UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 ____________________________________________________
  FORM
10-K
 
 (Mark
One)
 x
                  ANNUAL
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
The Fiscal Year Ended December 31, 2008
  o
                  TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 Commission
File No.  000-52176
 
 SNAP
      INTERACTIVE, INC.(Exact
      name of issuer as specified in its charter)Delaware
                  20-3191847(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.  Employer
      Identification No.)366
      North Broadway, Suite 41042,
                    Jericho,
      NY
                  11753(Address
      of principal executive offices)
                  (Zip
      Code)Registrant’s
      telephone number, including area code:(516)
      942-2030
  Securities
      registered under Section 12(b) of the Exchange Act:
                  None.Securities
      registered under Section 12(g) of the Exchange Act:
                  Common
      stock, par value $0.001 per share.(Title
      of class)
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.       
Yes o    No x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.    Yes o     No x
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x
No o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference Part III of this Form 10-K or
any amendment to this Form 10-K.   x
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer
                o
                
                Accelerated
      filer
                oNon-accelerated
      filer
                  (Do
      not check if a smaller reporting company)
                o
                
                Smaller
      reporting company
                x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o   No
x
 
 There is
no public trading market for the Company currently.
 
 As of
March 23, 2009, the registrant had 10,793,395 shares issued and
outstanding,.
 
 Documents Incorporated by
Reference:
 None.
 
 
  
 TABLE
OF CONTENTS
  PART
    IITEM
      1.
                DESCRIPTION OF
    BUSINESSITEM
      2.
                PROPERTIESITEM
      3.
                LEGAL PROCEEDINGSITEM
      4.
                SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERSPART
      IIITEM
      5.
                MARKET FOR REGISTRANT’S COMMON
      EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIESITEM
      6.
                SELECTED FINANCIAL
    DATAITEM
      7.
                MANAGEMENT’S DISCUSSION
      AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONSITEM
      7A.
                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISKITEM
      8.
                FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATAITEM
      9.
                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL
      DISCLOSUREITEM
      9A(T).
                CONTROLS AND
    PROCEDURESPART
      IIIITEM
      10.
                DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCEITEM
      11.
                EXECUTIVE
  COMPENSATIONITEM
      12.
                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
      AND MANAGEMENT AND RELATED STOCKHOLDER
  MATTERSITEM
      13.
                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
      AND DIRECTOR INDEPENDENCEITEM
      14.
                PRINCIPAL ACCOUNTANT FEES AND
      SERVICESPART
      IVITEM
      15.
                EXHIBITS, FINANCIAL STATEMENT
      SCHEDULESSIGNATURES
   
 
 
  PART
I
  Item
1.           Description
of Business.
  General
 
 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 ten 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 one 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 a dating website, IamFreeTonight.com (http://www.IamFreeTonight.com),
in November 2006. IamFreeTonight.com
offers several unique features for singles including Group Dating & Dating
by Schedule.  In December 2006, IamFreeTonight.com introduced the
popular concept of the 'Wingman' into its dating offering. Bringing the
real-world wingman concept online enabled the site to grow virally as members
invited friends to register in order to utilize the ‘wingman’
feature.  In January 2007, IamFreeTonight.com launched its unique
‘Date Now!’ concept. The ‘Date Now!’ concept offered singles a new way to meet
online by enabling them to find and schedule dates in a matter of seconds by
giving users the ability to post when they're actually free to go out on a date
as well as what they'd like to do on their date. .
 
 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.com 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 3.8
Million installations.
 
 In August
2007 we launched our second application on Facebook.com called Are You
Interested.  Since shortly after its launch, Are You Interested has
consistently been one of the leading pure-dating application on
Facebook.com as defined by Most Daily Active 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 send messages
and exchange virtual gifts on the application.  Are You Interested has
in excess of 12 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.  Flirt With 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.
 
 Collectively
we have eight applications across four social networking platforms: Facebook,
Myspace, Hi5, & Bebo.  Our three application brands are Are You
Interested, Meet New People, & Flirt With Me.
  1
 
 We
presently maintain our principal offices at 366 North Broadway, Suite 41042,
Jericho, NY 11753, however as of April 1, 2009 we will be moving to new offices
at 363 Seventh Ave, 13th Floor,
New York, NY 10001.  Our telephone number is (516)
942-2030.
 
 Subsequent
Event
 
 On March
18, 2009 we launched our iPhone application which represents our first mobile
dating application.  Are You Interested is now available for download
on the iTunes as well as the iPhone Apps Store.
 
 Revenue
Streams:
  Our
primary revenue stream is currently derived from placing advertisements on
various pages of our applications.  We primarily use advertising
networks as well as occasionally entering into individual advertising deals and
affiliate deals.  We also generate revenue from “premium features”
that users can access at a cost on several of our applications.
 
