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

Edgar Online, Inc.

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 618,000 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, from the Grand Card and advertising. 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.

Revenue for the three and six months ended June 30, 2013 was $134,154 and $257,013, respectively, compared to revenue of $87,341 and $154,135 for the respective comparable periods in 2012. Total operating expenses for the three and six months ended June 30, 2013 were $2,053,568 and $4,701,311, respectively, compared to total operating expenses of $1,867,802 and $6,413,100 for the respective comparable periods in 2012. The decrease in operating expenses during the six months ended June 30, 2013 was primarily attributable to that fact that we incurred $2,924,592 in transaction costs during the six months ended June 30, 2012 in connection with the asset contribution transaction described below, which were not present in the comparable 2013 period. In addition, a significant portion of our operating expenses for the three and six months ended June 30, 2013 was attributable to non-cash charges related to equity-based compensation.

We incurred net losses of $2,116,524 and $4,860,924 for the three and six months, respectively, ended June 30, 2013 compared to $1,808,485 and $6,315,682 for the respective comparable periods in 2012. During the six months ended June 30, 2013, we used $1,646,458 in cash for operating activities and $15,058 in cash for investing activities, offset by $1,560,000 in cash provided by financing activities. We had a working capital deficit of $4,057,273 as of June 30, 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.

    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 as well as from the Grand Card.

We expect that our insurance programs and Grand Card (described below) will be our primary revenue sources in the future. However, we have not received any revenue to date with respect to these programs 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 agreements or revenue arrangements with 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. Further, there can be no guarantee that we will be able to implement these programs or, that if we are able to do so, that we will be able to generate significant revenue from them.

   14        Insurance   

In January 2013, we entered into a strategic alliance agreement (the "Starr Agreement") with Starr Indemnity & Liability Company ("Starr") under which Starr agreed to provide certain services to the Company, including developing strategic business and investment relationships for the Company, arranging agreements with insurance companies and providing business consulting services. In exchange for these services, the Company agreed to pay Starr a monthly fee of $80,000 during the term of the agreement, which commenced in March 2013. 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 Starr 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.

The Company and Starr have been engaged in ongoing evaluation and negotiation with potential insurance carriers and have continued to discuss the business model and terms. We continue to receive input and guidance from Starr on implementation and execution of our insurance programs.

On September 1 2012, Grandparents Health Plans, LLC, now a wholly owned subsidiary of the Company ("GHP"), entered into a marketing and Distribution Agreement with Humana Marketpoint, Inc. pursuant to which GHP received the right to market and sell Medicare and other health insurance products offered by Humana to the general public. The Marketing and Distribution Agreement 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 has a term of three (3) years from the effective date. No commissions have been earned to date from Humana. We also plan to offer and sell other insurance products through one or more of our other wholly owned subsidiaries.

   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.

The parties have continue to have discussions on program components, rebate partnerships, program logistics, technical specifications and timing.

   Grand Deals   

Our "Grand Deals" program 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. 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.

   15        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. The association provides benefits to its members including, without limitation, membership to publications of the association, entitlement to participate in social network groups, access to Grand Deals, Grand Card, as well as special product and service offerings.. 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 "Original Bridge Notes") and warrants to purchase an aggregate of 950,000 shares of our common stock (the "Original Bridge Warrants") in a private offering to accredited investors (the "Original Investors"). The Original Bridge Notes were to mature on June 1, 2013. However, on May 31, 2013 (the "Effective Date"), the Original Investors transferred, in separate transactions, all of their respective rights, title and interests in the Original Bridge Notes to a third party (the "Current Holder") pursuant to various note purchase agreements by and between each Original Investor and the Current Holder. Also on the Effective Date, and immediately following the Current Holder's purchase of the Original Bridge Notes, we entered into an Amended and Restated Note Purchase Agreement with the Current Holder pursuant to which all of the Original Bridge Notes were automatically deemed null and void. In addition, the Company issued to the Current Holder a new convertible promissory note, which was subsequently amended and restated (the "Current Bridge Note"), in the original principal amount of $1,002,800, which amount reflects the outstanding principal amount and unpaid accrued interest due under the Original Bridge Notes on the Effective Date. The Current Bridge Note is unsecured and accrues interest at the rate of 12% per annum and will mature on June 2, 2014 (the "Maturity Date"). At the option of the Holder, upon written notice to the Company at any time prior to the Maturity Date, all of the outstanding principal amount and unpaid accrued interest of the Current Bridge Note may be converted into shares of the Company's common stock at a conversion price equal to $0.1875 per share. The Company may prepay, upon five (5) business days written notice, any amounts owed under the Current Bridge Note in whole or in part at any time without the prior written consent of the Holder.

