Summary of SNAP INTERACTIVE, INC

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.

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.

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.

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.

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.

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).