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STVI > SEC Filings for STVI > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for SNAP INTERACTIVE, INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SNAP INTERACTIVE, INC


14-Aug-2013

Quarterly Report


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

This Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three and six months ended June 30, 2013, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2012 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 14, 2013 and
(iii) the discussion under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K. Aside from certain information as of December 31, 2012, all amounts herein are unaudited. Unless the context otherwise indicates, references to "Snap," "we," "our," "us" and the "Company" refer to Snap Interactive, Inc. and its subsidiaries on a consolidated basis.

Forward-Looking Statements

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See "Forward-Looking Statements." Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Item 1A. Risk Factors" of our most recent Annual Report on Form 10-K.

Overview

We are an Internet company providing services in the expanding social dating market. We own and operate a social dating software application under the AYI brand that can be accessed on Facebook®, mobile devices such as iPhone® and Android®, as well as a stand-alone website. Our application is fully integrated across all gateways we offer and incorporates the Facebook Connect® integration tool, which allows users to "connect" their Facebook profile and friends to our website. Since August 2007, AYI has been one of the leading dating applications on Facebook based on the publicly reported number of DAUs and MAUs.

As of August 9, 2013, we had more than 2.0 million MAUs of the AYI application across all of our platforms. We primarily generate revenue from subscription fees and, as of August 9, 2013, we had approximately 76,000 active subscribers. The number of our DAUs and MAUs as reported by Facebook, which includes non-paying users and paying subscribers, varies greatly on a daily and monthly basis, and is greater than the number of our active subscribers for any same measurement period.

We believe that our extensive user base and number of Facebook connected profiles allows us to create a one-of-a-kind experience for users looking to meet people with similar interests.

Operational and Financial Highlights

During the six months ended June 30, 2013, we executed key components of our objectives for 2013:

? We acquired and transitioned to the AYI.com domain name from the AreYouInterested.com domain name;

? We rebranded to "AYI", a shorter name that is easier for our users to remember; and

? We launched new "social" features for AYI that are designed to integrate a user's interest and social graphs into the online dating experience.

For the remainder of 2013, our business objectives include:

? Growing our base of paid subscribers;

? Continuing to build out our "social" features to improve the online dating experience for all of our users;

? Building a recognizable brand for AYI by expanding our advertising and marketing efforts beyond pure user acquisition;

? Increasing the amount of resources devoted to mobile initiatives and increasing user engagement on our mobile applications, particularly with regard to our Android application; and

? Increasing our rate of advertising and marketing expenditures to increase traffic for the AYI brand.


How We Generate Revenue

We generate the majority of our revenue through subscription fees and premium sales on our AYI application. Most of our revenue is generated from subscriptions originating on our Facebook application, and a significant amount of our revenue is being generated through subscriptions on our mobile application. We also generate a small portion of our revenue through advertisements on our application and micro-transactions that allow users to access certain other premium features.

Users can purchase subscriptions to AYI via credit card, PayPal, direct debit, Boku, or as an In-App purchase through Apple Inc.'s iPhone App Store. Pursuant to Apple Inc.'s terms of service, Apple Inc. retains 30% of the revenue that is generated from sales on our iPhone application through In-App purchases in the United States. Regardless of which payment method is utilized, users may access the AYI application through any of the gateways we offer.

We recognize revenue from monthly premium subscription fees in the month in which the services are provided. Revenues are presented net of refunds, credits, and credit card chargebacks. During 2012, subscriptions were offered in durations of one-, three- and six-month terms. A twelve-month subscription term was added in February 2012. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates. All subscription fees, however, are collected at the time of purchase regardless of the length of the subscription term. Revenues from multi-month subscriptions are recognized over the length of the subscription term rather than when the subscription is purchased. Pursuant to our terms of service, subscriptions automatically renew for periods of the same length as the original subscription term until subscribers terminate their subscriptions.