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.

In June 2013, we entered into a demand promissory note (each, a "Demand Note" and collectively, the "Demand Notes") with each of Messrs. Leber and Harris and Dr. Cohen. Each Demand Note was issued in the original principal amount of $25,000. Accordingly, the Company received an aggregate of $75,000 from the lenders upon issuance of the Demand Notes. The Demand Notes were unsecured, accrued interest at a rate of 10% per annum and were payable upon demand by the lender. In July 2013, the Demand Notes were repaid in full upon demand of the lenders.

Since January 1, 2013, the Company has sold an aggregate of 5,140,000 shares of common stock at a price per share of $0.25 in separate private transactions with several accredited investors for an aggregate purchase price of $1,285,000. In connection with such sales, the Company issued five-year warrants to purchase an aggregate of 1,285,000 shares of common stock at an exercise price of $0.25 per share.

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In light of the purchase of the Original Bridge Notes and issuance of the Current Bridge Note in substitution thereof, the Company has terminated its planned private offering of up to $7,500,000 million of 12% convertible promissory notes. No securities were sold in that private offering.

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.

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.

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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

· 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   

Three and Six Month Periods ended June 30, 2013 and 2012

   Revenue   

Revenue for the three months ended June 30, 2013 increased $46,813, or 53.6%, to $134,154 compared to $87,341 for the comparable period in 2012. Revenue for the six months ended June 30, 2013 increased $102,878, or 66.7%, to $257,013 compared to $154,135 for the comparable period in 2012. Revenue for each period was derived solely from advertisements on our website. The increases in revenue during the three and six months ended June 30, 2013 compared to the prior year periods is due to an increase in website traffic which resulted in a greater number of impressions and, as a result, our ability to charge for those impressions increased.

   18        Operating Expenses   

Total operating expenses for the three months ended June 30, 2013 increased $185,766, or 9.9%, to $2,053,568 compared to $1,867,802 for the comparable period in 2012. Total operating expenses for the six months ended June 30, 2013 decreased $1,711,789, or 26.7%, to $4,701,311 compared to $6,413,100 for the comparable period in 2012. The increase in total operating expenses for the three months ended June 30, 2013 was due to increases in accounting, legal, and filing fee expenses as well as rent, consulting and equity-based compensation expenses, which were partially offset by decreases in expenses relating to selling and marketing, salaries, other general and administrative and depreciation and amortization. The decrease in total operating expenses for the six months ended June 30, 2013 was due primarily to the absence of transaction expenses and management fee expenses of $2,924,592 and $100,000, respectively, which we incurred during the comparable period in 2012. In addition, the decrease was attributable to reductions during the six months ended June 30, 2013 in accounting, legal, and filing fee expenses as well as expenses relating to selling and marketing, other general and administrative and depreciation and amortization. The decreases were partially offset by increases in salaries, rent, consulting and equity-based compensation expenses during the six months ended June 30, 2013.

Selling and marketing. Selling and marketing expense decreased $281,114, or 84.4%, to $51,824 for the three months ended June 30, 2013 compared to $332,938 for the comparable period in 2012. Selling and marketing expense decreased $233,611, or 62.5%, to $140,053 for the six months ended June 30, 2013 compared to $373,664 for the comparable period in 2012. The decreases in selling and marketing expenses for the three and six months ended June 30, 2013 compared to the prior year periods were due to management's decision to reduce such expenses from the prior periods. These measures took began to take effect late in the first quarter 2013.

