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

f10q0610_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 June 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 August 16, 2010:  32,928,969 shares of Common Stock.  
 
 
 

 
 
SNAP INTERACTIVE, INC.

FORM 10-Q
June 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 JUNE 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009.
     
PAGE
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED).
     
PAGE
3
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2010 (UNAUDITED).
     
PAGE
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 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
 
             
             
             
             
   
June 30, 2010
   
December 31, 2009
 
   
(Unaudited)
       
Current Assets
           
Cash
  $ 1,408,756     $ 1,895,449  
Credit Card Holdback Receivable
    104,370       14,996  
Accounts receivable, net
    27,909       322,351  
Prepaid Expense
    241,490       223,372  
  Total Current Assets
    1,782,525       2,456,168  
                 
Property and Equipment, net
    83,935       86,633  
                 
Other Assets
               
Security Deposit
    18,185       33,435  
Total Other Assets
    18,185       33,435  
                 
Total Assets
  $ 1,884,645     $ 2,576,236  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
                 
Current Liabilities
               
  Accounts payable and accrued expenses
  $ 186,403     $ 529,570  
  Deferred Revenue
    722,866       281,049  
  Settlement Payable
    11,793       23,238  
  Convertible Notes Payable - Related Party
    45,486       45,486  
  Accrued interest
    22,769       21,423  
Total Current Liabilities
    989,317       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,
               
32,928,969 and 32,628,969 shares issued and outstanding, respectively
    32,929       32,629  
  Additional paid-in capital
    2,702,578       2,568,652  
  Accumulated deficit
    (1,796,811 )     (924,500 )
  Less: deferred compensation
    (43,368 )     (1,311 )
Total Stockholders' Equity
    895,328       1,675,470  
                 
Total Liabilities and Stockholders' Equity
  $ 1,884,645     $ 2,576,236  
                 
See accompanying notes to condensed consolidated unaudited financial statements.
 
 
-1-

 

Snap Interactive, Inc. and Subsidiaries
 
Condensed Consolidated Statements of Operations
 
(Unaudited)
 
                         
                         
             
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
                         
Revenue
  $ 1,243,082     $ 784,242     $ 2,170,518     $ 1,553,214  
                                 
Cost of Revenue
    383,662       298,857       758,877       606,897  
                                 
Gross Profit
    859,420       485,385       1,411,641       946,317  
                                 
Operating Expenses
                               
Compensation expense
    168,932       175,363       326,459       318,113  
Professional fees
    28,735       32,913       77,828       82,200  
Advertising and marketing expense
    512,772       -       1,342,188       -  
General and administrative
    220,893       146,074       553,104       258,396  
Total Operating Expenses
    931,332       354,350       2,299,579       658,709  
                                 
Income /(Loss) from Operations
    (71,912 )     131,035       (887,938 )     287,608  
                                 
Other Income (Expense)
                               
Interest Expense
    (1,185 )     (1,269 )     (2,081 )     (2,592 )
Other Income
    2,501       4,001       13,611       7,404  
Interest Income
    1,735       4,218       4,097       7,037  
Total Other Income/(Expense), net
    3,051       6,950       15,627       11,849  
                                 
Income/(Loss) Before Provision For Income Taxes
    (68,861 )     137,985       (872,311 )     299,457  
                                 
Provision for Income Taxes
    -       (91,555 )     -       (186,555 )
                                 
Net Income/(Loss)
  $ (68,861 )   $ 46,430     $ (872,311 )   $ 112,902  
                                 
Net Income/(Loss) Per Share  - Basic
  $ (0.00 )   $ 0.00       (0.03 )     0.00  
                                 
Net Income/(Loss) Per Share  - Diluted
  $ (0.00 )   $ 0.00       (0.03 )     0.00  
                                 
Weighted average number of shares outstanding
                               
  during the period - Basic
    32,928,969       32,443,251       32,875,930       32,385,630  
                                 
Weighted average number of shares outstanding
                               
  during the period - Diluted
    32,928,969       32,968,806       32,875,930       32,911,185  
                                 
See accompanying notes to condensed consolidated unaudited financial statements.
 
