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, 2009
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 o
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 o No o
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 o Accelerated Filer o Non-Accelerated Filer o 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 o No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 14, 2009: 10,841,323 shares of Common Stock.
SNAP INTERACTIVE, INC.
FORM 10-Q
June 30, 2009
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. | Submission of Matters to a Vote of Security Holders |
Item 5. | Other Information |
Item 6. | Exhibits and Reports on Form 8-K |
SIGNATURE
Item 1. Financial Information
SNAP INTERACTIVE, INC AND SUBSIDIARIES
CONTENTS
PAGE | 1 | CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008. |
PAGE | 2 | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED). |
PAGE | 3 | CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED). |
PAGE | 4 | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED). |
PAGES | 5 – 21 | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
Condensed Consolidated Balance Sheets | ||||||||
ASSETS | ||||||||
June 30, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
Current Assets | ||||||||
Cash | $ | 1,411,129 | $ | 1,529,354 | ||||
Investments | 251,623 | - | ||||||
Accounts receivable, net | 294,869 | 386,507 | ||||||
Prepaid Expense | 76,346 | 398 | ||||||
Total Current Assets | 2,033,967 | 1,916,259 | ||||||
Property and Equipment, net | 89,371 | 31,297 | ||||||
Other Assets | ||||||||
Security Deposit | 33,435 | 18,750 | ||||||
Total Other Assets | 33,435 | 18,750 | ||||||
Total Assets | $ | 2,156,773 | $ | 1,966,306 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 261,990 | $ | 332,731 | ||||
Settlement Payable | 22,553 | 21,888 | ||||||
Convertible Notes Payable - Related Party | 45,486 | 35,348 | ||||||
Accrued interest | 20,077 | 18,731 | ||||||
Total Current Liabilities | 350,106 | 408,698 | ||||||
Long Term Liabilities | ||||||||
Settlement Payable | 11,793 | 23,238 | ||||||
Convertible Notes Payable - Related Party | - | 10,138 | ||||||
Total Liabilities | 361,899 | 442,074 | ||||||
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, | ||||||||
10,837,823 and 10,700,395 shares issued and outstanding, respectively | 10,836 | 10,700 | ||||||
Additional paid-in capital | 2,507,396 | 2,368,397 | ||||||
Accumulated deficit | (709,679 | ) | (822,581 | ) | ||||
Less: deferred compensation | (13,679 | ) | (32,284 | ) | ||||
Total Stockholders' Equity | 1,794,874 | 1,524,232 | ||||||
Total Liabilities and Stockholders' Equity | $ | 2,156,773 | $ | 1,966,306 | ||||
See accompanying notes to condensed consolidated unaudited financial statements
1
Condensed Consolidated Statements of Operations | ||||||||||||||||
(Unaudited) | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2009 | June 30, 2008 | June 30, 2009 | June 30, 2008 | |||||||||||||
Revenue | $ | 784,242 | $ | 533,257 | $ | 1,553,214 | $ | 1,053,159 | ||||||||
Cost of Revenue | 298,857 | 195,854 | 606,897 | 331,947 | ||||||||||||
Gross Profit | 485,385 | 337,403 | 946,317 | 721,212 | ||||||||||||
Operating Expenses | ||||||||||||||||
Depreciation and Amortization | 4,874 | 3,071 | 8,565 | 5,360 | ||||||||||||
Compensation expense | 175,363 | 110,031 | 318,113 | 188,492 | ||||||||||||
Consulting Fees | - | 15,187 | - | 15,187 | ||||||||||||
Advertising expense | - | 2,150 | - | 10,470 | ||||||||||||
Professional Fees | 32,913 | 14,101 | 82,200 | 36,755 | ||||||||||||
Insurance expense | 20,076 | 6,969 | 35,386 | 11,894 | ||||||||||||
Investor relations expense | 22,243 | - | 46,308 | - | ||||||||||||
Rent | 33,542 | 15,495 | 56,451 | 19,548 | ||||||||||||
General and administrative | 65,339 | 25,266 | 111,686 | 97,696 | ||||||||||||
Total Operating Expenses | 354,350 | 192,270 | 658,709 | 385,402 | ||||||||||||
Income from Operations | 131,035 | 145,133 | 287,608 | 335,810 | ||||||||||||
Other Income (Expense) | ||||||||||||||||
Interest Expense | (1,269 | ) | (1,558 | ) | (2,592 | ) | (3,219 | ) | ||||||||
Other Income | 4,001 | - | 7,404 | - | ||||||||||||
Interest Income | 4,218 | 1,287 | 7,037 | 2,780 | ||||||||||||
Total Other Expense, net | 6,950 | (271 | ) | 11,849 | (439 | ) | ||||||||||
Income Before Provision For Income Taxes | 137,985 | 144,862 | 299,457 | 335,371 | ||||||||||||
Provision for Income Taxes | (91,555 | ) | - | (186,555 | ) | - | ||||||||||
Net Income | $ | 46,430 | $ | 144,862 | $ | 112,902 | $ | 335,371 | ||||||||
Net Income Per Share - Basic | $ | 0.00 | $ | 0.01 | 0.01 | 0.03 | ||||||||||
Net Income Per Share - Diluted | $ | 0.00 | $ | 0.01 | 0.01 | 0.03 | ||||||||||
Weighted average number of shares outstanding | ||||||||||||||||
during the period - Basic | 10,814,417 | 10,337,923 | 10,795,210 | 10,335,898 | ||||||||||||
Weighted average number of shares outstanding | ||||||||||||||||
during the period - Diluted | 10,989,602 | 11,416,049 | 10,970,395 | 11,414,024 |
See accompanying notes to condensed consolidated unaudited financial statements