Salaries. Salary expense decreased $76,358, or 16.0%, to $400,637 for the three months ended June 30, 2013 compared to $476,995 for the comparable period in 2012. The decrease in salary expense is due primarily to a reduction in staff headcount.

Salary expense increased $39,241, or 4.6%, to $892,644 for the six months ended June 30, 2013 compared to $853,403 for the comparable period in 2012. The increase was primarily due to salary paid to management in the first quarter of 2013 compared to the first quarter of 2012. 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 six months ended June 30, 2013 was partially due to salary paid to an officer in the first quarter of 2013 who was not an employee of the Company during the first quarter of 2012.

Salary expense for the three and six month periods ended June 30, 2013 includes $112,500 and $231,250, respectively, in salary deferred during such periods by members of management.

Rent. Rent expense increased $1,375, or 3.4%, to $42,075 for the three months ended June 30, 2013 compared to $40,700 for the comparable period in 2012. Rent expense increased $2,400, or 2.9%, to $84,100 for the six months ended June 30, 2013 compared to $81,700 for the comparable period in 2012.

Accounting, legal, and SEC Filing Fees. Accounting, legal, and SEC filing expense increased $131,771, or 109.0%, to $252,664 for the three months ended June 30, 2013 compared to $120,893 for the comparable period in 2012. The increase was attributable to certain SEC filings, including our annual report for the year ended December 31, 2012, during the three months ended June 30, 2013 that were not required in the prior year period. In addition, we incurred additional expenses in connection with certain business transactions and ongoing capital raising activities that occurred during the period which were not present in the prior year period.

Accounting, legal, and SEC filing expense decreased $50,437, or 11.5%, to $386,347 for the six months ended June 30, 2013 compared to $436,784 for the comparable period in 2012. We incurred significant legal, compliance and accounting expenses in the first quarter of 2012 in connection with the Transaction and our capital raising activities.

Consulting. Consulting expense increased $235,831, or 481.9%, to $284,773 for the three months ended June 30, 2013 compared to $48,942 for the comparable period in 2012. Consulting expense increased $320,841, or 267.9%, to $440,608 for the six months ended June 30, 2013 compared to $119,767 for the comparable period in 2012. The increases were due in part to consulting fees paid in the three and six months ended June 30, 2013 pursuant to the alliance agreement with Starr.

Equity-based compensation. Equity-based compensation expense increased $334,983, or 94.6%, to $689,200 for the three months ended June 30, 2013 compared to $354,217 for the comparable period in 2012. Equity-based compensation expense increased $1,558,319, or 305.9%, to $2,067,748 for the six months ended June 30, 2013 compared to $509,429 for the comparable period in 2012. The increase was comprised primarily of charges of $436,066 and $757,622 for the three and six months ended June 30, 2013, respectively, incurred in connection with option grants to the Company's officers and employees pursuant to the Grandparents.com, Inc. 2012 Stock Incentive Plan (the "2012 Plan") and the issuance of warrants for services. The increase also relates to recurring charges incurred in connection with equity awards granted during fiscal 2012 under the 2012 Plan which are expensed over the life over the grant. As of June 30, 2013, there was $1,822,927 of total unrecognized compensation cost related to non-vested equity-based compensation arrangements granted under the Plan. That cost is expected to be recognized over the remaining vesting period of 45 months.

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At June 30, 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 $21,590 and $43,180 for the three and six months ended June 30, 2013, respectively. The remaining unrecognized compensation cost of $71,266 related to non-vested equity-based compensation arrangements granted by GP.com LLC continue to be recognized by the Company over the remaining vesting period of 15 months.

As of June 30, 2013, the Company also had 300,000 options outstanding under its 2005 Stock Incentive Plan. In accordance with the terms of the Asset Contribution Agreement, these options became fully vested and exercisable as of the date of the Closing Date. Due to the immediate vesting provision, and since these employees no longer provide services to the Company, the Company recorded a charge in the amount of $98,190 during the first quarter of 2012. There is no remaining unrecognized compensation charge related to these options and therefore no such charge was recorded for the three or six months ended June 30, 2013.

