PALTALK, INC. - Quarter Report: 2010 September (Form 10-Q)

f10q0910_snap.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q

_______________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.

SNAP INTERACTIVE, INC.

(Exact name of registrant as specified in Charter)

DELAWARE		000-52176		20-3191847
(State or other jurisdiction of incorporation or organization)		(Commission File No.)		(IRS Employee Identification No.)

363 7th Avenue, 13th Floor, New York, NY 10001

(Address of Principal Executive Offices)

_______________

(516) 942-2030

(Issuer Telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.

Yes ¨ No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 15, 2010: 33,173,256 shares of Common Stock.

SNAP INTERACTIVE, INC.

FORM 10-Q

September 30, 2010

INDEX

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition
Item 3	Quantitative and Qualitative Disclosures About Market Risk
Item 4T.	Control and Procedures

PART II-- OTHER INFORMATION

Item 1	Legal Proceedings
Item 1A	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Removed & Reserved
Item 5.	Other Information
Item 6.	Exhibits

SIGNATURE

Item 1. Financial Information

SNAP INTERACTIVE, INC AND SUBSIDIARIES

CONTENTS



PAGE	1	CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009.

PAGE	2	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED).

PAGE	3	CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 (UNAUDITED).

PAGE	4	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED).

PAGE	5 – 18	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).

Snap Interactive, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets


ASSETS


	September 30, 2010			December 31, 2009
	(Unaudited)
Current Assets
Cash	$	2,120,947		$	1,895,449
Credit Card Holdback Receivable		151,627			14,996
Accounts receivable, net		156,039			322,351
Prepaid Expense		85,054			223,372
Total Current Assets		2,513,667			2,456,168

Property and Equipment, net		87,066			86,633

Other Assets
Security Deposit		18,185			33,435
Total Other Assets		18,185			33,435

Total Assets	$	2,618,918		$	2,576,236


LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities
Accounts payable and accrued expenses	$	190,319		$	529,570
Deferred Revenue		1,328,686			281,049
Settlement Payable		5,941			23,238
Convertible Notes Payable - Related Party		45,486			45,486
Accrued interest		23,442			21,423
Total Current Liabilities		1,593,874			900,766

Commitments and Contingencies

Stockholders' Equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none
issued and outstanding		-			-
Common stock, $0.001 par value; 100,000,000 shares authorized,
33,173,256 and 32,628,969 shares issued and outstanding, respectively		33,173			32,629
Additional paid-in capital		2,726,268			2,568,652
Accumulated deficit		(1,709,522	)		(924,500	)
Less: deferred compensation		(24,875	)		(1,311	)
Total Stockholders' Equity		1,025,044			1,675,470

Total Liabilities and Stockholders' Equity	$	2,618,918		$	2,576,236

See accompanying notes to condensed consolidated unaudited financial statements

Snap Interactive, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2010			September 30, 2009			September 30, 2010			September 30, 2009

Revenue	$	1,706,691		$	801,120		$	3,877,209		$	2,354,334

Cost of Revenue		359,501			321,406			1,118,378			928,303

Gross Profit		1,347,190			479,714			2,758,831			1,426,031

Operating Expenses
Compensation expense		159,876			162,603			486,335			480,716
Professional fees		37,009			30,286			114,837			158,794
Advertising and marketing expense		759,363			-			2,101,551			-
General and administrative		303,970			206,542			857,074			418,630
Total Operating Expenses		1,260,218			399,431			3,559,797			1,058,140

Income /(Loss) from Operations		86,972			80,283			(800,966	)		367,891

Other Income (Expense)
Interest Expense		(640	)		(1,161	)		(2,721	)		(3,753	)
Other Income/(Loss)		(721	)		7,500			12,890			14,904
Interest Income		1,678			4,614			5,775			11,651
Total Other Income/(Expense), net		317			10,953			15,944			22,802

Income/(Loss) Before Provision For Income Taxes		87,289			91,236			(785,022	)		390,693

Provision for Income Taxes		-			(68,500	)		-			(255,055	)

Net Income/(Loss)	$	87,289		$	22,736		$	(785,022	)	$	135,638

Net Income/(Loss) Per Share - Basic	$	0.00		$	0.00			(0.02	)		0.00

Net Income/(Loss) Per Share - Diluted	$	0.00		$	0.00			(0.02	)		0.00

Weighted average number of shares outstanding
during the period - Basic		33,161,718			32,540,958			33,046,772			32,437,974

Weighted average number of shares outstanding
during the period - Diluted		33,161,718			33,066,513			33,046,772			34,815,024

See accompanying notes to condensed consolidated unaudited financial statements

Snap Interactive, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 2010
(Unaudited)


	Preferred Stock				Common stock
	$.001 Par Value				$.001 Par Value				Additional								Total
									paid-in		Accumulated			Deferred			Stockholder's
			Amount		Shares		Amount		capital		Deficit			Compensation			Equity


Balance, December 31, 2009		-		-		32,628,969		32,629		2,568,652		(924,500	)		(1,311	)		1,675,470

Deferred compensation realized		-		-		-		-		-		-			1,311			1,311

Stock options granted for services		-		-		-		-		34,999		-			-			34,999

Share based compensation		-		-						35,108		-			-			35,108

Shares issued for services		-		-		300,000		300		74,700		-			(24,875	)		50,125

Shares issued for services		-		-		244,287		244		12,809		-			-			13,053

Net Loss, for the nine months ended September 30, 2010												(785,022	)					(785,022	)

Balance, September 30, 2010		-	$	-		33,173,256	$	33,173	$	2,726,268	$	(1,709,522	)	$	(24,875	)	$	1,025,044