During August 2012, in conjunction with the launch of the AYI application, we introduced micro-transactions to allow users to access certain premium features by paying for such features without purchasing a recurring subscription. While micro-transactions are not a significant driver of revenue, we believe that such micro-transactions may increase user engagement with the application and the likelihood that users will become a paid subscriber. Revenue from micro-transactions is recognized over a two-month period.

We recognize advertising revenue as earned on a "click-through," impression, registration and subscription basis.

Key Metrics

Our management relies on certain performance indicators to manage and evaluate
our business. The key performance indicators set forth below help us evaluate
growth trends, establish budgets, measure the effectiveness of our advertising
and marketing efforts and assess operational efficiencies. We discuss revenue
and net cash used in operating activities under ?Results of Operations" and
?Liquidity and Capital Resources" below. Deferred revenue and bookings,
additional measures of our performance, are also discussed below.

                                                   Three Months Ended               Six Months Ended
                                                        June 30,                        June 30,
                                                  2013            2012            2013              2012
Consolidated Statements of Operations Data:
Total revenues                                $  3,151,989     $ 5,212,637     $  6,621,549     $ 10,958,088

Consolidated Balance Sheets Data:
Deferred revenue at period end                $  2,031,702     $ 3,654,943     $  2,031,702     $  3,654,943

Consolidated Statements of Cash Flows Data:
Net cash used in operating activities         $ (1,480,086 )   $  (138,051 )   $ (2,651,931 )   $ (1,697,958 )


Deferred Revenue

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

Bookings

Bookings is a financial measure representing the aggregate dollar value of subscription fees and micro-transactions received during the period but is not a financial measure that is calculated and presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"). We calculate bookings as subscription revenue recognized during the period plus the change in deferred revenue recognized during the period. We record subscription revenue from subscription fees and micro-transactions as deferred revenue and then recognize that revenue ratably over the length of the subscription term. We use bookings internally in analyzing our financial results to assess operational performance and to assess the effectiveness of, and plan future, user acquisition campaigns. We believe that this non-GAAP financial measure is useful in evaluating our business because we believe, as compared to subscription revenue, it is a better indicator of the subscription activity in a given period. We believe that both management and investors benefit from referring to bookings in assessing our performance and when planning, forecasting and analyzing future periods.

While the factors that affect bookings and subscription revenue are generally the same, certain factors may affect subscription revenue more or less than such factors affect bookings in any period. While we believe that bookings is useful in evaluating our business, it should be considered as supplemental in nature and it is not meant to be a substitute for subscription revenue recognized in accordance with GAAP.

The following table presents a reconciliation of subscription revenue to bookings for each of the periods presented:

                                               Three Months Ended                Six Months Ended
                                                    June 30,                         June 30,
                                              2013            2012            2013              2012
Reconciliation of Subscription Revenue
to Bookings
Subscription revenue                       $ 3,150,319     $ 5,110,907     $ 6,578,210      $ 10,696,945
Change in deferred revenue                     (36,150 )       224,865        (492,527 )         516,537
Bookings                                   $ 3,114,169     $ 5,335,772     $ 6,085,683      $ 11,213,482

Limitations of Bookings

Some limitations of bookings as a financial measure include that:

? Bookings does not reflect that we recognize revenue from subscription fees and micro-transactions over the length of the subscription term; and ? Other companies, including companies in our industry, may calculate bookings differently or choose not to calculate bookings at all, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider bookings along with other financial performance measures, including total revenues, subscription revenue, deferred revenue, net loss and our financial results presented in accordance with GAAP.