Management fees. We had no management fees expense for the three months ended June 30, 2013 or for the comparable period in 2012. Likewise, we had no management fees expenses for the six months ended June 30, 2013. However, we had management fees expense of $100,000 for the six months ended June 30, 2012. Prior to the closing of the Transaction, GP.com LLC paid a management fee to an entity controlled by Messrs. Leber and Bernstein for management services provided to GP.com LLC. Two payments of $50,000 each were payable in the first six months of 2012 prior to the Transaction. The payments ceased upon the closing of the Transaction.

Transaction costs. We had no transaction costs for the three months ended June 30, 2013 or for the comparable period in 2012. Likewise, we had no transaction costs for the six months ended June 30, 2013. We incurred $2,924,592 in transaction costs for the six months ended June 30, 2012 due to the issuance of warrants to our investment banking advisor in connection with the Transaction.

Other general and administrative. Other general and administrative expense decreased $98,894, or 35.0%, to $183,677 for the three months ended June 30, 2013 compared to $282,571 for the comparable period in 2012. Other general and administrative expense decreased $279,717, or 47.2%, to $312,952 for the six months ended June 30, 2013 compared to $592,669 for the comparable period in 2012. The decreases were due to expense reduction measures implemented by management in the three and six months ended June 30, 2013.

Depreciation and amortization. Depreciation and amortization decreased $61,828, or 29.4%, to $148,718 for the three months ended June 30, 2013 compared to $210,546 for the comparable period in 2012. Depreciation and amortization decreased $44,233, or 10.5%, to $376,859 for the six months ended June 30, 2013 compared to $421,092 for the comparable period in 2012.

   Other Income (Expense)   

The Company had other expense of $197,110 for the three months ended June 30, 2013 compared to other income of $23,235 for the comparable period in 2012. The Company had other expense of $416,626 for the six months ended June 30, 2013 compared to other income of $8,807 for the comparable period in 2012. The increases in other expenses during the three and six months ended June 30, 2013 relate primarily to interest expense of $197,126 and $416,664, respectively. Such amounts include interest expenses of $139,307 and $309,430, respectively, attributable to the debt discount of warrants issued in connection with certain of our indebtedness.

    Loss from Operations    

Loss from operations for the three months ended June 30, 2013 was $2,116,524 compared to $1,757,226 for the comparable period in 2012, an increase of $359,298, or 20.4%. Loss from operations for the six months ended June 30, 2013 was $4,860,924 compared to $6,250,158 for the comparable period in 2012, a decrease of $1,389,234, or 22.2%.

   Preferred Return Expense   

Preferred return expense was $14,265 for the six months ended June 30, 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 three or six months ended June 30, 2013.

   20        Net Loss   

Net loss for the three months ended June 30, 2013 was $2,116,524 compared to $1,808,485 for the comparable period in 2012, an increase of $308,039, or 17.0%. Net loss for the six months ended June 30, 2013 was $4,860,924 compared to $6,315,682 for the comparable period in 2012, a decrease of $1,454,758, or 23.0%.

Liquidity and Capital Resources

As of June 30, 2013, we had unrestricted cash of $147,600. We expect to finance our operations over the next twelve months primarily through our existing cash and offerings of our equity or debt securities or through bank financing. 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 issued an aggregate of $950,000 of Original Bridge Notes, which were to mature on June 1, 2013. As discussed above, on May 31, 2013 the Original Investors transferred, in separate transactions, all of their respective rights, title and interests in the Original Bridge Notes to the Current Holder and, immediately following the Current Holder's purchase of the Original Bridge Notes, we entered into an Amended and Restated Note Purchase Agreement with the Current Holder pursuant to which all of the Original Bridge Notes were automatically deemed null and void. In addition, the Company issued to the Current Holder (the Current Bridge Note in the original principal amount of $1,002,800, which amount reflects the outstanding principal amount and unpaid accrued interest due under the Original Bridge Notes on May 31, 2013. The Current Bridge Note is unsecured and accrues interest at the rate of 12% per annum and will mature on June 2, 2014 (the "Maturity Date"). At the option of the Holder, upon written notice to the Company at any time prior to the Maturity Date, all of the outstanding principal amount and unpaid accrued interest of the Current Bridge Note may be converted into shares of the Company's common stock at a conversion price equal to $0.1875 per share. The Company may prepay, upon five (5) business days written notice, any amounts owed under the Current Bridge Note in whole or in part at any time without the prior written consent of the Holder.