See accompanying notes to condensed consolidated unaudited financial statements

Snap Interactive, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)


	For the Nine Months Ended September 30,
	2010			2009
Cash Flows From Operating Activities:
Net Income/(Loss)	$	(785,022	)	$	135,638
Adjustments to reconcile net income/(loss)to net cash provided by operations
Depreciation/Amortization		13,748			13,993
Stock based compensation		134,597			192,404
(Increase) Decrease in:
Accounts Receivable		347,012			(43,415	)
Allowance for bad debts		(180,700	)		-
Credit Card Holdback Receivable		(136,631	)		-
Prepaid Expense		138,318			(15,068	)
Security Deposit		15,250			(14,684	)
Increase (Decrease) in:
Accounts payable and accrued expenses		(356,550	)		(185,018	)
Deferred revenue		1,047,637			18,405
Accrued interest payable		2,019			2,019
Net Cash Provided by Operating Activities		239,678			104,274

Cash Flows From Investing Activities:
Increase in Investments		-			(253,256	)
Purchase of Fixed Assets and Domain Name		(14,180	)		(55,090	)
Net Cash Used In Investing Activities		(14,180	)		(308,346	)

Net Cash Provided By Financing Activities		-			-

Net Increase (Decrease) in Cash		225,498			(204,072	)

Cash at Beginning of Period		1,895,449			1,529,354

Cash at End of Period	$	2,120,947		$	1,325,282

Supplemental disclosure of cash flow information:

Cash paid for interest	$	-		$	1,247
Cash paid for taxes	$	-		$	178,575

See accompanying notes to condensed consolidated unaudited financial statements

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.

It is management’s opinion however, that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

(B) Principles of Consolidation

The accompanying 2010 and 2009 consolidated financial statements include the accounts of Snap Interactive, Inc., its 100% owned subsidiaries eTwine, Inc and Snap Mobile Limited. Snap Mobile Limited is a United Kingdom Corporation, and was incorporated on September 10, 2009. All intercompany accounts have been eliminated in the consolidation.

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

(D) Cash and Cash Equivalents

For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

(E) Income Taxes

The Company accounts for income taxes under the FASB Accounting Standards Codification No. 740, Income Taxes. Under FASB Accounting Standards Codification No. 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB Accounting Standards Codification No. 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

(F) Property and Equipment

The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life. The Company uses a three year life for software, website costs and leasehold improvements and five year life for computer equipment.

In accordance with FASB Accounting Standards Codification No. 360, Property, Plant and Equipment, the Company carries long-lived assets at the lower of the carrying amount or fair value. Impairment is evaluated by estimating future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected undiscounted future cash flow is less than the carrying amount of the assets, an impairment loss is recognized. Fair value, for purposes of calculating impairment, is measured based on estimated future cash flows, discounted at a market rate of interest.

There were no impairment losses recorded during the three and nine months ended September 30, 2010 and 2009, respectively.

(G) Intangible Assets

In accordance with Statement FASB Accounting Standards Codification No. 350, Intangibles, Goodwill and Other, requires that intangible assets with a finite life are amortized over its life and requires that goodwill and intangible assets be reviewed for impairment annually, or more frequently if impairment indicators arise.

(H) Stock-Based Compensation

In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation. Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

(I) Business Segments

The Company operates in one segment and therefore segment information is not presented.

(J) Income/(Loss)Per Share

Basic income per common share is computed based upon the weighted average common shares outstanding as defined by FASB Accounting Standards Codification No. 260, Earnings Per Share.

Diluted income per share includes the dilutive effects of stock options, warrants, and stock equivalents. To the extent stock options, warrants, stock equivalents and warrants are anti-dilutive, they are excluded from the calculation of diluted income per share. For the three and nine months ended September 30, 2009 the 10,200,000 shares issuable upon the exercise of stock options and warrants were not included in the computation of income per share because their inclusion is anti-dilutive. For the three and nine months ended September 30, 2010, 6,645,000 shares issuable upon the exercise of stock options and 525,555 shares issuable upon the conversion of convertible debt were not included in the computation of diluted loss per share because their inclusion is anti-dilutive.

The following table sets forth the computation of basic earnings per share:

	For the			For the		For the			For the
	three months ended			three months ended		nine months ended			nine months ended
	September 30, 2010			September 30, 2009		September 30, 2010			September 30, 2009
Net income (loss) for the period	$	87,289		$	22,736	$	(785,022	)	$	135,638

Weighted average number of shares outstanding		33,161,718			32,540,958		32,046,772			32,437,974

Basic earnings per share	$	(0.00	)	$	0.00	$	(0.03	)	$	0.00

The following table sets forth the computation of diluted earnings per share:



	For the three months ended		For the three months ended		For the nine months ended			For the nine months
	September 30, 2010		September 30, 2009		September 30, 2009			September 30, 2009
Net income (loss) for the year	$	87,289	$	22,736	$	(785,022	)	$	135,638
Add: Adjustment for interest on 6% convertible notes		-		682		-			2,047

Adjusted net income (loss)	$	87,289	$	23,418	$	(785,022	)	$	137,685

Weighted average number of shares		33,161,718		32,540,958		33,046,772			32,437,974
Add: Dilutive Weighted Average shares assumed to be issued upon conversion of 6% convertible notes as of the date of issuance		-		525,555		-			525,555
Dilutive Warrants and options as of beginning of period		-		-		-			1,851,495

Weighted average number of common and common equivalent shares		33,161,718		33,066,513		33,046,772			34,815,024

Diluted earnings(loss) per share	$	0.00	$	0.00	$	(0.02	)	$	0.00

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

(K) Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for accounts receivable, accounts payable, advances from stockholder and notes payable approximate fair value based on the short-term maturity of these instruments.

