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| STVI.OB > SEC Filings for STVI.OB > Form 10-Q on 16-May-2008 | All Recent SEC Filings |
16-May-2008
Quarterly Report
Caution Regarding Forward-Looking Information
The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
Plan of Operations
During the next three months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations:
? In November 2006, we launched a new online dating website
located at www.IamFreeTonight.com. We continue to own and
operate IamFreeTonight.com but our emphasis has shifted towards
building and operating dating applications for Social Networking
websites. We expect to dedicate most of our resources to our
applications.
? In June 2007, we launched an online dating application built on
Facebook Platform called 'Meet New People' which enables user to
send and receive flirts as well as post when they are free to
hang out. In August 2007 we launched a second dating
application on Facebook called 'Are You Interested' which
enables members to indicate interest in other members. In March
and April we launched 'Are You Interested' and a new application
called 'Flirt With Me' on Myspace Developer Platform and Hi5
Developer Platform. To date more than 12 million users have
added our applications since their launch. In the next 3
months, we will continue to enhance our current applications as
well as consider building similar types of application on other
large social networking sites as they launch or gain additional
traction with their developer platforms.
? We will consider implementing premium fee-based content as well
as converting our applications to a subscription-based pay model
in 2008. Our decision to convert to a pay model and 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 website, as well
as the success and popularity of new features we add in the
coming months. Each application will be evaluated on a
case-by-case basis in light of the above factors. Additionally,
we will consider building stand alone websites bearing similar
features to those of our applications
? Our applications have primarily grown virally to date, with
little spent to market them. We will attempt to continue to
grow our applications virally and do not anticipate spending
significant amounts to market our applications. With a large
user base on our existing applications, we also have the ability
to use cross-promotion to gain new members.
? In order to further grow our applications, we plan to add new
and exciting features to the existing feature-set of our
applications. We also plan to launch similar types of
applications on other social networking sites so we can expose
our applications to a broader audience.
? We will also actively pursue partnership opportunities with
other online dating and social networking companies to increase
our member base and monetize our existing user base. In
addition, we will consider acquiring other applications and
established online dating sites in order to grow our member
bases. We expect to use a combination of stock and cash to
purchase other online dating sites and applications.
Results of Operations for the Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007
Revenue increased from $7 for the three months ended March 31, 2007 to $519,902 for the three months ended March 31, 2008 an increase of $518,895. These revenues are primarily generated from advertisements placed on our Are You Interested & Meet New People applications. The increase was due to the growth of our applications and the increased usage in the first quarter of 2008 which resulted in more traffic to our applications which produced more clicks on advertisements displayed on our applications. This increased our revenues for the quarter.
General and Administrative expenses for the three months ended March 31, 2008 increased to $128,998 from $98,750 for the three months ended March 31, 2007, representing an increase of $30,248. The increase in general and administrative expenses is primarily attributable to the overall expansion of our operations as compared to the previous year, at which time we were a development stage company.
Compensation expense for the three months ended March 31, 2008 increased to $158,360 from $0 for the three months ended March 31, 2007, representing an increase of $158,360. The increase in compensation expense was due to the hiring of new employees and the implementation of a regular payroll for the first time as of January 2008.
Professional fees for the three months ended March 31, 2008 increased to $22,654 from $8,223 for the three months ended March 31, 2007, representing an increase of $14,431. The increase in professional fees was due to the overall expansion of our operations as compared to the previous year, at which time we were a development stage company.
Liquidity and Capital Resources
The Company is currently financing its operations primarily through cash generated by its previous financing activities and revenues derived from advertisements placed on our Facebook applications.
As of March 31, 2008, the Company had $656,708 in cash. 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 three months ended March 31, 2008 was $190,509. During this period we received a total of $519,902 in revenue and had total operating expenses of $329,225. Net cash provided by operating activities was $338,565 during the three months ended March 31, 2008 as compared to cash used in operating activities of $136,270 for three months ended March 31, 2007. Cash provided by operating activities mainly consisted of net income of $190,509, accounts receivable of $94,533, and prepaid expenses of $3,800. 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.
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 depreciates 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.
We recognize 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.
We also recognize revenue based on a share exchange agreement. Company receives 50% of gross revenue of initial and renewing customer subscriptions. Gross revenues are to be delivered to the Company within 30 days after each calendar month.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51". This statement improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require; the ownership interests in subsidiaries held by parties other than the parent and the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income, changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently, when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value, entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 affects those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity's derivative instruments and hedging activities and their effects on the entity's financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We are currently evaluating the disclosure implications of this statement.
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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