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.

In June 2013, we entered into a demand promissory note (each, a "Demand Note" and collectively, the "Demand Notes") with each of Messrs. Leber and Harris and Dr. Cohen. Each Demand Note was issued in the original principal amount of $25,000. Accordingly, the Company received an aggregate of $75,000 from the lenders upon issuance of the Demand Notes. The Demand Notes were unsecured, accrued interest at a rate of 10% per annum and were payable upon demand by the lender. In July 2013, the Demand Notes were repaid in full upon demand of the lenders.

Since January 1, 2013, the Company has sold an aggregate of 5,280,000 shares of common stock at a price per share of $0.25 in separate private transactions with several accredited investors for an aggregate purchase price of $1,320,000. In connection with such sales, the Company issued five-year warrants to purchase an aggregate of 1,320,000 shares of common stock at an exercise price of $0.25 per share.

In light of the purchase of the Original Bridge Notes and issuance of the Current Bridge Note in substitution thereof, the Company has terminated its planned private offering of up to $7,500,000 million of 12% convertible promissory notes. No securities were sold in that private offering.

   Outstanding Indebtedness   

As noted above, $1,002,800 in principal amount is outstanding under the Current Bridge Note, which is due on June 2, 2014, $200,000 in principal amount is outstanding under a $200,000 promissory note issued in November 2012, which is due on September 1, 2013, and $400,000 is outstanding under the February Notes, which are due 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 Demand Notes were repaid in full after June 30, 2013.

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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.

? 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 Leber-Bernstein Group, LLC, an entity controlled by

Messrs. Leber and Bernstein ("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 $10,000,000. 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:                                         Six months ended June 30,                                        2013              2012 Cash provided by (used in): Operating Activities               $  (1,646,458 )$ (2,270,191 ) Investing Activities                     (15,058 )       (110,786 ) Financing Activities                   1,560,000        4,246,935

Net increase (decrease) in cash: (101,516 ) 1,865,958

Cash Used In Operating Activities

For the six months ended June 30, 2013, net cash used in operating activities of $1,646,458 consisted of net loss of $4,860,924, offset by $376,859 in adjustments for depreciation and amortization expense, $2,067,748 in adjustments for equity-based compensation expense, $309,430 in adjustments for amortization of discount on bridge notes payable and $460,429 in cash provided by changes in working capital and other activities. For the six months ended June 30, 2012, net cash used in operating activities of $2,270,191 consisted of net loss of $6,315,682, $62,334 in changes in fair value of warrant derivative liability and a $52,776 gain on extinguishment of indebtedness, offset by $421,092 in adjustments for depreciation and amortization expense, $509,429 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, $25,161 in adjustments for amortization of discount on zero coupon note payable and $266,062 in cash provided by changes in working capital and other activities.

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Cash Used In Investing Activities

For the six months ended June 30, 2013, net cash used in investing activities of $15,058 consisted of $14,143 for development of intangible assets and $915 for purchases of property and equipment. For the six months ended June 30, 2012, net cash used in investing activities of $110,786 consisted of $66,166 for development of intangible assets and $44,620 for purchases of property and equipment.

Cash Provided By Financing Activities

For the six months ended June 30, 2013, net cash provided by financing activities of $1,560,000 consisted of $985,000 in gross proceeds from various private placements and $575,000 from loans and short term advances. For the six months ended June 30, 2012, net cash provided by financing activities of $4,246,935 consisted of $2,667,629 in net proceeds from a private placement, $30,000 in proceeds from exercise of stock options and $1,549,306 in predecessor cash that remained in the Company following the Transaction.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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