2
Snap Interactive, Inc. and Subsidiaries | ||||||||||||||||||||||||||||||||
Condensed Consolidated Changes in Stockholder’s Equity | ||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2009 | ||||||||||||||||||||||||||||||||
(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, for the year ended December 31, 2008 | - | $ | - | 10,700,395 | $ | 10,700 | $ | 2,368,397 | $ | (822,581 | ) | $ | (32,284 | ) | $ | 1,524,232 | ||||||||||||||||
Deferred compensation realized | - | - | - | - | - | - | 30,046 | 30,046 | ||||||||||||||||||||||||
Stock options granted for services | - | - | - | - | 45,998 | - | - | 45,998 | ||||||||||||||||||||||||
Share based compensation | - | - | - | - | 26,160 | - | - | 26,160 | ||||||||||||||||||||||||
Shares issued for services | - | - | 122,428 | 121 | 52,006 | - | (11,441 | ) | 40,686 | |||||||||||||||||||||||
Shares issued for domain name | - | - | 15,000 | 15 | 14,835 | - | - | 14,850 | ||||||||||||||||||||||||
Net Income, for the six months ended June 30, 2009 | - | - | - | - | - | 112,902 | - | 112,902 | ||||||||||||||||||||||||
Balance, June 30, 2009 (Unaudited) | - | $ | - | 10,837,823 | $ | 10,836 | $ | 2,507,396 | $ | (709,679 | ) | $ | (13,679 | ) | $ | 1,794,874 |
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, | ||||||||
2009 | 2008 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net Income | $ | 112,902 | $ | 335,371 | ||||
Adjustments to reconcile net income to net cash provided by operations | ||||||||
Depreciation/Amortization | 8,564 | 5,360 | ||||||
Amortization of stock based compensation | 45,998 | 1,708 | ||||||
Deferred Compensation | 18,605 | - | ||||||
Stock based compensation | 78,287 | 91,928 | ||||||
(Increase) Decrease in: | ||||||||
Accounts Receivable | 91,638 | 49,855 | ||||||
Prepaid Expense | (75,948 | ) | 10,522 | |||||
Security Deposit | (14,685 | ) | (16,540 | ) | ||||
Increase (Decrease) in: | ||||||||
Accounts payable and accrued expenses | (81,521 | ) | (7,499 | ) | ||||
Accrued interest payable | 1,346 | 1,346 | ||||||
Net Cash Provided by Operating Activities | 185,186 | 472,051 | ||||||
Cash Flows From Investing Activities: | ||||||||
Increase in Investments | (251,623 | ) | - | |||||
Purchase of Fixed Assets and Domain Name | (51,788 | ) | (17,005 | ) | ||||
Net Cash Used In Investing Activities | (303,411 | ) | (17,005 | ) | ||||
Net Cash Provided By Financing Activities | - | - | ||||||
Net Increase (Decrease) in Cash | (118,225 | ) | 455,046 | |||||
Cash at Beginning of Period | 1,529,354 | 318,143 | ||||||
Cash at End of Period | $ | 1,411,129 | $ | 773,189 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 1,247 | $ | - | ||||
Cash paid for taxes | $ | 78,210 | $ | 1,809 | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
15,000 shares of common stock were issued during the period for a domain name with a fair value of $14,850. | ||||||||
See accompanying notes to condensed consolidated unaudited financial statements
4
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(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 2009 and 2008 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.
5
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
(E) Investments
Included in investments at June 30, 2009 is a certificate of deposit held at a U.S. financial institution of $251,623 that matures on December 9, 2009. The investments are considered “available for sale.”
The Company accounts for investments under SFAS No. 157, Fair Value Measurements (“Statement No. 157”). Statement No. 157 defines and establishes a framework for measuring fair value and expands disclosures about fair value instruments. In accordance with Statement No. 157, the Company has categorized its financial assets, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. The Company does not have any financial liabilities that are required to be measured at fair value on a recurring basis and all assets have been valued using level 1 inputs. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets recorded on the balance sheets are categorized based on the inputs to the valuation techniques as follows:
o | Level 1 – Financial assets whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which the company has the ability to access at the measurement date (examples include active exchange-traded equity securities and most U.S. Government and agency securities). |
o | Level 2 – Financial assets whose value are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. The Company does not currently have any Level 2 financial assets. |
o | Level 3 – Financial assets whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own view about the assumptions a market participant would use in pricing the asset. The Company does not currently have any Level 3 financial assets. |
(F) Income Taxes
The Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under Statement 109, 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 Statement 109, 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.