(L) Research and Development

The Company has adopted the provisions of FASB Accounting Standards Codification No. 350, Intangibles – Goodwill & Other. Costs incurred in the planning stage of a website are expensed as research and development while costs incurred in the development stage are capitalized and amortized over the life of the asset, estimated to be five years. Expenses subsequent to the launch have been expensed as research and development expenses.

(M) Concentration of Credit Risk

At September 30, 2010, 42.50% of Accounts Receivable is due from Customer A, 15.04% was due from Customer B, and 29.56% was due from Customer C.

At September 30, 2009, 34.57% of sales earned were due from Customer A, 27.63% was due from Customer B, 11.82% was due from Customer C.

At September 30, 2009 31.43% of Accounts Receivable was due from Customer A, and 54.84% was due from Customer B.

The Company at times has cash in banks in excess of FDIC insurance limits. The Company had approximately $1,293,000 and $593,430 in excess of FDIC insurance limits as of September 30, 2010 and December 31, 2009, respectively.

(N) Revenue Recognition

The Company recognizes revenue on arrangements in accordance with FASB Accounting Standards Codification No. 605, Revenue Recognition. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured.

The Company has multiple revenue streams: subscriptions, advertisements, and the sale of points.

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

The Company recognizes advertising revenue as earned on a click-through, impression, and registration/subscription basis. When a user clicks an advertisement (“CPC basis”), views an advertisement impression (“CPM basis”), or registers for an external website via an advertisement clicked on through the Company’s applications (“CPA basis”), or purchases “points” or completes an offer to subscribe to premium features on the Company’s applications, the contract amount is recognized as revenue.

The Company recognizes revenue from monthly premium subscription fees in the month in which the services are used. Revenues are presented net of refunds, credits and known credit card chargebacks. Subscriptions are currently offered in durations of varying length from one month to six months.

Revenues from multi month subscriptions are recognized over the length of the subscription term rather than when purchased. Because a significant amount of our subscription sales occurred from subscriptions with a term of three or six months, we apportion that revenue over the duration of the subscription term even though it is collected in full at the time of purchase. The difference between the gross cash receipts collected and the recognized revenue from those sales during that reporting period will appear as deferred revenue.

The Company recognizes revenue from the direct sale of "points" over two months. Points can be used in exchange for premium features on products.

Our payment processors have established routine reserve accounts to secure the performance of our obligations under our service agreements. This is standard practice within the payment processing industry. These reserve accounts withhold a small percentage of our sales in a segregated account in the form of a six month rolling reserve. Each month’s withheld funds are returned to us on a monthly basis after six months of being held in the reserve account and any remaining funds will be returned to us after 90 to 180 days following termination of such agreements.

During the nine months ending September 30, 2010 and 2009 the Company had the following revenues:

	As of September 30, 2010		As of September 30, 2009

Advertising Revenue	$	232,498	$	2,354,334
Subscription/Points Revenue		3,644,711		-

Total Revenue	$	3,877,209	$	2,354,334

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

During the nine months ending September 30, 2010 and December 31, 2009 the Company had the following accounts receivable:

	As of September 30, 2010			As of December 31, 2009

Accounts Receivable	$	336,739			$	322,351
Less: Allowance for Doubtful Accounts	$	(180,700	)			-
Accounts Receivable, net	$	156,039			$	322,351

(O) Cost of Revenue

Cost of revenues includes the expenses associated with the operation of data centers, including labor, consulting, hosting, server and web design and programming expenses.

(P) Reclassification

Certain amounts from prior periods have been reclassified to conform to the current period presentation.

(Q) Advertising and Marketing

Advertising and marketing costs are expensed as incurred. Advertising and marketing expense was $2,101,551 and $0 for the nine months ended September 30, 2010 and 2009, respectively.

(R) Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) No. 2009-13, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. The ASU significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The ASU will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted, provided that the guidance is retroactively applied to the beginning of the year of adoption. The Company does not expect the adoption of ASU No. 2009-13 to have any effect on its financial statements upon its required adoption on January 1, 2011.

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

NOTE 2 PROPERTY AND EQUIPMENT

At September 30, 2010 and December 31, 2009 property, equipment and intangible assets is as follows:

	As of September 30, 2010			As of December 31, 2009

Computer/Equipment and Furniture	$	90,762		$	81,187
Website Domain Name		24,938			24,938
Software		1,353			1,353
Website Costs		40,500			40,500
Less Accumulated Depreciation and Amortization		(70,487	)		(61,345	)

Total Property and Equipment	$	87,066		$	86,633

Depreciation and amortization expense for the nine months ended September 30, 2010 and 2009 was $13,748, and $13,993 respectively.

NOTE 3 STOCKHOLDERS’ EQUITY

(A) Common Stock Issued for Services

During the nine month period ending September 30, 2010, 244,287 shares of previously granted shares were fully vested and issued. The Company recognized an expense of $13,053 for the value of these services.

During the nine month period ending September 30, 2010, an expense of $35,108 was recorded for shares granted under various employment agreements for services to be performed through January 1, 2013. The fair values of the granted shares are being expensed over the life of the agreements.

On February 1, 2010, the Company entered into a one year consulting agreement with an unrelated third party to provide legal services. In exchange for the services provided the Company was required to issue 300,000 shares of the Company’s common stock with a fair value of $75,000. As of September 30, 2010, $50,125is recorded as legal fees and $24,875 is recorded as deferred compensation.

