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 twelve 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 approximately ten applications across four social networking platforms (Facebook, MySpace, Hi5, & Bebo) along with the Are You Interested iPhone mobile application platform for mobile dating and AreYou Interested.com, a stand-alone online dating website. Our three primary application brands are Are You Interested, Meet New People, & Flirt With Me. As of September 30, 2009 we have in excess of 20 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 September 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 July 2009 we began testing and implementing a subscription model on our Are You Interested application on Facebook which enables users to receive access to certain premium features over timeframes ranging from one month to twelve months as part of their subscription package.

While the majority of our revenue is still derived from advertisements, 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 are now testing subscription models and we are considering converting one or more of our applications to a subscription-based pay model in the near future depending upon the results of these tests. Our decision to convert to a pay model and/or charge for premium content is dependent upon a variety of factors for each product. 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.

We recognize revenue from monthly premium subscription fees in the month in which the services are used. Revenues are presented net of processing fees, credits and known credit card chargebacks. Our subscriptions are offered in durations of varying length from one month to twelve months. Long-term plans with durations longer than one month are generally available at discounted monthly rates. Revenues from these long-term plans are recognized pro-rata over the subscription term. Pursuant to our terms of service, most subscriptions renew automatically for subsequent one-month periods until subscribers terminate them.

We recognize revenue from the direct sale of "points" over two months. Points can be used in exchange for premium features on our products. Determining whether and when some of the criteria for spending points have been satisfied often involves assumptions and management judgments that can have an impact on the timing and amount of revenue we report in each period. At this time we believe that our assessment is fair and we will continue to monitor these activities in order to determine if there are significant changes in usage patterns.

We currently have relationships with multiple payment processors in order to diversify our risk and reliance on a single payment processor, ensure competitive rates, and offer our users as many payment options as possible. We will continue to research and explore additional opportunities in this area.

Our Business Objectives

· Continue to upgrade our existing applications and products

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

Considering launching additional applications and websites that expand
· beyond online dating based upon our identification of industries and markets that we believe represent profitable opportunities.

· Continue to focus on finding new, less-advertising dependent revenue models including premium and subscription services, virtual goods, and other such revenue models outside of advertising.

· Identify & explore new opportunities that emerge in our rapidly evolving industry

Results of Operations for the Quarter and Nine Months ended September 30, 2009 Compared to the Quarter and Nine Months ended September 30, 2008

Revenues

Revenue increased from $1,924,483 for the nine months ended September 30, 2008 to $2,354,334 for the nine months ended September 30, 2009, an increase of $429,851. Revenue decreased from $871,324 for the three months ended September 30, 2008 to $801,120 for the three months ended September 30, 2009, a decrease of $70,204.

These revenues are primarily generated from advertisements and premium features placed on our various applications. The increase in revenue for the nine months ended September 30, 2009 was primarily due to higher engagement on our applications as compared to the same time period in 2008 as well as more revenue-generating premium features which were only available for a small amount of the same time period in 2008. The decrease in revenue for the three months ended September 30, 2009 as compared to the same period in 2008 is primarily due to decreased advertising payouts as well as the revenue recognition impact of our shift to a subscription model in which revenue is recognized on a deferred basis when subscriptions occur over more than a single month.

Cost of Revenue

Cost of Revenue increased from $547,277 for the nine months ended September 30, 2008 to $928,303 for the nine months ended September 30, 2009, an increase of $381,026. Cost of Revenue increased from $215,330 for the three months ended September 30, 2008 to $321,406 for the three months ended September 30, 2009, an increase of $106,076. 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 usage increased, our hosting costs increased substantially as did other costs associated with the programming, hosting, and maintenance of our applications. We have approximately doubled our staff since this time last year and we have incurred additional expenses with regard to the development of our mobile application which started in the fourth quarter of 2008.

Operating Expenses

Operating Expenses for the nine months ended September 30, 2009 increased to $1,058,140 from $593,739 for the nine months ended September 30, 2008, representing an increase of $464,401. Operating Expenses for the three months ended September 30, 2009 increased to $399,431 from $208,337 for the three months ended September 30, 2008, representing an increase of $191,094.

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 nine months ended September 30, 2009 increased to $480,716 from $288,354 for the nine months ended September 30, 2008, representing an increase of $192,362. Compensation Expense for the three months ended September 30, 2009 increased to $162,603 from $99,861 for the three months ended September 30, 2008, representing an increase of $62,742. The increase in Compensation Expense is primarily attributable to the additional hires to increase our staff.