6
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
(G) 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 and five year life for computer equipment.
In accordance with Statement of Financial Statements (“SFAS”) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”, 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 six months ended June 30, 2009 and 2008, respectively.
(H) Intangible Assets
In accordance with Statement of Financial Accounting Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets, 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
(I) Stock-Based Compensation
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), 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. In March 2005 the SEC issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107 expresses views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS 123R. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under SFAS 123. Effective January 1, 2006, the Company has fully adopted the provisions of SFAS No. 123R and related interpretations as provided by SAB 107. 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.
7
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by SFAS No. 123(R). EITF Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” 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 EITF.
(J) Business Segments
The Company operates in one segment and therefore segment information is not presented.
(K) Income Per Share
Basic income per common share is computed based upon the weighted average common shares outstanding as defined by Financial Accounting Standards No. 128, “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, 2008 the 1,330,000 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, 2009, 3,430,000 shares issuable upon the exercise of stock options and warrants were not included in the computation of diluted income per share because their inclusion is anti-dilutive.
8
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
For the | For the | For the | For the | |||||||||||||
three months ended | three months ended | six months ended | six months ended | |||||||||||||
June 30, 2009 | June 30, 2008 | June 30, 2009 | June 30, 2008 | |||||||||||||
Net income (loss) for the period | $ | 46,430 | $ | 144,862 | $ | 112,902 | $ | 335,371 | ||||||||
Weighted average number of shares outstanding | 10,814,417 | 10,337,923 | 10,795,210 | 10,335,898 | ||||||||||||
Basic earnings per share | $ | 0.00 | $ | 0.01 | $ | 0.01 | $ | 0.03 |
The following table sets for 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 ended | |||||||||||||
June 30, 2009 | June 30, 2008 | June 30, 2009 | June 30, 2008 | |||||||||||||
Net income (loss) for the year | $ | 46,430 | $ | 144,862 | $ | 112,902 | $ | 335,371 | ||||||||
Add: Adjustment for interest on 6% convertible notes | 682 | 682 | 1,365 | 1,365 | ||||||||||||
Adjusted net income (loss) | $ | 47,112 | $ | 145,544 | $ | 114,267 | $ | 336,736 | ||||||||
Weighted average number of shares outstanding | 10,814,417 | 10,337,923 | 10,795,210 | 10,335,898 | ||||||||||||
Add: Weighted Average shares assumed to be issued upon conversion of 6% convertible notes as of the date of issuance | 175,185 | 175,185 | 175,185 | 175,185 | ||||||||||||
Dilutive Warrants and options as of beginning of period | - | 902,941 | - | 902,941 | ||||||||||||
Weighted average number of common and common equivalent shares | 10,989,602 | 11,414,024 | 10,970,395 | 11,414,024 | ||||||||||||
Diluted earnings(loss) per share | $ | 0.00 | $ | 0.01 | $ | 0.01 | $ | 0.03 |
9
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
(L) 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.
(M) Research and Development
The Company has adopted the provisions of Emerging Issues Task Force 00-2, “Accounting for Web Site Development Costs.” 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.
(N) Concentration of Credit Risk
At June 30, 2009, 19.29% of sales earned were due from Customer A, 35.54% were due from Customer B, 15.20% were due from Customer C.
At June 30, 2009, 18.32% of Accounts Receivable are due from Customer A, 42.15% are due from Customer B, and 18.69% were due from Customer C.
At June 30, 2008, 20.48% of sales earned were due from Customer A, 20.31% were due from Customer B, and 10.77% were due from Customer E.
The Company at times has cash in banks in excess of FDIC insurance limits. The Company had approximately $689,725 in excess of FDIC insurance limits as of June 30, 2009.
(O) Revenue Recognition
The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “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.
10
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
The Company recognizes revenue as earned on a click through basis. As the traffic moves through the websites per click, the contract amount is recognized as revenue. “Click-throughs” are defined as the number of times a user clicks on an advertisement or search result. The Company also recognizes revenue on a cost-per-impression basis where advertisers pay the Company based on the number of times their ads appear in the Company’s websites.
The Company also recognizes revenue based on revenue sharing agreements. In a particular agreement the Company received 50% of gross revenue of initial and renewing customer subscriptions through June 11, 2008. After June 11, 2008, the agreement was amended so that the Company receives $4 per initial and renewing customer subscriptions after June 12, 2008. Gross revenues are delivered to the Company within 30 days after each calendar month. Additionally, on August 20, 2008, the agreement was amended for a one time payment of $1 each for 1,412 registrations. This was a one time payment and will not be paid in the future. Effective March 11, 2009 the agreement has been terminated and no additional payments were received under the agreement subsequent to March 10, 2009.