On March 1, 2010, the Company authorized the issuance of 300,000 shares of the Company's common stock as part of a co-founder employment agreement in exchange for 3,000,000 options previously issued (See Note 6(A), and 7).

During the period ending September 30, 2010, $1,311 of deferred compensation was recognized for shares issued in the prior year.

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

(B) Stock Options and Warrants Issued for Services

The following tables summarize all stock option and warrant grants to employees and consultants for the nine months ended September 30, 2010 and 2009, and the related changes during these periods are presented below.

	Number of Options			Weighted Average Exercise Price
Stock Options
Balance at December 31, 2009		9,600,000
Granted		45,000		$	0.29
Exercised		-
Forfeited		(3,000,000	)
Balance at September 30, 2010		6,645,000
Options Exercisable at September 30, 2010		6,030,000		$	0.27
Weighted Average Fair Value of Options Granted During 2010				$	0.29

Of the total options granted, 6,030,000 are fully vested, exercisable and non-forfeitable.

	Number of Warrants		Weighted Average Exercise Price
Stock Warrants
Balance at December 31, 2009		750,000	$	0.40
Granted		-
Exercised		-
Expired		(750,000)
Balance at September 30, 2010		-
Warrants Exercisable at September 30, 2010		-	$	-
Weighted Average Fair Value of Warrants Granted During 2010			$	-

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

The following table summarizes information about stock options and warrants for the Company as of September 30, 2010 and 2009:

2010 Options Outstanding								Options Exercisable
Range of Exercise Price		Number Outstanding at September 30, 2010		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at September 30, 2010		Weighted Average Exercise Price
$	0.00-0.13		4,650,000		3.24	$	0.13		4,500,000	$	0.13
$	0.17 - 1.00		1,995,000		1.98	$	0.66		1,530,000	$	0.66

2009 Options Outstanding								Options Exercisable
Range of Exercise Price		Number Outstanding at September 30, 2009		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at September 30, 2009		Weighted Average Exercise Price
$	0.00-0.13		4,500,000		3.21	$	0.13		4,500,000	$	0.13
$	0.17 - 1.00		4,950,000		2.78	$	0.49		4,140,000	$	0.44

2010 Warrants Outstanding

Warrants Exercisable

Range of Exercise Price

Number

Outstanding at

September 30, 2010

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number

Exercisable at

September 30, 2010

Weighted Average Exercise Price

2009 Warrants Outstanding								Warrants Exercisable
Range of Exercise Price		Number Outstanding at September 30, 2009		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at September 30, 2009		Weighted Average Exercise Price
$	0.40		750,000		0.76	$	0.40		750,000	$	0.40

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

On August 16, 2010, the Company granted 25,000 options having an exercise price of $0.35 per share. The options vest after one year of employment. The Company has valued these options at their fair value using the Black-Scholes option pricing method. The assumptions used were as follows:

Expected life	5 years

Expected volatility	282.30%

Risk free interest rate	0.11%

Expected dividends	0%

On September 13, 2010, the Company granted 20,000 options having an exercise price of $0.22 per share. 10,000 of the options vest after one year of employment and 10,000 of the options vest after two years of employment. The Company has valued these options at their fair value using the Black-Scholes option pricing method. The assumptions used were as follows:

Expected life	1-2 years

Expected volatility	284.86%

Risk free interest rate	0.17%

Expected dividends	0%

On January 12, 2010, the Company’s Board of Directors declared a three –for-one forward stock split effective to stockholders of record on January 14, 2010. Per share and weighted average amounts have been retroactively restated in the accompanying financial statements and related notes to reflect this stock split.

NOTE 4 CONVERTIBLE NOTES PAYABLE – RELATED PARTY

On December 29, 2005, $92,648 of stockholder advances were converted into an unsecured convertible note payable, due December 31, 2008 (extended to December 31, 2010) and bearing interest at a rate of 6% per annum. All debt can be converted at the rate of $0.08 per share for each $1 of debt. The cash offering price at that time was $0.08 and therefore there was no beneficial conversion feature on the note as the market price and conversion price were equivalent. During 2006, the stockholder exchanged $7,300 of the note payable in full payment of a subscription receivable. On March 27, 2007, a stockholder converted additional debt totaling $50,000 in exchange for 600,000 shares of common stock. The fair value of the common stock was $0.08 per share based upon the terms of the convertible note entered into on December 29, 2005. Accordingly, no gain or loss is recognized in this transaction. At September 30, 2010, the Company had a remaining balance due of $35,348.

On March 1, 2007, $10,138 of the stockholder advances were converted into an unsecured convertible note payable, due March 1, 2010 (extended to March 1, 2011) and bearing interest at a rate of 6% per annum. All debt can be converted at the rate of $0.10 per share for each $1 of debt. There was no beneficial conversion recognized on the conversion. At September 30, 2010, the Company had a remaining balance due of $10,138.

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

NOTE 5 SETTLEMENT PAYABLE

On January 5, 2008 the Company entered into an agreement with a service provider requiring a total payment of $97,000. $25,000 was paid on January 5, 2008 the remaining $72,000 is payable in 36 monthly installments with imputed interest at a rate of 6% starting January 5, 2008.

NOTE 6 COMMITMENTS

(A) Employment Agreements

In January and February 2009, the Company entered into various agreements with several employees whereby the company is required to issue up to 300,000 shares of the Company’s common stock in various increments over the following two years subject to conditions including continued employment with the Company at the time of issuance.

On October 12, 2009, the Company authorized the issuance of 30,000 shares of common stock to be issued in 2010 and 2011 as compensation pursuant to the terms of an agreement, having a fair value of $3,500 subject to certain terms and vesting requirements being met during that time period.