 
-2-

 

Snap Interactive, Inc. and Subsidiaries
 
Condensed Consolidated Statement of Changes in Stockholders' Equity
 
For the six months ended June 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
    -       -       -       -       22,144       -       -       22,144  
                                                                 
Share based compensation
    -       -                       37,082       -       -       37,082  
                                                                 
Shares issued for services
    -       -       300,000       300       74,700       -       (44,589 )     30,411  
                                                                 
Deferred compensation realized
    -       -       -       -       -       -       1,221       1,221  
                                                                 
Net Loss,  for the six months ended June 30, 2010
                                            (872,311 )             (872,311 )
                                                                 
Balance, June 30, 2010
    -     $ -       32,928,969     $ 32,929     $ 2,702,578     $ (1,796,811 )   $ (43,368 )   $ 895,328  
                                                                 

See accompanying notes to condensed consolidated unaudited financial statements.


 
-3-

 

Snap Interactive, Inc. and Subsidiaries
 
Condensed Consolidated Statements of Cash Flows
 
(Unaudited)
 
             
             
             
   
For the Six Months Ended June 30,
 
   
2010
   
2009
 
Cash Flows From Operating Activities:
           
Net Income/(Loss)
  $ (872,311 )   $ 112,902  
  Adjustments to reconcile net income/(loss)to net cash provided by operations
               
    Depreciation/Amortization
    9,150       8,564  
    Stock based compensation
    92,169       142,890  
    (Increase) Decrease in:
               
    Accounts Receivable
    294,442       91,638  
    Credit Card Holdback Receivable
    (89,374 )     -  
    Prepaid Expense
    (18,118 )     (75,948 )
    Security Deposit
    15,250       (14,685 )
    Increase (Decrease) in:
               
      Accounts payable and accrued expenses
    (354,612 )     (81,521 )
      Deferred revenue
    441,817       -  
      Accrued interest payable
    1,346       1,346  
Net Cash Provided by Operating Activities
    (480,241 )     185,186  
                 
Cash Flows From Investing Activities:
               
Increase in Investments
    -       (251,623 )
Purchase of Fixed Assets and Domain Name
    (6,452 )     (51,788 )
Net Cash Used In Investing Activities
    (6,452 )     (303,411 )
                 
Net Cash Provided By Financing Activities
    -       -  
                 
Net Increase (Decrease) in Cash
    (486,693 )     (118,225 )
                 
Cash at Beginning of Period
    1,895,449       1,529,354  
                 
Cash at End of Period
  $ 1,408,756     $ 1,411,129  
                 
Supplemental disclosure of cash flow information:
               
                 
Cash paid for interest
  $ -     $ 1,247  
Cash paid for taxes
  $ -     $ 78,210  
                 
See accompanying notes to condensed consolidated unaudited financial statements.
 
-4-

 

SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 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 June 10, 2009.  All intercompany accounts have been eliminated in the consolidation.

(C) Use of Estimates

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.
 
 
-5-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 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 six months ended June 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.
 
 
 
-6-

 
 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 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 six months ended June 30, 2009 the 10,290,000 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 six months ended June 30, 2010, 7,350,000 shares issuable upon the exercise of stock options and warrants were not included in the computation of diluted loss per share because their inclusion is anti-dilutive.

 

 
-7-

 
 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 30, 2010
 
(UNAUDITED)
 
 
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
   
six months ended
   
six months ended
 
   
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
Net income (loss) for the period
  $ (68,861 )   $ 46,430     $ (872,311 )   $ 112,902  
                                 
Weighted average number of shares outstanding
    32,928,969       32,443,251       32,875,930       32,385,630  
                                 
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
   
For the
   
For the
   
For the
 
   
three months ended
   
three months ended
   
Six months ended
   
Six 
months
 
   
June 30,2010
   
June 30,2009
   
June 30,2009
   
June 30,2009
 
Net income (loss) for the year
  $ (68,861 )   $ 46,430     $ (872,311 )   $ 112,902  
Add: Adjustment for interest on 6% convertible notes
    -       682       0       1,365  
                                 