Results of Operations

The following table sets forth Consolidated Statements of Operations data for
each of the periods indicated as a percentage of total revenues:

                                               Three Months Ended              Six Months Ended
                                                    June 30,                       June 30,
                                              2013            2012            2013           2012
Revenues                                        100.0 %         100.0 %         100.0 %        100.0 %
Costs and expenses:
Programming, hosting and technology              42.5 %          19.1 %          40.8 %         17.3 %
Compensation                                     34.2 %          20.4 %          28.7 %         18.0 %
Professional fees                                 6.6 %           3.5 %           7.2 %          3.0 %
Advertising and marketing                        30.2 %          58.0 %          31.5 %         68.8 %
General and administrative                       35.5 %          20.9 %          34.2 %         18.9 %
Total costs and expenses                        149.0 %         122.0 %         142.3 %        126.1 %
Loss from operations                            (49.0 )%        (22.0 )%        (42.3 )%       (26.1 )%
Interest income, net                              0.0 %           0.2 %           0.0 %          0.2 %
Mark-to-market adjustment on warrant
liability                                         2.2 %           2.2 %          17.7 %        (10.7 )%
Other expense                                     0.0 %          (0.3 )%          0.0 %         (0.2 )%
Net loss before income tax                      (46.7 )%        (19.8 )%        (24.6 )%       (36.8 )%
Provision for income taxes                        0.0 %           0.0 %           0.0 %          0.0 %
Net loss                                        (46.7 )%        (19.8 )%        (24.6 )%       (36.8 )%


Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

Revenues

Revenues decreased to $3,151,989 for the three months ended June 30, 2013, from $5,212,637 for the three months ended June 30, 2012. The decrease is primarily related to lower revenues from subscription sales on the AYI brand in the three months ended June 30, 2013 as compared to the three months ended June 30, 2012. We believe the decrease in revenues from subscription sales for the three months ended June 30, 2013 primarily resulted from our reduced advertising and marketing expense for the period as compared to the three months ended June 30, 2012. We intentionally reduced our user acquisition campaigns from the second half of 2012 through January 2013, which primarily affected new subscriptions, while we focused on rebuilding, testing and optimizing the redesigned AYI application. We began to increase user acquisition campaigns in January 2013 and intend to increase our user acquisition campaigns during the remainder of 2013. The following table sets forth our subscription revenue, advertising revenue and total revenues for the three months ended June 30, 2013 and the three months ended June 30, 2012, the decrease between those periods, the percentage decrease between those periods, and the percentage of total revenue that each represented for those periods:

                                                                                                      % Revenue
                             Three Months Ended                                                  Three Months Ended
                                  June 30,                                                            June 30,
                            2013            2012           Decrease         % Decrease           2013           2012
Subscription revenue     $ 3,150,319     $ 5,110,907     $ (1,960,588 )           (38.4 )%          99.9 %         98.0 %
Advertising revenue            1,670         101,730         (100,060 )           (98.4 )%           0.1 %          2.0 %
Total revenues           $ 3,151,989     $ 5,212,637     $ (2,060,648 )           (39.5 )%         100.0 %        100.0 %

Subscription - The results for the three months ended June 30, 2013 reflect a decrease in subscription revenue of $1,960,588, or 38.4%, as compared to the three months ended June 30, 2012. The decrease in subscription revenue for the three months ended June 30, 2013, was primarily driven by a decrease in our marketing and advertising expense versus the prior year period, which primarily affects new subscriptions. Subscription revenue as a percentage of total revenue was 99.9% for the three months ended June 30, 2013, as compared to 98.0% for the three months ended June 30, 2012.

Advertising - The results for the three months ended June 30, 2013 reflect a decrease in advertising revenue of $100,060, or 98.4%, as compared to the three months ended June 30, 2012. We believe the decrease in advertising revenue resulted from our discontinuation of online advertising campaigns in February 2013 in order to focus on improving a user's experience on AYI, which we believe will be more valuable in the long-term. Advertising revenue as a percentage of total revenue was 0.1% for the three months ended June 30, 2013, as compared to 2.0% for the three months ended June 30, 2012.