(P) Cost of Revenue
Cost of revenues includes the expenses associated with the operation of our data centers, including labor, consulting, hosting, server and web design and programming expenses.
(Q) Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
(R) Advertising
Advertising costs are expensed as incurred. Advertising expense was $0 and $10,470 for the six months ended June 30, 2009 and 2008, respectively.
11
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
(S) Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS No. 165 “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 sets forth (1) The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) The disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The adoption of this statement did not have a material effect on the Company’s financial statements.
In June 2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. SFAS 166 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of SFAS 166 will have on its financial statements.
In June 2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 improves financial reporting by enterprises involved with variable interest entities and to address (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, as a result of the elimination of the qualifying special-purpose entity concept in SFAS 166 and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of SFAS 167 will have on its financial statements.
In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”. The FASB Accounting Standards Codification (“Codification”) will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in SFAS 168. All other accounting literature not included in the Codification is nonauthoritative. The Codification is not expected to have a significant impact on the Company’s financial statements.
12
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
NOTE 2 PROPERTY AND EQUIPMENT
At June 30, 2009 and December 31, 2008 property and equipment is as follows:
As of June 30, 2009 | As of December 31, 2008 | |||||||
Computer/Equipment and Furniture | $ | 72,844 | $ | 31,142 | ||||
Website Domain Name | 24,938 | - | ||||||
Software | 1,353 | 1,353 | ||||||
Website costs | 40,500 | 40,500 | ||||||
Less accumulated depreciation and amortization | (50,264 | ) | (41,698 | ) | ||||
$ | 89,371 | $ | 31,297 |
Depreciation and amortization expense for the six months ended June 30, 2009 and 2008 was $8,564, and $5,360, respectively.
NOTE 3 STOCKHOLDERS’ EQUITY
(A) Common Stock Issued for Services
On June 1, 2009, the Company issued 12,500 shares of common stock as compensation pursuant to the terms of an employment agreement, having a fair value of $9,876 based upon fair value on the date of grant. As of June 30, 2009 $6,584 is recorded as consulting expense and $3,292 is recorded as deferred compensation.
On June 1, 2009, the Company issued 3,500 shares of common stock for consulting services having a fair value of $2,765 based upon fair value on the date of grant (See Note (6B)).
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On May 12, 2008, the Company authorized the issuance of 21,428 shares of common stock as compensation having a fair value of $15,000. The shares vested on April 22, 2009. As of June 30, 2009, $15,000 is recorded as compensation expense.
On May 1, 2009, the Company issued 7,000 shares of common stock for consulting services having a fair value of $4,690 based upon fair value on the date of grant (See Note (6B)).
On May 4, 2009, the Company authorized the issuance of 20,000 shares of common stock as compensation having a fair value of $15,800. The shares vest equally on May 4, 2010 and May 4, 2011 and require a one year holding period. As of June 30, 2009, $566 is recorded as compensation expense.
On April 22, 2009, the Company authorized the issuance of 20,000 shares of common stock as compensation having a fair value of $14,000. The shares vest equally on April 22, 2010 and April 22, 2011 and require a one year holding period. As of June 30, 2009, $591 is recorded as compensation expense.
On March 1, 2009, the Company issued 12,500 shares of common stock as compensation pursuant to the terms of an employment agreement, having a fair value of $11,875 based upon fair value on the date of grant. As of June 30, 2009 $11,875 is record as consulting expense (See Note 6 (B)).
On March 2, 2009, the Company issued 3,500 shares of common stock for consulting services having a fair value of $3,325 based upon fair value on the date of grant (See Note 6 (B)).
On February 3, 2009, the Company issued 5,000 shares of common stock for services having a fair value of $4,950 based upon fair value on the date of grant. As of June 30, 2009 $1,980 is recorded as consulting expense and $2,970 is recorded as deferred compensation (See Note (6B)).
On February 5, 2009, the Company authorized the issuance of 50,000 shares of common stock as compensation having a fair value of $49,000. The shares vest equally on February 5, 2010 and February 5, 2011 and require a one year holding period. As of June 30, 2009, $6,041 is recorded as compensation expense.
On February 3, 2009, the Company issued 3,500 shares of common stock for consulting services having a fair value of $3,465 based upon fair value on the date of grant (See Note 6(B)).
14
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
On January 2, 2009, the Company issued 3,500 shares of common stock for consulting services having a fair value of $2,275 based upon fair value on the date of grant (See Note 6(B)). .
On January 15, 2009, the Company issued 15,000 shares of Company’s common stock, having a fair value of $14,850 on the grant date and $10,000 in exchange for the purchase of a website domain name.