Adjusted net income (loss)
  $ (68,861 )   $ 47,112     $ (872,311 )   $ 114,267  
                                 
Weighted average number of shares
    32,928,969       32,443,251       32,875,930       32,385,630  
Add: Weighted Average shares assumed to be issued upon conversion of 6% convertible notes as of the date of issuance
    -       525,555       -       525,555  
Warrants and options as of beginning of period
    -       -       -       -  
                                 
Weighted average number of common and common equivalent shares     32,928,969       32,968,806       32,875,930       32,911,185  
                                 
Diluted earnings(loss) per share
  $ 0.00     $ 0.00     $ (0.03 )   $ 0.00  
                                 
 
 
-8-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 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 June 30, 2010, 44.13% of Accounts Receivable is due from Customer B, 19.44% was due from Customer C, and 23.69% was due from Customer D.

At June 30, 2009, 19.29% of sales earned was due from Customer A, 35.54% was due from Customer B, 15.20% was due from Customer C.

At June 30, 2009 18.32% of Accounts Receivable was due from Customer A, 42.15% was due from Customer B and 18.69% was due from Customer C.

The Company at times has cash in banks in excess of FDIC insurance limits. The Company had approximately $335,036 in excess of FDIC insurance limits as of June 30, 2010.

(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: advertisements, subscriptions, and the sale of points.

 
 
-9-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 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 chargeback.   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 the majority 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 six months ending June 30, 2010 and 2009 the Company had the following revenues:

   
As of
June 30,
2010
   
As of
June 30, 2009
 
             
Advertising Revenue
 
$
210,229
   
$
1,553,214
 
Subscription/Points Revenue
   
1,960,289
     
-
 
                 
Total Revenue
 
$
2,170,518
   
$
1,553,214
 

 
 
 
-10-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 30, 2010
 
(UNAUDITED)
 

 (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 $1,342,188 and $0 for the six months ended June 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. 
 
 
 
-11-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 30, 2010
 
(UNAUDITED)
 

 NOTE 2     PROPERTY AND EQUIPMENT

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

   
As of
June 30,
2010
   
As of
December 31, 2009
 
             
Computer/Equipment and Furniture
 
$
87,640
   
$
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
   
(70,496
)
   
(61,345
)
                 
Total Property and Equipment
 
$
83,935
   
$
86,633
 
 
Depreciation and amortization expense for the six months ended June 30, 2010 and 2009 was $9,150, and $8,564 respectively.
 
NOTE 3     STOCKHOLDERS’ EQUITY

(A)   Common Stock Issued for Services

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 June 30, 2010, $30,411 is recorded as legal fees and $44,589 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 2009, the Company issued 482,784 shares of common stock as compensation pursuant to agreements with a fair value totaling $114,693. For the period ended June 30, 2010, $12,335 is recorded as compensation expense and $0 is recorded as deferred compensation.

During 2009, the Company has authorized the issuance of 720,000 shares of common stock as compensation pursuant to agreements with a fair value totaling $154,885. For the period ended June 30, 2010, $37,082 has been recognized as compensation expense.

 
 
-12-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 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 six months ended June 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
   
--
         
Exercised
   
-
         
Forfeited
   
(3,000,000
)
       
Balance at June 30, 2010
   
6,600,000
         
Options Exercisable at June 30, 2010
   
6,015,000
   
$
0.31
 
Weighted Average Fair Value of Options Granted During 2010
         
$
0.00
 
 
Of the total options granted, 6,015,000 are fully vested, exercisable and non-forfeitable.
 
The following table summarizes information about stock options and warrants for the Company as of June 30, 2010 and 2009:
 