Costs and Expenses

Total costs and expenses for the three months ended June 30, 2013 reflect a
decrease in costs and expenses of $1,661,050, or 26.1%, as compared to the three
months ended June 30, 2012. The following table presents our costs and expenses
for the three months ended June 30, 2013 and the three months ended June 30,
2012, the increase or decrease between those periods, and the percentage
increase or decrease between those periods:

                                               Three Months Ended                                 %
                                                    June 30,                 Increase         Increase
                                              2013            2012          (Decrease)       (Decrease)
Programming, hosting and technology        $ 1,339,930     $   995,765     $    344,165             34.6 %
Compensation                                 1,078,536       1,063,503           15,033              1.4 %
Professional fees                              206,703         183,909           22,794             12.4 %
Advertising and marketing                      952,248       3,023,656       (2,071,408 )          (68.5 )%
General and administrative                   1,118,700       1,090,334           28,366              2.6 %
Total costs and expenses                   $ 4,696,117     $ 6,357,167     $ (1,661,050 )          (26.1 )%

Programming, Hosting and Technology - The results for the three months ended June 30, 2013 reflect an increase in programming, hosting and technology expense of $344,165, or 34.6%, as compared to the three months ended June 30, 2012. The increase in this expense for the three months ended June 30, 2013, was primarily driven by increased salary expenses due to expansion of our engineering and development staff, and increased expenses related to hosting and bandwidth, primarily to support the redesigned AYI application. Programming, hosting and technology expense as a percentage of total revenues was 42.5% for the three months ended June 30, 2013, as compared to 19.1% for the three months ended June 30, 2012.

Compensation - The results for the three months ended June 30, 2013 reflect an increase in compensation expense, which excludes the cost of developers and programmers included in programming, hosting and technology expense above, of $15,033, or 1.4%, as compared to the three months ended June 30, 2012. The increase in compensation expense for the three months ended June 30, 2013 was primarily driven by increased stock-based compensation expense, which was offset by a reduced headcount in management and support areas as compared to the comparable period in 2012. We anticipate increased compensation expense in future periods as we expect to hire additional employees during the remainder of 2013. Compensation expense as a percentage of total revenues was 34.2% for the three months ended June 30, 2013, as compared to 20.4% for the three months ended June 30, 2012.

Professional fees - The results for the three months ended June 30, 2013 reflect an increase in professional fees of $22,794, or 12.4%, as compared to the three months ended June 30, 2012. The increase in professional fees for the three months ended June 30, 2013, was primarily driven by an increase in accounting fees as a result of the change in accounting firms and an increase in legal expenses. Professional fees as a percentage of total revenues were 6.6% for the three months ended June 30, 2013, as compared to 3.5% for the three months ended June 30, 2012.

Advertising and Marketing - The results for the three months ended June 30, 2013 reflect a decrease in advertising and marketing expense of $2,071,408, or 68.5%, as compared to the three months ended June 30, 2012. The decrease in advertising and marketing expense for the three months ended June 30, 2013, as compared to the prior year period, was primarily driven by reducing the number of user acquisition campaigns. We also significantly reduced our rate of advertising and marketing expense as we continued to optimize the redesigned AYI application. We anticipate that advertising and marketing expense will increase during the remainder of 2013 (as compared to our advertising and marketing expense for the three months ended June 30, 2013) as we promote the redesigned AYI application. Advertising and marketing expense as a percentage of total revenues was 30.2% for the three months ended June 30, 2013, as compared to 58.0% for the three months ended June 30, 2012.

General and Administrative - The results for the three months ended June 30, 2013 reflect an increase in general and administrative expense of $28,366, or 2.6%, as compared to the three months ended June 30, 2012. The increase in general and administrative expense for the three months ended June 30, 2013, as compared to the comparable period in the prior year, was primarily driven by increases in investor relations expenses, other employee related expenses and other increased costs associated with the overall expansion of our business. General and administrative expense as a percentage of total revenues was 35.5% for the three months ended June 30, 2013, as compared to 20.9% for the three months ended June 30, 2012.