The company has entered into Employment Agreements with employees for various terms through June 30, 2012 requiring a total commitment of salaries and bonuses totaling $442,667 subject to various conditions including continued employment with the company at the time of scheduled payment of bonuses. The agreements also call for the employees to receive health benefits as well as various stock and option awards (See Note 3(A) and (B)).

On December 1, 2007 the Company entered into a one year employment agreement with its co-founder. As compensation for services received, the Company is required to issue 300,000 shares of common stock, an option to purchase 3,000,000 shares and annual compensation of $160,000 a year beginning January 2008 with annual bonus and salary increases determined by the Company. The agreement also calls for the employee to receive health benefits, monthly membership for a health and fitness facility as well as a complete annual physical. In addition, upon a change in control of the Company, the employee will receive severance payments equal to the remaining amounts due under the employment agreement plus a minimum of two years base compensation, plus any prorated share of incentive compensation and stock options associated with any signing bonus, plus health benefits up to two years and up to $50,000 in job search costs. On October 10, 2008, the Company issued 750,000 shares of common stock for professional services rendered having a fair value of $50,000 on the date of grant. The Company also issued a $25,000 cash bonus for the year ended December 31, 2008. As of January 1, 2010 the employment agreement has not been extended, however the employment relationship had continued under the same terms with an annual compensation of $180,000. Beginning February 28, 2009 the co-founder receives $750 per month as a transportation allowance. The amendment also provided for routine indemnification against any action or suit brought against him as a result of the performance of his job duties. In March 2010 an amendment to its President and CEO’s employment agreement was signed which called for routine indemnification against any action or suit brought against him as a result of the performance of his job duties (See Note 3(A)).

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

On March 1, 2010, the Company and its Co-Founder revised his employment agreement whereas the Company agreed to issue 300,000 shares to its Co-Founder in exchange for 3,000,000 options (1,500,000 @ $.23 and 1,500,000 @ $.50) previously issued and expensed on December 1, 2007. The shares issued vest upon the earlier of 3 years or in the event that there is a change in control in the Company due to reorganization, merger, consolidation, or sale of the Company.

In accordance with FASB Accounting Standards Codification No. 718, paragraph 35-3, this transaction should be treated as a modification of an award. As per ASC 718, incremental compensation cost shall be measured as the excess, if any, of the fair value of the 300,000 shares issued over the fair value of the exchanged options immediately before its terms are modified, measured based on the share price and other pertinent factors at that date.

The Company has valued the exchanged options at their fair value on March 1, 2010 using the Black-Scholes option pricing method. The assumptions used were as follows:

Expected life	1 year
Expected volatility	141.34%
Risk free interest rate	3.31%
Expected dividends	0%

Based on the above calculation, the Company has determined that there is no additional compensation to be realized as result of this modification.

On December 13, 2006 the Company executed an employment agreement with its President and CEO. The term ceases December 1, 2007 but it was renewed for a period of one additional year through December 1, 2008. As compensation for services, the President will receive annual compensation of $160,000 a year beginning January 1, 2008. The agreement also calls for the employee to receive health benefits, monthly membership for a health and fitness facility as well as a complete annual physical. In addition, upon a change in control of the Company, the employee will receive severance payments equal to the remaining amounts due under the employment agreement plus a minimum of two years base compensation, plus any prorated share of incentive compensation and stock options associated with any signing bonus, plus health benefits up to two years and up to $50,000 in job search costs. For the year ended December 31, 2008 a $100,000 cash year-end bonus has been issued. As of January 1, 2010 the employment agreement has not been extended, however the employment relationship had continued under the same terms with an annual compensation of $210,000. In March 2010 an amendment to its President and CEO’s employment agreement was signed which called for routine indemnification against any action or suit brought against him as a result of the performance of his job duties

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

(B) Consulting Agreements

On June 30, 2010, the Company entered into a two year (from the start date) agreement with an unrelated third party to provide certain payment-related services. The start date of the agreement is September 30, 2010. In an event of an early termination by the Company, the Company will pay a termination fee to the vendor based upon a formula determined by the fees generated during the term of the agreement based on the six months prior to termination of the agreement.

On June 1, 2010, the Company entered into a two year consulting agreement with an unrelated third party to provide consulting services. In exchange for the services provided the Company will pay a consulting fee of $8,000 per month and a transportation allowance of $600 per month.

On March 25, 2010, the Company entered into a fifteen month agreement with an unrelated third party to provide online monitoring and transaction services. In exchange for the services provided the Company will pay a minimum fee of $2,500 per month and additional transaction fees based on the level of usage.

On February 1, 2010, the company entered into a one year legal agreement with an unrelated third party to provide legal services. In exchange for the services provided the Company issued 300,000 shares of common stock for legal services having a fair value of $75,000 based upon fair value on the date of grant. As of September 30, 2010, $48,904 is recorded as compensation expense and $26,096 is recorded as deferred compensation (See Note 3(A)).

SNAP INTERACTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(UNAUDITED)

On February 25, 2009 the Company executed a three-year non-cancelable operating lease for its new corporate office space. The lease began on April 1, 2009 and expires on March 31, 2012. Total base rent due during the term of the lease is $313,680.

(D) Financial Consulting

On December 28, 2009, the Company entered into a one year agreement with a firm to serve as financial advisor on certain transactions. Pursuant to this Agreement, a $50,000 non-refundable cash retainer fee was paid. In addition the firm will also receive a standard fee based on a formula that includes cash and warrants in the event of a successful transaction.