 In 2009
we will carefully contemplate inserting a subscription-based pay model into
several of our applications in order to generate additional
revenue.  The timing of implementing a subscription model is dependent
upon a number of factors including, but not limited to, the payment processing
capabilities in place on the various social networking platforms on which we
maintain applications as well as the evaluation of our corporate objectives in
weighing the relative benefits of prioritizing revenue versus
growth.  We also intend to focus more closely on optimizing the
advertisements on our applications, as well as consider sponsorship or branding
deals as well as more deeply integrated affiliate and partnership
deals.
  Marketing
 
 We
anticipate spending a very limited amount on marketing in 2009. Our applications
have gained their user base primarily through viral growth and we have purchased
very few advertisements to promote them since their launch. We believe that our
existing applications will continue to grow virally, and any new applications or
products will develop their member base through viral growth, internal promotion
through our existing applications, publicity and media promotion, or as a result
of partnerships we may create. Should we consider increasing marketing
expenditures, it would likely be due to an expectation of a positive return on
new users when compared to the acquisition cost.
 
 Competition
  The
company faces substantial competition from other social networking application
providers as well as major online dating websites.  In the application
field, we believe our primary competition comes from other leading developers
such as Rock You, Slide, Playfish, & Zynga who all have multiple
applications that remain consistently among the leaders on Facebook &
Myspace.  In the Dating category of social networking applications, we
are consistently one of the leaders in the category as measured by both
Daily Active Users and Total Installs.  To our knowledge, Zoosk is the
only other application provider that has traffic totals for a pure dating
application that compare with us at this time.
 
 Achieving
critical mass with respect to market share is critical for online dating sites
and online dating applications.  As a result of our large user base we
believe we are well-positioned to continue as a leader in the online dating
application market.  We believe this large user base will also allow
us to compete favorably in the marketplace with future products that we
offer.  Additionally, we hope to offset any advantages held by
competitors with larger member bases by offering products and services which are
unique to the industry, superior in quality to and more appealing than those of
our competitors.. We also believe that the industry offers substantial room for
growth as social networking application platforms continue to expand and as the
internet continues to become more of an accepted tool for finding a
mate.
 Patent and
Trademarks
  We have
filed various trademark and provisional patent applications in order to protect
our product names, concepts, and associated intellectual property
rights.
  2
   Governmental
Regulations
  There are
no governmental approvals necessary to conduct our current business and the
consulting industry is not generally subject to any governmental regulation.
Although this permits us to provide our services without the time and expense of
governmental supervision it also allows competitors to more easily enter this
business market.
  Employees
  We
currently have eleven full-time employees as well as one additional
full-time programmer that we employ on an independent contractor
basis.
 
 Item
1A.        Risk Factors
 
 Not
Applicable.
 
 Item
2.           Description
of Property.
 
 Our
business office is presently located at 366 North Broadway, Suite 41042,
Jericho, NY 11753.  As of April 1, 2009 our business office will be
located at 363 Seventh Avenue, 13th Floor,
New York, NY 10001.
  Item
3.           Legal
Proceedings.
  To the
best of our knowledge, there are no known or pending litigation proceedings
against us..
 
 Item
4.           Submission
of Matters to a Vote of Security Holders.
  None.
  PART
II
  Item
5.           Market for
Common Equity and Related Stockholder Matters.
 
 Market
Information
 
 Our
common stock has traded on the OTC Bulletin Board system under the symbol “STVI”
since December 14, 2007.  We changed our symbol in conjunction with
our name change to “SNAP Interactive, Inc.” at that time.  Previously
we traded under the symbol “ETWI” since October 6, 2006. There is a limited
trading market for our Common Stock. The following table sets forth the range of
high and low closing prices for each quarter within the last fiscal year that
ended on December 31, 2008.
  High
                                        
                                        
                                        LowJanuary
      1, 2008 to March 31, 2008
                                        $
      1.10
                                        
                                        $
                                        0.51April
      1, 2008 to June 30, 2008
                                        $
      0.80
                                        
                                        $
                                        0.30July
      1, 2008 to December 31, 2008
                                        $
      0.89
                                        
                                        $
                                        0.15October
      1, 2008 to December 31, 2008
                                        $
      0.75
                                        
                                        $
                                        0.20
  The
source of these high and low prices is the Yahoo! Finance website. These
quotations are without retail mark-up, markdown or commissions.
  The
market price of our common stock is subject to significant fluctuations in
response to variations in our quarterly operating results, general trends in the
market, and other factors, over many of which we have little or no control. In
addition, broad market fluctuations, as well as general economic, business and
political conditions, may adversely affect the market for our common stock,
regardless of our actual or projected performance.
 