Non-Operating Income

The following table presents the components of non-operating income for the
three months ended June 30, 2013 and the three months ended June 30, 2012, the
increase or decrease between those periods and the percentage increase or
decrease between those periods:

                                            Three Months Ended                               %
                                                 June 30,               Increase          Increase
                                            2013          2012         (Decrease)        (Decrease)
Interest income, net                       $   1,440     $  10,067       $  (8,627 )           (85.7 )%
Mark-to-market adjustment on warrant
liability                                     70,275       117,125         (46,850 )           (40.0 )%
Other expense                                      -       (16,885 )        16,885            (100.0 )%
Total non-operating income                 $  71,715     $ 110,307       $ (38,592 )           (35.0 )%

Interest Income, net

Interest income, net for the three months ended June 30, 2013 was $1,440, a decrease of $8,627, or 85.7%, as compared to $10,067 for the three months ended June 30, 2012. Interest income, net represented 0.0% and 0.2% of total revenues for the three months ended June 30, 2013 and 2012, respectively.

Mark-to-Market Adjustment

Our warrant liability is marked-to-market at each reporting period, with changes in fair value reported in earnings. The mark-to-market income adjustment of $70,275 for the three months ended June 30, 2013 and income of $117,125 for the three months ended June 30, 2012 represented the changes in fair value of the warrant liability during those periods. Mark-to-market adjustment on warrant liability represented 2.2% of total revenues for the three months ended June 30, 2013 and 2012.

Other Expense

We had other expense from fixed asset disposals totaling $16,885 for the three months ended June 30, 2012, as compared to no other expense for the three months ended June 30, 2013. Other expense represented 0.0% and 0.3% of total revenues for the three months ended June 30, 2013 and 2012, respectively.


Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

Revenues

Revenues decreased to $6,621,549 for the six months ended June 30, 2013, from $10,958,088 for the six months ended June 30, 2012. The decrease is primarily related to lower revenues from subscription sales on the AYI brand in the six months ended June 30, 2013 as compared to the six months ended June 30, 2012. We believe the decrease in revenues from subscription sales for the six months ended June 30, 2013 primarily resulted from our reduced advertising and marketing expense for the period as compared to the six months ended June 30, 2012. We intentionally reduced our user acquisition campaigns from the second half of 2012 through January 2013, which primarily affected new subscriptions, while we focused on rebuilding, testing and optimizing the redesigned AYI application. We began to increase user acquisition campaigns in January 2013 and intend to increase our user acquisition campaigns during the remainder of 2013. The following table sets forth our subscription revenue, advertising revenue and total revenues for the six months ended June 30, 2013 and 2012, the decrease between those periods, the percentage decrease between those periods, and the percentage of total revenue that each represented for those periods:

                                                                                                    % Revenue
                              Six Months Ended                                                   Six Months Ended
                                  June 30,                                                           June 30,
                           2013             2012           Decrease         % Decrease          2013          2012
Subscription revenue    $ 6,578,210     $ 10,696,945     $ (4,118,735 )           (38.5 )%         99.3 %        97.6 %
Advertising revenue          43,339          261,143         (217,804 )           (83.4 )%          0.7 %         2.4 %
Total revenues          $ 6,621,549     $ 10,958,088     $ (4,336,539 )           (39.6 )%        100.0 %       100.0 %

Subscription - The results for the six months ended June 30, 2013 reflect a decrease in subscription revenue of $4,118,735, or 38.5%, as compared to the six months ended June 30, 2012. The decrease in subscription revenue for the six months ended June 30, 2013, was primarily driven by a decrease in our marketing and advertising expense versus the prior year period, which primarily affects new subscriptions. Subscription revenue as a percentage of total revenue was 99.3% for the six months ended June 30, 2013, as compared to 97.6% for the six months ended June 30, 2012.

Advertising - The results for the six months ended June 30, 2013 reflect a decrease in advertising revenue of $217,804, or 83.4%, as compared to the six months ended June 30, 2012. We believe the decrease in advertising revenue . . .

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