(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, 2009, and the related changes during these periods are presented below.
Number of Options | Weighted Average Exercise Price | |||||||
Stock Options | ||||||||
Balance at December 31, 2008 | 3,180,000 | 0.89 | ||||||
Granted | - | |||||||
Exercised | - | |||||||
Forfeited | - | |||||||
Balance at June 30, 2009 | 3,180,000 | |||||||
Options exercisable at June 30, 2009 | 2,860,000 | $ | 0.89 | |||||
Weighted average fair value of options granted during 2009 | $ | -0- |
Of the total options granted, all 2,860,000 are fully vested, exercisable and non-forfeitable.
The following table summarizes information about stock options and warrants for the Company for the six months Ended June 30, 2009 and 2008:
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 | |||||||||||||||||
$ | 0.40 | 1,500,000 | 3.46 | $ | 0.40 | 1,500,000 | $ | 0.40 | ||||||||||||||
$ | 0.50 - 3.00 | 1,680,000 | 3.13 | $ | 1.46 | 1,360,000 | $ | 1.31 |
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SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
2008 Options Outstanding | Options Exercisable | |||||||||||||||||||||
Range of Exercise Price | Number Outstanding at June 30, 2008 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at June 30, 2008 | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.40 | 1,500,000 | 4.46 | $ | 0.40 | 1,500,000 | $ | 0.40 | ||||||||||||||
$ | 0.50 - 3.00 | 1,300,000 | 3.96 | $ | 1.46 | 1,300,000 | $ | 1.29 |
2009 Warrants 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 | |||||||||||||||||
$ | 1.20 | 250,000 | 1.01 | $ | 1.20 | 250,000 | $ | 1.20 |
2008 Warrants Outstanding | Options Exercisable | |||||||||||||||||||||
Range of Exercise Price | Number Outstanding at June 30, 2008 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at June 20, 2008 | Weighted Average Exercise Price | |||||||||||||||||
$ | 1.20 | 250,000 | 2.01 | $ | 1.20 | 250,000 | $ | 1.20 |
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, 2009) and bearing interest at a rate of 6% per annum. All debt can be converted at the rate of $0.25 per share for each $1 of debt. The cash offering price at that time was $0.25 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 200,000 shares of common stock. The fair value of the common stock was $0.25 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, 2009, the Company had a remaining balance due of $35,348.
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SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
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, 2009 the Company had a remaining balance due March 1, 2010 of $10,138.
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 100,000 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.
In January 2008, the Company entered into agreements with employees for two-year terms at annual salaries for the first year totaling $169,000 and minimum bonuses of $25,000 subject to performance requirements. The annual salaries and bonuses for the second year will be determined at a rate no less than the first year rate. In addition, the Company will issue the 25,000 shares of stock and 125,000 options (25,000 at $1.00, 50,000 at $2.00, and 50,000 at $3.00) over the term in each of the two years, and up to an additional 35,000 shares of stock and 145,000 options (25,000 at $1.00, 70,000 at $2.00, and 50,000 at $3.00) subject to performance requirements. The agreements also call for the employees to receive health benefits (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 100,000 shares of common stock, an option to purchase 1,000,000 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 250,000 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 June 30, 2009 the employment agreement has not been extended, however the employment relationship had continued under the same terms with an annual compensation of $175,000 Beginning February 28, 2009 the co-founder will also receive a $750 per month transportation allowance. (See Note 3(A)).
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SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
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 June 30, 2009 the employment agreement has not been extended, however the employment relationship had continued under the same terms with an annual compensation of $200,000.
(B) Consulting Agreements
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 basis for each advertisement passing through the third party’s computer server
On January 21, 2009, the Company entered into a one year consulting agreement with an unrelated third party to provide computer consulting services. In exchange for the services provided the Company issued 5,000 shares of common stock for consulting services having a fair value of $4,950 based upon fair value on the date of grant. As of June 30, 2009 $1,980 is recorded as consulting expense and $2,970 is recorded as deferred compensation (See Note (3(B)).
On September 11, 2008, 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 50,000 shares of the Company’s common stock.
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SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
On September 4, 2008, the Company entered into a one year consulting agreement with an unrelated third party to provide professional services. In exchange for the services provided the Company was required to issue 42,000 shares of the Company’s common stock on a monthly basis of 3,500 shares per month and a monthly payment of $3,000 for September through November increasing to $7,500 per month for December 2008 through August 2009. In addition, upon satisfactory performance of services for the initial three month period the Company was to issue 18,000 shares of stock or a cash payment of $13,500. The additional payment was to be issued no later than December 31, 2008. Effective, December 3, 2008 the terms of the original agreement were modified. The Company made a one-time payment of $5,000 and issued 15,000 shares of the Company’s common stock representing full satisfaction of the additional payment required. The term of the agreement was then amended from December 4, 2008 through March 3, 2009 to reflect a revised monthly fee of $5,000 and 10,500 shares issued in equal monthly installments of 3,500 shares. The agreement subsequently continued on a month to month basis and was terminated effective on August 3, 2009 with no further payment due (See Note 3(A)).