General and Administrative Expenses for the nine months ended September 30, 2009 increased to $418,630 from $245,015 for the nine months ended September 30, 2008, representing an increase of $173,615. General and Administrative Expenses for the three months ended September 30, 2009 increased to $206,542 from $90,976 for the three months ended September 30, 2008, representing an increase of $115,566. 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 nine months ended September 30, 2009 increased to $158,794 from $60,370 for the nine months ended September 30, 2008, representing an increase of $98,424. Professional Fees for the three months ended September 30, 2009 increased to $30,286 from $17,500 for the three months ended September 30, 2008, representing an increase of $12,786. 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 $135,638 for the nine months ended September 30, 2009 from $745,654 for the nine months ended September 30, 2008, a decrease of $610,016. Net Income decreased to $22,736 for the three months ended September 30, 2009 from $410,283 for the three months ended September 30, 2008, representing a decrease of $387,547.

The decrease in net income was primarily due to the provision for income taxes which were not incurred during most of the same period last year due to a Net Operating Loss carry-forward from previous quarters, increased expenses due to the hiring of additional staff and the overall expansion of our operations, as well as decreased advertising payouts and the revenue recognition impact of our shift to a subscription model in which revenue is recognized on a deferred basis when subscriptions occur over more than a single month.

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 September 30, 2009, the Company had $1,325,282 in cash. Our cash declined from December 31, 2008 by $204,072 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 nine months ended September 30, 2009 was $135,638. Net cash provided by the operating activities was $104,274 during the nine months ended September 30, 2009 as compared to cash provided by operating activities of $746,679 for the nine months ended September 30, 2008. Cash provided by operating activities for the nine months ended September 30, 2009 mainly consisted of net income of $135,638, a decrease in accounts receivable of $43,415 and offset by a decrease in accrued expenses of $185,018. 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 September 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 account for income taxes under the FASB Accounting Standards Codification No. 740, Income Taxes. Under FASB Accounting Standards Codification No. 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

We value property and equipment at cost and depreciate these assets using the straight-line method over their expected useful life. We use a three year life for software and five year life for computer equipment.

In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation - Stock Compensation. Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Effective January 1, 2006, the Company has fully adopted the provisions of FASB Accounting Standards Codification No. 718. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

Equity instruments ("instruments") issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or
(ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification No. 505.

We have adopted the provisions of FASB Accounting Standards Codification No. 350, Intangibles - Goodwill and Other. Costs incurred in the planning stage of a website are expensed as research and development while costs incurred in the development stage are capitalized and amortized over the life of the asset, estimated to be five years. Expenses subsequent to the launch have been expensed as research and development expenses.

We recognize revenue on arrangements in accordance with FASB Accounting Standards Codification No. 605, Revenue Recognition. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured.

The Company recognizes revenue as earned on a click-through, impression, and registration/subscription basis. When a user clicks an advertisement ("CPC basis"), views an advertisement impression ("CPM basis"), or registers for an external website via an advertisement clicked on through the Company's applications ("CPA basis"), or purchases "points" or completes an offer to subscribe to premium features on the Company's applications, the contract amount is recognized as revenue.

The Company 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 FASB Accounting Standards Codification No. 855, Subsequent Events. FASB Accounting Standards Codification No. 855 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. FASB Accounting Standards Codification No. 855 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. FASB Accounting Standards Codification No. 855 is effective for interim or annual financial periods ending after September 15, 2009. The adoption of this FASB Accounting Standards Codification No. did not have a material effect on the Company's financial statements.

In June 2009, the FASB issued FASB Accounting Standards Codification No. 860, Transfers and Servicing. FASB Accounting Standards Codification No. 860 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. FASB Accounting Standards Codification No. 860 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 that FASB Accounting Standards Codification No. 860 will have on its financial statements.

In June 2009, the FASB issued FASB Accounting Standards Codification No. 810, Consolidation. FASB Accounting Standards Codification No. 810 improves financial reporting by enterprises involved with variable interest entities. FASB Accounting Standards Codification No. 810 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 FASB Accounting Standards Codification No. 810 will have on its financial statements.

In June 2009, the FASB issued FASB Accounting Standards Codification No. 105, GAAP. 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. FASB Accounting Standards Codification No. 105 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in FASB Accounting Standards Codification No. 105. All other accounting literature not included in the Codification is nonauthoritative. The adoption of the Codification did not have . . .