 Holders
 
 As of
March 23, 2009 in accordance with our transfer agent records, we had 41 record
holders of our Common Stock.
  3
  Dividends
 
 To date,
we have not declared or paid any dividends on our common stock. We currently do
not anticipate paying any cash dividends in the foreseeable future on our common
stock, when issued pursuant to this offering. Although we intend to retain our
earnings, if any, to finance the exploration and growth of our business, our
Board of Directors will have the discretion to declare and pay dividends in the
future.
  Payment
of dividends in the future will depend upon our earnings, capital requirements,
and other factors, which our Board of Directors may deem relevant.
  Stock
Option Grants
 
 On
January 1, 2008, the Company issued 50,000 options having an exercise price of
$2 per share. The options vest one year after grant.  For the year
ended December 31, 2008 the Company recorded compensation expense of $26,360
with an offsetting credit to additional paid in capital. The Company has valued
these options at their fair value using the Black-Scholes option pricing
method.  The assumptions used were as follows:
 
 Expected
life                                             3
years
 Expected
volatility                                   148.90%
 Risk free
interest
rate                              2.89%
 Expected
dividends                                 0%
 
 On
January 5, 2008, the Company issued 20,000 options having an exercise price of
$2 The options vest one year after grant.  For the year ended December
31, 2008 the Company recorded compensation expense of $5,761 with an offsetting
credit to additional paid in capital. The Company has valued these options at
their fair value using the Black-Scholes option pricing method.  The
assumptions used were as follows:
 4
  Expected
life                                             2-3
years
 Expected
volatility                                   150.99%
 Risk free
interest
rate                              2.76%
 Expected
dividends                                 0%
  On
January 5, 2008, the Company issued 20,000 options having an exercise price of
$2 The options vest two years after grant.  For the year ended
December 31, 2008 the Company recorded compensation expense of $3,841 with an
offsetting credit to additional paid in capital. The Company has valued these
options at their fair value using the Black-Scholes option pricing
method.  The assumptions used were as follows:
  Expected
life                                             2-3
years
 Expected
volatility                                   150.99%
 Risk free
interest
rate                              2.76%
 Expected
dividends                                 0%
  On
January 5, 2008, the Company issued 250,000 options having an exercise price of
$1, $2 and $3, per share (50,000 options at $1, 100,000 options at $2 and
100,000 options at $3). The options vest at various dates ranging from two years
to three years.  For the year ended December 31, 2008 and the Company
recorded compensation expense of $64,760 with an offsetting credit to additional
paid in capital. The Company has valued these options at their fair value using
the Black-Scholes option pricing method.  The assumptions used were as
follows:
  Expected
life                                             2-3
years
 Expected
volatility                                   150.99%
 Risk free
interest
rate                              2.76%
 Expected
dividends                                 0%
  On
January 9, 2008, the Company issued 10,000 options having an exercise price of
$1 per share. The options vest over a one year term.  For the year
ended December 31, 2008 the Company recorded compensation expense of $5,180 with
an offsetting credit to additional paid in capital. The Company has valued these
options at their fair value using the Black-Scholes option pricing
method.  The assumptions used were as follows:
  Expected
life                                             1
years
 Expected
volatility                                   150.69%
 Risk free
interest
rate                              3.04%
 Expected
dividends                                 0%
  On
December 30, 2008, the Company issued 10,000 options having an exercise price of
$1 per share. The options vest over on January 1, 2011 and require an additional
one year holding period. For the year ended December 31, 2008 no compensation
expense has been recorded. The Company has valued these options at their fair
value using the Black-Scholes option pricing method.  The assumptions
used were as follows:
  Expected
life                                             3
years
 Expected
volatility                                   250.26%
 Risk free
interest
rate                              0.34%
 Expected
dividends                                 0%
  On
December 30, 2008, the Company issued 10,000 options having an exercise price of
$1 per share. The options vest over on January 1, 2011 and require an additional
one year holding period. For the year ended December 31, 2008 no compensation
expense has been recorded. The Company has valued these options at their fair
value using the Black-Scholes option pricing method.  The assumptions
used were as follows:
  Expected
life                                              3
years
 Expected
volatility                                   250.26%
 Risk free
interest
rate                              0.34%
 Expected
dividends                                
0%
  On
October 13, 2008, the Company issued 5,000 options having an exercise price of
$1 per share. The options vest over a one year term and require an additional
one year holding period. For the year ended December 31, 2008 the Company
recorded compensation expense of $276 with an offsetting credit to additional
paid in capital. The Company has valued these options at their fair value using
the Black-Scholes option pricing method.  The assumptions used were as
follows:
  Expected
life                                             1
years
 Expected
volatility                                   240.24%
 Risk free
interest
rate                              1.22%
 Expected
dividends                                 0%
  5
   On
September 29, 2008 the Company issued 5,000 options having an exercise price of
$1 per share. The options vest over a one year term and require an additional
one year holding period. For the year ended December 31, 2008 the Company
recorded compensation expense of $397 with an offsetting credit to additional
paid in capital. The Company has valued these options at their fair value using
the Black-Scholes option pricing method.  The assumptions used were as
follows:
 Expected
life                                             1
years
 Expected
volatility                                   214.05%
 Risk free
interest
rate                              1.60%
 Expected
dividends                                 0%
  On
December 31, 2007, the Company issued 150,000 options having an exercise price
of $3 per share. The options vest immediately and the Company recorded research
and development expense of $98,880 with an offsetting credit to additional paid
in capital. The Company has valued these options at their fair value using the
Black-Scholes option pricing method.  The assumptions used were as
follows:
  Expected
life                                             3
years
 Expected
volatility                                   146.35%
 Risk free
interest
rate                              3.07%
 Expected
dividends                                 0%
  On
December 31, 2007, the Company issued 150,000 options having an exercise price
of $1.00 and $0.50 per share (100,000 at $1.00 and 50,000 at
$0.50).  The options vest immediately and the Company recorded
research and development expense of $86,445, with an offsetting credit to
additional paid in capital. The Company has valued these options at their fair
value using the Black-Scholes option pricing method.  The assumptions
used were as follows:
  Expected
life                                             1
year
 Expected
volatility                                   146.35%
 Risk free
interest
rate                              3.34%
 Expected
dividends                                 0%
  On
December 1, 2007, the Company executed an employment agreement with its
co-founder.  The term ceases December 1, 2008, there is an automatic
option to extend the agreement for a period of three additional
years.  Pursuant to the terms of the agreement, the individual will
receive 1,000,000 options of the Company having an exercise price of $0.70 and
$1.50 per share (500,000 at $0.70 and 500,000 at $1.50).  The options
vest immediately and the Company recorded compensation expense of $305,150, with
an offsetting credit to additional paid in capital.   The Company
has valued these options at their fair value using the Black-Scholes option
pricing method.  The assumptions used were as follows:
  Expected
life                                             1
year
 Expected
volatility                                   141.34%
 Risk free
interest
rate                              3.31%
 Expected
dividends                                 0%
  The
following tables summarize all stock option grants to employees and consultants
as of December 31, 2008 and 2007, and the related changes during these periods
are presented below.
  Number
      of
                          Options
                        