On May 1, 2008, the Company entered into a one year consulting agreement with an unrelated third party to provide professional services. In exchange for the services provided the Company will be required to issue 50,000 shares of the Company’s common stock on a quarterly basis beginning with May 1, 2008 and continuing on September 1, 2008, December 1, 2008 and March 1, 2009. This agreement was terminated on January 2, 2009 when the consultant became a full time employee.
Effective January 9, 2008, the Company entered into a consulting agreement with an unrelated third party to provide marketing and advertising services. In exchange for consulting services the Company granted an option to purchase 10,000 shares of the Company’s common stock at an exercise price of $1. These options vest immediately and have an expiration date of 3 years (See Note 3(B)).
On October 1, 2007, the company entered in to a three month consulting agreement with a public-relations company. The company was required to issue 50,000 shares of common stock and pay $17,000 payable in two installments. On October 1, 2007 $10,000 was paid and on October 2, 2007 50,000 shares of common stock were issued. The $7,000 payment was being disputed by the Company due to breach of contract. In May 2009, the Company entered into a mutual release and settlement agreement. The remaining outstanding balance owed by the Company has been waived and no additional payments are due.
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SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(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 expires on April 30, 2010. Subsequent to the Company’s move to the new corporate location, this space was subleased for 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.
(D) Investment Agreement
On November 22, 2006, we entered into an Investment Agreement (the “Agreement”) with Dutchess Private Equities Fund, Ltd. (“Dutchess”) to provide us with an equity line of credit. Pursuant to this Agreement, Dutchess is contractually obligated to purchase up to $10,000,000 of the Company’s Stock over the course of 36 months (“Line Period”), after our registration statement was declared effective (“Effective Date”). The amount that the Company is entitled to request from each of the purchase “Puts”, is equal to either 1) $100,000 or 2) 200% of the average daily volume (U.S market only) (“ADV”), multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date. The ADV is computed using the ten (10) trading days prior to the Put Date. The Purchase Price for the common stock identified in the Put Notice is set at ninety-five percent (95%) of the lowest closing bid price of the common stock during the Pricing Period. The Pricing Period is equal to the period beginning on the Put Notice Date and ending on and including the date that is five (5) trading days after such Put Notice Date. As of June 30, 2009, we have never accessed this line of credit and do not anticipate accessing this line of credit in 2009. This Agreement expires in November 2009 and we do not anticipate renewing it or extending it at that time.
(E) Placement Agent Agreement
On August 20, 2008, we entered into a non-exclusive Placement Agent Agreement (the “Agreement”) with a firm to serve as our placement agent for certain transactions. Pursuant to this Agreement, the placement agent will receive a fee based on a formula that includes cash and warrants for transactions which occur via an introduction made by the firm. As of June 30, 2009, we have not entered into any such transactions.
NOTE 7 RELATED PARTY TRANSACTIONS
On December 1, 2007 the Company entered into a one year employment agreement with an officer. As compensation for services received the Company is required to issue 100,000 shares of common stock, an option to purchase 1,000,000 shares and an annual compensation of $160,000 per year beginning January 2008. As of June 30, 2009 the employment agreement has not been extended, however the employment relationship has continued under the same terms with an annual compensation of $175,000.
20
SNAP INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)
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.
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 $0.25 per share for each $1 of debt. The cash offering price at that time was $0.25 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 200,000 shares of common stock. The fair value of the common stock was $0.25 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, 2009, 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, 2009, the Company had a remaining balance due March 1, 2010 of $10,138.
NOTE 8 SUBSEQUENT EVENT
In preparing these condensed consolidated financial statements, we have evaluated events and transactions for potential recognition or disclosure through August 14, 2009, the date the consolidated financial statements were issued.
On July 9, 2009, the Company issued 3,500 shares of common stock for consulting services having a fair value of $1,575 based upon fair value on the date of grant.
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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 eleven 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 8,227,000 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 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. 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 13 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. FlirtWith 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.
Collectively we have nine applications across four social networking platforms (Facebook, MySpace, Hi5, & Bebo) along with the Are You Interested iPhone mobile application platform for mobile dating and AreYou Interested.com, a stand-alone online dating website. Our three application brands are Are You Interested, Meet New People, & Flirt With Me. As of June 30, 2009 we have in excess of 19 Million total installations of our applications.
On June 10, 2009 we incorporated SNAP Mobile Limited, a United Kingdom Corporation as a wholly-owned subsidiary.
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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 13 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.
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 leading pure dating applications on Facebook.
