to decreases in insurance expense, commissions paid on advertising sales and other miscellaneous expenses.

Depreciation and amortization. Depreciation and amortization increased $17,595, or 8.4%, to $228,141 for the three months ended March 31, 2013 compared to $210,546 for the comparable period in 2012.

   Other Expense   

We had other expense of $219,516 for the three months ended March 31, 2013 compared to other expense of $14,428 for the comparable period in 2012, an increase of $205,088 or 1421.5%. Other expense for the three months ended March 31, 2013 was primarily attributable to $219,538 of interest expense, offset by interest income. For the comparable period in 2012, interest expense was $20,922, offset by interest income of $3,226 and other income of $3,268.

   Loss from Operations   

Loss from operations for the three months ended March 31, 2013 was $2,744,400 compared to $4,492,932 for the comparable period in 2012.

Preferred Return Expense

Preferred return expense was $14,265 for the three months ended March 31, 2012, which reflects preferred returns payable by GP.com LLC prior to the closing of the Transaction with respect to its Class A Preferred units. There was no preferred return expense for the comparable period in 2013.

   Net Loss   

Net loss for the three months ended March 31, 2013 was $2,744,400, or $0.03 per share, compared to $4,507,197, or $0.27 per share, for the comparable period in 2012.

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Liquidity and Capital Resources

As of March 31, 2013, we had unrestricted cash of $190,757. We expect to finance our operations over the next twelve months primarily through our existing cash and our operations and offerings of our equity or debt securities or through bank financing. However, our operations have not yet generated positive cash flows. To effectively implement our business plan, we will need to obtain additional financing. If we obtain financing, we would expect to accelerate our business plan and increase our advertising and marketing budget, hire additional staff members and increase our office space and operations all of which we believe would result in the generation of revenue and development of our business. We cannot be certain that financing will be available on acceptable terms, or available at all. To the extent that we raise additional funds by issuing debt or equity securities or through bank financing, our stockholders may experience significant dilution. If we are unable to raise funds when required or on acceptable terms, we may have to significantly scale back, or discontinue, our operations.

   Capital Raising Efforts   

In December 2012 and January 2013, we raised $950,000 in connection with the issuance of the Existing Bridge Notes. The Existing Bridge Notes accrue interest at a rate of 12% per annum and mature on the earlier to occur of June 1, 2013 or the consummation of an equity financing for gross proceeds to the Company of $7,000,000. The Existing Bridge Notes are secured by a first priority security interest in all of the Company's assets and are guaranteed by Messrs. Leber and Bernstein and Dr. Cohen.

In February 2013, we borrowed an aggregate of $400,000 from Messrs. Leber and Bernstein, Dr. Cohen and Mel Harris, a current security holder and advisor to the Company, as evidenced by the February Notes. The February Notes accrue interest at a rate of 10%, are unsecured, and mature on the earlier of March 1, 2014 or the closing of a single transaction (whether debt, equity or a combination of both) that results in aggregate gross proceeds to the Company of $10,000,000. The February Notes will automatically convert into securities issued in the Company's Current Offering, as described below.

In April 2013, the Company sold 1,900,000 shares of common stock at a price per share of $0.25 in separate private transactions with four accredited investors for an aggregate purchase price of $475,000. In connection with such sales, the Company issued five-year warrants to purchase an aggregate of 475,000 shares of common stock at an exercise price of $0.25 per share.

The Company is in the process of commencing a private offering (the "Current Offering") of up to $7.5 million of units consisting of New Bridge Notes and New Bridge Warrants. The New Bridge Notes will accrue interest at the rate of 12% per annum will mature on the earlier of June 1, 2014 or the consummation of an equity financing for gross proceeds to the Company of $10,000,000. Proceeds from this offering are expected to be used, in part, to repay the Existing Bridge Notes to the extent the same are not repaid or converted. Upon repayment or conversion of the Existing Bridge Notes, the New Bridge Notes will become secured by a first priority security interest in all assets of the Company. The Company does not contemplate that the New Bridge Notes will be guaranteed. We have not raised any capital from the Current Offering as of the date of this Report and there can be no guarantee that we will be able to do so. Even if we are able to raise capital from the Current Offering, the proceeds may not be sufficient to fund our operating needs for an extended period, particularly if we raise less than the maximum amount offered.

   Outstanding Indebtedness   

As noted above, $950,000 in principal amount is outstanding under the Existing Bridge Notes, which are due on June 1, 2013, $200,000 in principal amount is outstanding under a $200,000 promissory note issued in November 2012, which is due on July 1, 2013, and $400,000 is outstanding under the February Notes, which we expect will convert into New Bridge Notes in connection with the Current Offering.