NOTE 7 RELATED PARTY TRANSACTIONS

On December 1, 2007 the Company entered into a one year employment agreement with an executive. As compensation for services received the Company is required to issue 300,000 shares of common stock, an option to purchase 3,000,000 shares and an annual compensation of $160,000 per year beginning January 2008. As of September 30, 2010 the employment agreement has not been extended, however the employment relationship has continued under the same terms with an annual compensation of $180,000 effective January 1, 2010. In March 2010 an amendment to its President and CEO’s employment agreement was signed which called for routine indemnification against any action or suit brought against him as a result of the performance of his job duties. On January 1, 2010, the Company and its Co-Founder revised his employment agreement whereas the Company agreed to issue 300,000 shares to its Co-Founder in exchange for 3,000,000 options (1,500,000 @ $.23 and 1,500,000 @ $.50) previously issued and expensed on December 1, 2007. The shares issued vest upon the earlier of 3 years or in the event that there is a change in control in the Company due to reorganization, merger, consolidation, or sale of the Company (See Note 6(A)).

On December 29, 2005, $92,648 of stockholder advances were converted into an unsecured convertible note payable, due December 31, 2008 and bearing interest at a rate of 6% per annum. Effective December 15, 2008, the note was extended to December 31, 2009. All debt can be converted at the rate of $0.08 per share for each $1 of debt. The cash offering price at that time was $0.08 and therefore there was no beneficial conversion feature on the note as the market price and conversion price were equivalent. During 2006, the stockholder exchanged $7,300 of the note payable in full payment of a subscription receivable. On March 27, 2007, a stockholder converted additional debt totaling $50,000 in exchange for 600,000 shares of common stock. The fair value of the common stock was $0.08 per share based upon the terms of the convertible note entered into on December 29, 2005. Accordingly, no gain or loss is recognized in this transaction. At September 30, 2010, the Company had a remaining balance due of $35,348.

On March 1, 2007, $10,138 of the stockholder advances were converted into an unsecured convertible note payable, due March 1, 2010 and bearing interest at a rate of 6% per annum. All debt can be converted at the rate of $0.30 per share for each $1 of debt. There was no beneficial conversion recognized on the conversion. At September 30, 2010, the Company had a remaining balance due March 1, 2011 of $10,138.

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

Overview

We were incorporated under the laws of the State of Delaware on July 19, 2005. Clifford Lerner is our sole officer and director, as well as our controlling stockholder. We currently have fifteen other employees. On December 30, 2005, we obtained all of the shares of eTwine, Inc. a New York Corporation incorporated in May 2004, pursuant to a Stock Purchase Agreement and Share Exchange between eTwine, Inc. and us in consideration for the issuance of 24,681,000 shares to the eTwine, Inc. shareholders. Clifford Lerner remained our sole officer and director after the agreement and pursuant to the agreement eTwine, Inc. became our wholly owned subsidiary. Now we own and operate dating applications on social networking websites as well as an online dating website. The purpose of this merger was to create a holding company in the event we decide to acquire other entities in this industry in the future. In addition, the purpose was for the public entity to be a Delaware corporation which has provisions of its laws that are more favorable to our shareholders than New York laws.

We launched an online dating website called IamFreeTonight.com in November 2006 offering several unique features for singles including Group Dating & Dating by Schedule.

In 2007 we began building dating applications on Facebook Platform. As a result of our initial traffic growth with these applications we shifted our business model away from IamFreeTonight.com, which is no longer active, and towards building dating applications on social networking platforms.

In June 2007 we launched our first application on Facebook called Meet New People. Meet New People, which was significantly upgraded in December 2007, allows users to flirt with each other by messaging online and post when they are free to hang out. Meet New People has in excess of 4 Million installations.

In August 2007 we launched our second application on Facebook.com called Are You Interested. Since its launch, Are You Interested has consistently been one of the leading pure-dating applications on Facebook as defined by most Daily Active Users and most Monthly Active Users. Are You Interested allows users to view pictures of other members and indicate if they are “interested” in them by clicking “yes” on the picture. We notify members when there is a mutual match. Users are also able to send messages and exchange virtual gifts on the application. Are You Interested has in excess of 15 Million installations on Facebook.

In December 2007 we changed our name from eTwine Holdings, Inc. to Snap Interactive, Inc. to reflect the company’s shifting focus toward producing dating applications for Social Networking websites. At that time our stock ticker symbol also change from ETWI to STVI.

In March 2008 we launched two applications on MySpace Developer Platform: Are You Interested and a new brand called Flirt With Me. Flirt With Me is a dating application that allows users to send funny flirts to each other as well as exchange virtual gifts and messages.

In April 2008 we launched two applications on Hi5 Developer Platform: Are You Interested and Flirt With Me. We subsequently launched Are You Interested and Flirt With Me on Bebo Developer Platform.

In March 2009 ‘Are You Interested?’ was launched on the iPhone – representing our first mobile dating application.

On May 4, 2009 we announced the beta-launch of AreYouInterested.com, our new stand-alone online dating website. AreYouInterested.com represents an expanded version of our Are You Interested Facebook application and incorporates a Facebook Connect integration.

On June 10, 2009 we incorporated SNAP Mobile Limited, a United Kingdom Corporation as a wholly-owned subsidiary.

In the fourth quarter of 2009 we completed our transition from an advertising model to a subscription-based model for revenue generation on our Are You Interested application on Facebook as well as on AreYouInterested.com. Revenue from subscriptions and premium sales represent our primary revenue source since the beginning of 2010.

Collectively we have approximately ten applications across four social networking platforms (Facebook, MySpace, Hi5, & Bebo) along with the Are You Interested iPhone mobile application platform for mobile dating and AreYouInterested.com, a stand-alone online dating website. Our three primary application brands are Are You Interested, Meet New People, & Flirt With Me. As of September 30, 2010 we have in excess of 25 Million total installations of our applications.