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, 2009, 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
Presently we generate the majority of our revenue from advertisements placed on our various applications. We run various different types of advertisements through a number of advertising networks. Depending on the type of advertisement, we are generally paid when a user either views the advertisement, clicks the link in the advertisement, or signs up for the product or service that is being advertised. Advertising payouts can vary greatly and are subject to numerous external factors. We do not presently employ any direct advertising salesmen. Negotiating direct advertising deals and targeting and optimizing our advertisements would likely increase the payouts we receive and this is something we hope to do in the future as resources permit.
In the future we may derive a larger percentage of our revenue from sources other than advertisements. In 2008 we began implementing premium fee-based content on our applications and may expand those offerings as time goes on. We have begun testing and will consider converting one or more of our applications to a subscription-based pay model in the near future. Our decision to convert to a pay model and/or charge for premium content is dependent upon a variety of factors. Some of these factors include how much activity there is on the applications, the nature of the payment processing tools available on the underlying Social Networking websites, the results of our internal testing, as well as our evaluation of the prioritization of revenue versus growth at the time. Each application will be evaluated on a case-by-case basis in light of the above factors. We have also begun implementing other revenue sources that have proven successful in the industry including the introduction of a “virtual currency” on several of our applications and the sale of premium “virtual goods,” and will consider incorporating these revenue sources into more of our products in the future.
Our Business Objectives
· Continue to upgrade our existing applications and products
. 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 exploration of mobile platforms
· Identify & explore new opportunities that emerge in our rapidly evolving industry
. Increase our testing and analysis of revenue models including premium and subscription services.
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Results of Operations for the Quarter and Six Months ended June 30, 2009 Compared to the Quarter and Six Months ended June 30, 2008
Revenues
Revenue increased from $533,257 for the quarter ended June 30, 2008 to $784,242 for the quarter ended June 30, 2009, an increase of $250,985. Revenue increased from $1,053,159 for the six months ended June 30, 2008 to $1,553,214 for the six months ended June 30, 2009, an increase of $500,055.
These revenues are primarily generated from advertisements and premium features placed on our various applications. The increase in revenue was primarily due to higher engagement on our applications in 2009 compared to the same time period in 2008 as well as the introduction of premium features to our applications to generate additional revenue. We did not offer premium fee-generating features on our applications during the same period in 2008.
Cost of Revenue
Cost of Revenue increased from $195,854 for the quarter ended June 30, 2008 to $298,857 for the quarter ended June 30, 2009, an increase of $103,003. Cost of Revenue increased from 331,947 for the six months ended June 30, 2008 to $606,897 for the six months ended June 30, 2009, an increase of $274,950. The increase in Cost of Revenue is primarily attributable to the overall expansion of our operations as compared to the previous year. As our applications grew in size and traffic increased, our hosting costs increased substantially as did other costs associated with the programming, hosting, and maintenance of our applications.
Operating Expenses
Operating Expenses for the quarter ended June 30, 2009 increased to $354,350 from $192,270 for the quarter ended June 30, 2008, representing an increase of $162,080. Operating Expenses for the six months ended June 30, 2009 increased to $658,709 from $385,402 for the six months ended June 30, 2008, representing an increase of $273,307.
The increase in Operating Expenses is primarily attributable to the overall expansion of our operations as compared to the previous year. Primary Operating Expenses include Compensation Expense, and General & Administrative Expenses
Compensation Expense for the quarter ended June 30, 2009 increased to $175,363 from $110,031 for the quarter ended June 30, 2008, representing a increase of $65,332. Compensation Expense for the six months ended June 30, 2009 increased to $318,113 from 188,492 for the six months ended June 30, 2008, representing an increase of $129,621. The increase in Compensation Expense is primarily attributable to the additional hires to increase our staff.
General and Administrative Expenses for the quarter ended June 30, 2009 increased to $65,339 from $25,266 for the quarter ended June 30, 2008, representing an increase of $40,073. General and Administrative Expenses for the six months ended June 30, 2009 increased to $111,686 from $97,696 for the six months ended June 30, 2008, representing an increase of $13,990. 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 quarter ended June 30, 2009 increased to $32,916 from $14,101 for the quarter ended June 30, 2008, representing an increase of $18,815. Professional Fees for the six months ended June 30, 2009 increased to $82,200 from $36,755 for the six months ended June 30, 2008, representing an increase of $45,445. The increase in professional fees was due to the overall expansion of our operations as compared to the previous year.
Net Income
Net Income decreased to $46,430 for the quarter ended June 30, 2009 from $144,862 for the quarter ended June 30, 2008, a decrease of $98,432. Net Income decreased to $112,902 for the six months ended June 30, 2009 from $335,371 for the six months ended June 30, 2008, representing a decrease of $222,469.
The decrease in net income was primarily due to the provision for income taxes which were not paid during the same period last year due to a Net Operating Loss carry-forward from previous quarters.
Liquidity and Capital Resources
The Company is currently financing its 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.