2010 Options Outstanding
   
Options Exercisable
Range of Exercise Price
   
Number
Outstanding at
June 30, 2010
   
Weighted Average Remaining Contractual Life
   
Weighted Average Exercise Price
   
Number
Exercisable at
June 30, 2010
   
Weighted Average Exercise Price
$
0.00-0.13
     
4,650,000
     
3.49
   
$
0.13
 
   
4,500,000
   
$
0.13
$
0.17 - 1.00
     
1,950,000
     
1.56
   
$
0.66
     
1,515,000
   
$
0.84
 
2009 Options Outstanding
   
Options Exercisable
Range of Exercise Price
   
Number
Outstanding at
June 30, 2009
   
Weighted Average Remaining Contractual Life
   
Weighted Average Exercise Price
   
Number
Exercisable at
June 30, 2009
   
Weighted Average Exercise Price
$
0.00-0.13
     
4,500,000
     
3.46
   
$
0.13
     
4,500,000
   
$
0.13
$
0.17 - 1.00
     
5,040,000
     
3.13
   
$
0.49
     
4,080,000
   
$
0.44
 
 
 
-13-

 
 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 30, 2010
 
(UNAUDITED)
 
 
2010 Warrants Outstanding
   
Warrants Exercisable
 
Range of Exercise Price
   
Number
Outstanding at
June 30, 2010
   
Weighted Average Remaining Contractual Life
   
Weighted Average Exercise Price
   
Number
Exercisable at
June 30, 2010
   
Weighted Average Exercise Price
 
$
0.40
     
750,000
     
0.01
   
$
0.40
     
750,000
   
$
0.40
 

2009 Warrants Outstanding
   
Warrants Exercisable
 
Range of Exercise Price
   
Number
Outstanding at
June 30, 2009
   
Weighted Average Remaining Contractual Life
   
Weighted Average Exercise Price
   
Number
Exercisable at
 June 30, 2009
   
Weighted Average Exercise Price
 
$
0.40
     
750,000
     
1.01
   
$
0.40
     
750,000
   
$
0.40
 
 
(C) Stock Split
 
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 June 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 June 30, 2010, the Company had a remaining balance due of $10,138.
 
 
 
-14-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 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, 2011 requiring a total commitment of salaries and bonuses totaling $300,875.  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)).
 
 
 
-15-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 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
 
 
 
-16-

 

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 30, 2010
 
(UNAUDITED)
 
 
(B) Consulting Agreements

On June 30, 2010, the Company entered into a two year payment processing agreement with an unrelated third party.  The Company will pay processing fees based on the agreement and if the agreement is terminated prior to the end of the contact, the agreement calls for an early termination fee equal to 75% of the average six month fee. 
 
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 for up to 225,000 database queries. The Company will pay additional fees for all queries up to 500,000 at $0.01.    The Company has an option to cancel the agreement for any reason within 90 days of the start date of services provided.

On March 19, 2009, the Company entered into a one year agreement with an unrelated third party to provide advertising management services. In exchange for the services provided the Company will pay a fee on a CPM (Cost Per Thousand Impressions) basis for each advertisement passing through the third party’s computer server.  As of June 30, 2010, no advertising services have been rendered.

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 June 30, 2010, $30,411 is recorded as compensation expense and $44,589 is recorded as deferred compensation (See Note 3(A)).


 
 
-17-

 
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 30, 2010
 
(UNAUDITED)
 

(C) Operating Lease Agreements

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.
 
On April 4, 2008, the Company executed a two-year non-cancelable operating lease for its office space. The lease began on May 1, 2008 and expired on April 30, 2010 at a monthly rent of $5,083.   Subsequent to the Company’s move to the new corporate location, this space was subleased for a lease term beginning May 1, 2009 and expiring April 30, 2010 for a total base rent of $29,000 during the term of the sublease.  Following expiration on April 30, 2010 the Company did not renew or extend its lease at this location.
 (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 June 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 June 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 June 30, 2010, the Company had a remaining balance due March 1, 2011 of $10,138.
 

 
-18-

 

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.
 
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 June 30, 2010 we have in excess of 20 Million total installations of our applications.
 
 
-19-

 
 
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 15 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.

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.
 
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.
 
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 June 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.  By December 2009 the subscription fees received became our primary source of revenue.  We are currently working on inserting subscription-based models into several of our other products.  The timing of implementing a subscription model is dependent upon a number of factors including, but not limited to, our available resources to allocate to the project, our payment processing capabilities, as well as the evaluation of our corporate objectives in weighing the relative benefits of prioritizing revenue versus growth.  

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.  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.
 