Our Products

ARE YOU INTERESTED: Are You Interested was launched on Facebook Platform (R) in August 2007. Since its launch, Are You Interested has consistently been one of the leading pure-dating applications on Facebook as defined by Most Daily Active Users and Most Monthly Active Users, as well as Total Users. Are You Interested allows users to view pictures of other members and indicate if they are “interested” by clicking “yes” on the picture. We notify members when there is a mutual match. Users are also able to exchange messages and virtual gifts on the application. In March 2008 we launched Are You Interested on MySpace, in April 2008 we launched Are You Interested on Hi5 and later in 2008 we launched Are You Interested on Bebo. Are You Interested now has in excess of 20 Million total installs on Facebook.

On March 18, 2009 we launched Are You Interested on the iPhone. This application represents our first mobile dating application. Are You Interested is now available for download on iTunes as well as in the iPhone Apps Store.

MEET NEW PEOPLE: Meet New People was launched on Facebook Platform (R) in June 2007 and substantially revamped in December 2007. Meet New People allows users to flirt with each other by messaging online and post when they are free to hang out. Meet New People has in excess of 4 Million total installs and is also one of the largest pure dating applications on Facebook by total installs.

FLIRT WITH ME: Flirt With Me was launched on MySpace in March 2008, on Hi5 in April 2008, and recently on Bebo. Flirt With Me is a fun dating application that allows users to exchange flirts with each other and also integrates a "Flirt With Me" profile box onto a user's profiles to allow anyone who visits their profile the ability to send funny flirt messages. As of September 30, 2010, Flirt With Me had approximately 1 Million total installs.

In the coming months we will continue to enhance our current applications and products as well as consider building additional dating application on Facebook and other large social networking platforms.

How We Generate Revenue

In the fourth quarter of 2009 we implemented a subscription-based pay model into our Are You Interested application on Facebook in order to generate additional revenue. We had previously generated the majority of our revenue through advertisements placed on our products. By December 2009 the subscription fees received became our primary source of revenue. We are currently working on expanding subscription-based offerings into several of our other products. The timing of implementing a subscription model is dependent upon a number of factors including our available resources to allocate to the project. Our subscription offering on Are You Interested provides users with unlimited messaging and unlimited access to their matches as well as the ability to see who viewed their profile and send an unlimited number of premium virtual gifts.

We recognize revenue from monthly premium subscription fees in the month in which the services are used. Revenues are presented net of refunds, credits and known credit card chargebacks. Our subscriptions are currently offered in durations of varying length from one month to six months – generally in one, three, and six month terms. Long-term plans with durations longer than one month are generally available at discounted monthly rates however all subscription fees are collected at the time of purchase regardless of the length of the subscription term. Revenues from these long-term plans are recognized pro-rata over the subscription term. Pursuant to our terms of service, most subscriptions renew automatically for subsequent periods of the same length until subscribers terminate them.

We recognize revenue from the direct sale of "points" over two months. Points can be used in exchange for certain premium features on our products. Determining whether and when some of the criteria for spending points have been satisfied often involves assumptions and management judgments that can have an impact on the timing and amount of revenue we report in each period. At this time we believe that our assessment is fair and we will continue to monitor these activities in order to determine if there are significant changes in usage patterns.

We currently offer several payment options and are pursuing relationships with multiple payment processors in order to diversify our risk and reliance on a single payment processor, ensure competitive rates, and offer our users as many payment options as possible. We will continue to research and explore additional opportunities in this area.

Our Business Objectives

▪	Continue to upgrade our existing applications and products and continue development on new projects

▪	Promotion and expansion of our various products including our social networking applications, our iPhone application, and our AreYouInterested.com online dating website.

▪	Consider building new applications on social networking platforms and further development and exploration of mobile platforms and products.

▪	Considering launching additional applications and websites that expand beyond online dating based upon our identification of industries and markets that we believe represent profitable opportunities.

▪	Continue to focus on building out our premium subscription service, marketing tools, and virtual goods platform in order to continue growing our subscription model on Are You Interested.

▪	Identify & explore new opportunities that emerge in our rapidly evolving industry

Results of Operations for the Three and Nine Months ended September 30, 2010 Compared to the Three and Nine Months ended September 30, 2009

Revenues

Revenue increased from $2,354,334 for the nine months ended September 30, 2009 to $3,877,209 for the nine months ended September 30, 2010, an increase of $1,522,875. Revenues increased from $801,120 for the three months ended September 30, 2009 to $1,706,691 for the three months ended September 30, 2010, an increase of $905,571.

These revenues are primarily generated from subscription fees for subscriptions to Are You Interested as well as access to premium features on our products. The increase in revenue for the nine months ended September 30, 2010 was primarily due to the implementation of subscriptions on our Are You Interested brand which took place in late 2009. In 2009 our revenue was generated primarily from advertisements placed on our Are You Interested Facebook application.

Cost of Revenue

Cost of revenue increased from $928,303 for the nine months ended September 30, 2009 to $1,118,378 for the nine months ended September 30, 2010, an increase of $190,075. Cost of revenue increased from $321,406 for the three months ended September 30, 2009 to $359,501 for the three months ended September 30, 2010, an increase of $38,095. The increase in cost of revenue is primarily attributable to the overall expansion of our operations as compared to the previous year. Our hosting costs increased as did other costs associated with the programming, design, and maintenance of our products.