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As of June 30, 2009, the Company had $1,411,129 in cash. Our cash declined from December 31, 2008 by $118,225 due to us investing $250,000 of our available cash in a 9-month Certificate of Deposit which expires on December 9, 2009 in an effort to gain a higher return on the capital and diversify our cash in order to reduce our FDIC insurance risk. Historically, the Company’s principal working capital needs have been met through continuing operations. As the Company grows and expands its operations, the need for working capital will increase. The Company expects to finance its internal growth with cash provided from operations, borrowings, debt or equity offerings, or some combination thereof.
The Company’s net income for the six months ended June 30, 2009 was $112,902. Net cash provided by operating activities was $185,186 during the six months ended June 30, 2009 as compared to cash provided by operating activities of $472,051 for the six months ended June 30, 2008. Cash provided by operating activities for the six months ended June 30, 2009 mainly consisted of net income of $112,902, a decrease in accounts receivable of $91,638 and offset by a decrease in accrued expenses of $81,521. The Company has an operating profit at this time and intends to use its cash to continue to funds its operations going forward.
Transaction with Dutchess Private Equities Fund II, LLP
On November 22, 2006, we entered into an Investment Agreement (the “Agreement”) with Dutchess Private Equities Fund, Ltd. (“Dutchess”) to provide us with an equity line of credit. Pursuant to this Agreement, Dutchess is contractually obligated to purchase up to $10,000,000 of the Company’s Stock over the course of 36 months (“Line Period”), after our registration statement was declared effective (“Effective Date”). The amount that the Company is entitled to request from each of the purchase “Puts”, is equal to either 1) $100,000 or 2) 200% of the average daily volume (U.S market only) (“ADV”), multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date. The ADV is computed using the ten (10) trading days prior to the Put Date. The Purchase Price for the common stock identified in the Put Notice is set at ninety-five percent (95%) of the lowest closing bid price of the common stock during the Pricing Period. The Pricing Period is equal to the period beginning on the Put Notice Date and ending on and including the date that is five (5) trading days after such Put Notice Date. As of June 30, 2009, we have never accessed this line of credit and do not anticipate accessing this line of credit in 2009. This Agreement expires in November 2009 and we do not anticipate renewing it or extending it at that time.
Critical Accounting Pronouncements
Our significant accounting policies are summarized in Note 1 of our financial statements.
We have adopted the following accounting standards. While all of these significant accounting policies impact our financial condition, our views of these policies are critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report:
We account for income taxes under the Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under Statement 109, 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 SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), 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. In March 2005 the SEC issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107 expresses views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies.
SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS 123R. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under SFAS 123. Effective January 1, 2006, the Company has fully adopted the provisions of SFAS No. 123R and related interpretations as provided by SAB 107. 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 SFAS No. 123(R). EITF Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” 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 EITF.
We have adopted the provisions of Emerging Issues Task Force 00-2, “Accounting for Web Site Development Costs.” 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 Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “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.
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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 also recognizes revenue based on the terms of a content licensing agreement. In a particular agreement the Company receives 50% of gross revenue of initial and renewing customer subscriptions where the initial subscriptions occurred through June 11, 2008. After June 11, 2008, the agreement was amended so that the Company receives a one-time payment of $4 per customer registration where such registration first occurs after June 12, 2008. Gross revenues are delivered to the Company within 30 days after each calendar month. Additionally, on August 20, 2008, the agreement was further amended to include a one time payment of $1,412 for all registrations during the period June 11, 2008 to August 20, 2008 for U.K registered uses not covered by the contract. This was a one time payment and will not be paid in the future. Effective March 11, 2009 the agreement has been terminated and no additional payments were received under the agreement subsequent to March 10, 2009.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS No. 165 “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 sets forth (1) The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) The disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The adoption of this statement did not have a material effect on the Company’s financial statements.
In June 2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. SFAS 166 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of SFAS 166 will have on its financial statements.
In June 2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 improves financial reporting by enterprises involved with variable interest entities and to address (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, as a result of the elimination of the qualifying special-purpose entity concept in SFAS 166 and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of SFAS 167 will have on its financial statements.
In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”. The FASB Accounting Standards Codification (“Codification”) will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in SFAS 168. All other accounting literature not included in the Codification is nonauthoritative. The Codification is not expected to have a significant impact on the Company’s financial statements.
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).
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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
On June 1, 2009, the Company issued 3,500 shares of common stock for consulting services having a fair value of $2,765 based upon fair value on the date of grant. Such shares were issued pursuant to an exemption from registration at Section 4(2) of the Securities Act of 1933.
On May 1, 2009, the Company issued 7,000 shares of common stock for consulting services having a fair value of $4,690 based upon fair value on the date of grant. Such shares were issued pursuant to an exemption from registration at Section 4(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports of Form 8-K.
(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
(b) Reports of Form 8-K
None.
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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 14, 2009 | By: | /s/ Clifford Lerner |
Clifford Lerner President, Chief Executive Officer, Chief Financial Officer |
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