In addition, pursuant to the Contribution Agreement, we entered into promissory notes with respect to certain liabilities of GP.com LLC that we assumed in connection with the Transaction. Specifically, we entered into the following promissory notes:

· Amended and Restated Promissory Note in favor of Steven E. Leber, a Managing

   Director of GP.com LLC and current Chairman and Co-Chief Executive Officer of    the Company, in the principal amount of $78,543 (the "Leber Note"). The Leber    Note reflects amounts outstanding under a promissory note previously issued by    GP.com LLC to Mr. Leber and a revolving note issued by GP.com LLC to Mr. Leber    and Joseph Bernstein that we assumed in connection with the Transaction.    

· Amended and Restated Promissory Note in favor of Joseph Bernstein, a Managing

Director of GP.com LLC and current Director, Co-Chief Executive Officer, Chief

Financial Officer and Treasurer of the Company, in the principal amount of

$78,543 (the "Bernstein Note"). The Bernstein Note reflects amounts outstanding

under a promissory note previously issued by GP.com LLC to Mr. Bernstein and a

revolving note issued by GP.com LLC to Messrs. Leber and Bernstein that we

assumed in connection with the Transaction.

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· Amended and Restated Promissory Note in favor of Meadows Capital, LLC

   ("Meadows"), an entity controlled by Dr. Robert Cohen, a Managing Director of    GP.com LLC and a current Director of the Company, in the principal amount of    $308,914 (the "Meadows Note"). The Meadows Note reflects amounts outstanding    under promissory notes previously issued by GP.com LLC to Meadows that we    assumed in connection with the Transaction.    

· Promissory Note in favor of LBG in the principal amount of $612,500 (the "LBG

   Note"). The LBG Note reflects the amount of accrued but unpaid management fees    of GP.com LLC payable to LBG that we assumed in connection with the    Transaction.    

The Leber Note, the Bernstein Note, the Meadows Note and the LBG Note are collectively referred to herein as the "Initial Promissory Notes." The Initial Promissory Notes accrue interest at the rate of 5% per annum and mature upon the earlier of (i) the Company having EBITDA of at least $2,500,000 as reflected on its quarterly or annual financial statements filed with the SEC, or (ii) the Company closing a financing with gross proceeds to the Company of at least $10 million. Payment of the Initial Promissory Notes is guaranteed by GP.com LLC. In addition, payment of the Meadows Note is guaranteed by Messrs. Leber and Bernstein. The Leber Note, Bernstein Note and LBG Note are subordinate in right of payment to the Meadows Note and rank pari passu with each other. The Meadows Note is secured by a first priority security interest in the assets of GP.com LLC. Other than the Meadows Note, none of the Initial Promissory Notes are secured.

Cash Flow    Net cash flow from operating, investing and financing activities for the periods below were as follows:                                              March 31,                                      2013           2012 Cash provided by (used in): Operating activities              $ (695,816 )$  (944,136 ) Investing activities                 (12,543 )             - Financing activities                 650,000       4,184,547

Net (decrease) increase in cash $ (58,359 )$ 3,240,411

Cash Used In Operating Activities

For the three months ended March 31, 2013, net cash used in operating activities of $695,816 consisted of net loss of $2,744,400, offset by $170,123 in changes in amortization of warrants related to bridge notes payable, $228,141 in adjustments for depreciation and amortization expense, $1,378,548 in adjustments for equity-based compensation expense and $271,772 in cash provided by changes in working capital and other activities.

For the three months ended March 31, 2012, net cash used in operating activities of $944,136 consisted of net loss of $4,507,197 and $62,334 in changes in fair value of warrant derivative liability, offset by $210,546 in adjustments for depreciation and amortization expense, $217,546 in adjustments for equity-based compensation expense, $2,924,592 in adjustments for transaction costs incurred in connection the Transaction, $14,265 in adjustments for preferred return expense, $12,268 in adjustments for amortization of discount on zero coupon note payable and $246,178 in cash provided by changes in working capital and other activities.

Cash Provided by Investing Activities

For the three months ended March 31, 2013, net cash provided by investing activities of $12,543 from development of intangible assets.

The Company did not use or generate any cash from investing activities during the comparable period in 2012.

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Cash Provided By Financing Activities

For the three months ended March 31, 2013, net cash provided by financing activities of $650,000 consisted of $100,000 from the issuance and sale of Existing Bridge Notes, $400,000 from the issuance of the February Notes and $150,000 in proceeds from the sale of stock to be issued.

For the three months ended March 31, 2012, net cash provided by financing activities of $4,184,547 consisted of $2,641,292 in net proceeds from a private placement which closed in February 2012 and $1,543,255 in predecessor cash that remained in the Company following the Transaction.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.