 
-20-

 
 
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 Quarter ended June 30, 2010 Compared to the Quarter ended June 30, 2009

Revenues
 
Revenue increased from $784,242 for the three months ended June 30, 2009 to $ 1,243,082 for the three months ended June 30, 2010, an increase of $458,840.  Revenues increased from $1,553,214 for the six months ended June 30, 2009 to $2,170,518 for the six months ended June 30, 2010, an increase of $617,303.

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 three months ended June 30, 2010 was primarily due to the implementation of subscriptions on our Are You Interested brand which took place in late 2009.
 
Cost of Revenue

Cost of revenue increased from $298,857 for the three months ended June 30, 2009 to $383,662 for the three months ended June 30, 2010, an increase of $84,805.   Cost of revenue increased from $606,897 for the six months ended June 30, 2009 to $758, 877 for the six months ended June 30, 2010, an increase of $151,980.  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.
 
 
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Operating Expenses
 
Operating Expenses for the three months ended June 30, 2010 increased to $931,332 from $354,350 for the three months ended June 30, 2009, representing an increase of $576,982.  Operating expenses for the six months ended June 30, 2010 increased to $2,299,579 from $658,709 for the six months ended June 30, 2009, representing an increase of $1,640,870.
  
The increase in operating expenses is primarily attributable to an increase in advertising and marketing expense.

Advertising and marketing expense for the three months ended June 30, 2010 was $512,772.  Advertising and marketing expense for the six months ended June 30, 2010 was $1,342,188.  These expenses were minimal for the three months and six months ended June 30, 2009 and were not recognized independently.  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 three months ended June 30, 2010 decreased to $168,932 from $175,363 for the three months ended June 30, 2009, representing a decrease of $6,431.  Compensation expense for the six months ended June 30, 2010 increased to $326,459 from $318, 113 for the six months ended June 30, 2009 representing an increase of $8,346.
   
General and administrative expenses for the three months ended June 30, 2010 increased to $220,893 from $146,074 for the three months ended June 30, 2009, representing an increase of $74,819.   General and administrative expenses for the six months ended June 30, 2010 increased to $553,104 from $258,396 for the six months ended June 30, 2009 representing an increase of $294,708.  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 three months ended June 30, 2010 decreased to $28,735 from $32,913 for the three months ended June 30, 2009, representing a decrease of $4,178.  Professional fees for the six months ended June 30, 2010 decreased to $77,828 from $82,200 for the six months ended June 30, 2009 representing a decrease of $4,372. 

Net Income

Net income decreased to a net loss of $68,861 for the three months ended June 30, 2010 from net income of $46,430 for the three months ended June 30, 2009, a decrease of $115,291.  Net income decreased to a net loss of $872,311 for the six months ended June 30, 2010 from net income of $112,902 for the six months ended June 30, 2009, a decrease of $985,213.

The decrease in net income 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 user acquisition costs 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 June 30, 2010, we had $1,408,756 in cash.  Our cash declined from December 31, 2009 by $486,693 due to our increased advertising and marketing expense.  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 six months ended June 30, 2010 was $872,311.  Net cash used by the operating activities was $480,241 during the six months ended June 30, 2010 as compared to cash provided by operating activities of $185,186 for the six months ended June 30, 2009.  
 
The Company’s net loss for the six months ended June 30, 2010 was $872,311.  Net cash used in operating activities was $480,241 during the six months ended June 30, 2010 as compared to cash provided by operating activities of $185,186 for the six months ended June 30, 2009.  Cash used in operating activities mainly consisted of a net loss of $872,311 and an increase in prepaid expenses of $18,118, an increase in deferred revenue of $441,817, an increase in stock based compensation of $92,169 and an increase in our credit card holdback of $89,374 offset by a decrease in accrued expenses of $354,612 and a decrease in accounts receivable of $294,442. The Company intends to use its cash to continue to fund its operations going forward.
 
 
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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.
 
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 No. 505.
  
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 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.  

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

  
 
 
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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

 
 
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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: August 16, 2010
By:  
/s/ Clifford Lerner
   
Clifford Lerner
President,
Chief Executive Officer,
Chief Financial Officer
 
 
 
 
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