Operating Expenses

Operating Expenses for the nine months ended September 30, 2010 increased to $3,559,797 from $1,058,140 for the nine months ended September 30, 2009, representing an increase of $2,501,657. Operating expenses for the three months ended September 30, 2010 increased to $1,260,218 from $399,431 for the three months ended September 30, 2009, representing an increase of $860,787.

The increase in operating expenses is primarily attributable to an increase in advertising and marketing expense.

Advertising and marketing expense for the nine months ended September 30, 2010 was $2,101,551. Advertising and marketing expense for the three months ended September 30, 2010 was $759,363. The increase in advertising and marketing expense is primarily due to the shift to a subscription based model and the associated user acquisition costs.

Compensation expense for the nine months ended September 30, 2010 increased to $486,335 from $480,716 for the nine months ended September 30, 2009, representing an increase of $5,619. This increase is due to the overall expansion of our operations as compared to the same period last year. Compensation expense for the three months ended September 30, 2010 decreased to $159,876 from $162,603 for the three months ended September 30, 2009 representing a decrease of $2,727. This decrease is due to a reduction in stock-based compensation to certain employees during this period.

General and administrative expenses for the nine months ended September 30, 2010 increased to $857,074 from $418,630 for the nine months ended September 30, 2009, representing an increase of $438,444. General and administrative expenses for the three months ended September 30, 2010 increased to $303,970 from $206,542 for the three months ended September 30, 2009 representing an increase of $97,428. The increase in general and administrative expense is due to the overall expansion of our operations as compared to last year.

Professional fees for the nine months ended September 30, 2010 decreased to $114,837 from $158,794 for the nine months ended September 30, 2009, representing a decrease of $43,957. Professional fees for the three months ended September 30, 2010 increased to $37,009 from $30,286 for the three months ended September 30, 2009 representing an increase of $6,723. The decrease for the nine months ended September 30, 2010 and increase for the three months ended September 30, 2010 are due to routine fluctuations in our professional service needs in the ordinary course of business during these periods.

Net Income

Net income decreased to a net loss of $785,022 for the nine months ended September 30, 2010 from net income of $135,638 for the nine months ended September 30, 2009, a decrease of $920,660. Net income increased to $87,289 for the three months ended September 30, 2010 from net income of $22,736 for the three months ended September 30, 2009, an increase of $64,553.

The decrease in net income for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009 and shift to a net loss was primarily due to the revenue recognition impact of our shift to a subscription model in which revenue is recognized on a deferred basis when subscriptions occur over more than a single month as well as increased advertising costs for user acquisition associated with the shift to a subscription model on the Are You Interested brand.

Liquidity and Capital Resources

We are currently financing our operations primarily through cash generated by its operating activities and revenues derived from advertisements placed on our various applications as well as premium features placed on our applications.

As of September 30, 2010, we had $2,120,947 in cash. Our cash increased from $1,895,449 as of December 31, 2009 by $225,498 due to a net increase in cash generated from operating activities during this period. Historically, our principal working capital needs have been met through continuing operations. As we grow and expand our operations, the need for working capital will increase. We expect to finance our internal growth with cash provided from operations, borrowings, debt or equity offerings, or some combination thereof.

Our net loss for the nine months ended September 30, 2010 was $785,022. Net cash provided by operating activities was $239,678 during the nine months ended September 30, 2010 as compared to cash provided by operating activities of $104,274 for the nine months ended September 30, 2009.

Cash used in operating activities mainly consisted of a net loss of $785,022 and a decrease in prepaid expenses of $138,318, an increase in deferred revenue of $1,047,637, an increase in stock based compensation of $134,597, an increase in accounts receivable of $347,012 and an increase in our credit card holdback of $136,631 offset by a decrease in accrued expenses of $356,550 and a decrease in accrued interest payable of $2,019. The Company intends to use its cash to continue to fund its operations going forward.

Critical Accounting Pronouncements

Our significant accounting policies are summarized in Note 1 of our financial statements.

We account for income taxes under the FASB Accounting Standards Codification No. 740, Income Taxes. Under FASB Accounting Standards Codification No. 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

We value property and equipment at cost and depreciate these assets using the straight-line method over their expected useful life. We use a three year life for software and five year life for computer equipment.

In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation. Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Effective January 1, 2006, the Company has fully adopted the provisions of FASB Accounting Standards Codification No. 718. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

We have adopted the provisions of FASB Accounting Standards Codification No. 350, Intangibles – Goodwill and Other. Costs incurred in the planning stage of a website are expensed as research and development while costs incurred in the development stage are capitalized and amortized over the life of the asset, estimated to be five years. Expenses subsequent to the launch have been expensed as research and development expenses.

We recognize revenue on arrangements in accordance with FASB Accounting Standards Codification No. 605, Revenue Recognition. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured.

The Company recognizes revenue as earned on a click-through, impression, and registration/subscription basis. When a user clicks an advertisement (“CPC basis”), views an advertisement impression (“CPM basis”), or registers for an external website via an advertisement clicked on through the Company’s applications (“CPA basis”), or purchases “points” or completes an offer to subscribe to premium features on the Company’s applications, the contract amount is recognized as revenue.

The Company recognizes revenue from the direct sale of "points" over two months. Points can be used in exchange for premium features on products.

Recent Accounting Pronouncements

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4T. Controls and Procedures

a) Evaluation of Disclosure Controls. Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

None.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed & Reserved).

None.

Item 5. Other Information.

None

Item 6. Exhibits.

(a) Exhibits

31.1 Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002

SIGNATURES

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

	SNAP INTERACTIVE, INC.

Date: November 15, 2010	By:	/s/ Clifford Lerner
		Clifford Lerner President, Chief Executive Officer, Chief Financial Officer