                        
                        Weighted
      Average Exercise PriceStock OptionsBalance
      at December 31, 2006
                        
                        
                        1,500,000
                        
                        
                        $
                        0.40Granted
                        
                        
                        1,300,000
                        
                        
                        
                        1.29Exercised
                        
                        
                        -Forfeited
                        
                        
                        -Balance
      at December 31, 2007
                        
                        
                        2,800,000
                        
                        
                        
                        0.81Granted
                        
                        
                        380,000
                        
                        
                        
                        2.03Exercised
                        
                        
                        -Forfeited
                        
                        
                        -Balance
      at December 31, 2008
                        
                        
                        3,180,000Options
      exercisable at December 31, 2008
                        
                        
                        2,860,000
                        
                        
                        $
                        0.89Weighted
      average fair value of options
                          granted
      during 2008
                        
                        
                        
                        
                        
                        $
                        2.03
  Of the
total options granted, all 2,860,000 are fully vested, exercisable and non-
forfeitable.
  6
  The
following tables summarize information about stock options and warrants for the
Company at December 31, 2008 and 2007:
  2008
      Options Outstanding
                  
                  Options
      ExercisableRange
      of Exercise Price
                  
                  Number
                    Outstanding
      at
                    December
      31, 2008
                  
                  Weighted
      Average Remaining Contractual Life
                  
                  Weighted
      Average Exercise Price
                  
                  Number
                    Exercisable
      at
                    December
      31, 2008
                  
                  Weighted
      Average Exercise Price$  0.40
                  
                  1,500,000
                  
                  3.95
                  
                  $   
      0.40
                  
                  1,500,000
                  
                  $   
      0.40$ 
      0.50  - 3.00
                  
                  1,680,000
                  
                  3.68
                  
                  $   
      1.46
                  
                  1,360,000
                  
                  $   
      1.31
   2007
      Options Outstanding
                  
                  Options
      ExercisableRange
      of Exercise Price
                  
                  Number
                    Outstanding
      at
                    December
      31, 2007
                  
                  Weighted
      Average Remaining Contractual Life
                  
                  Weighted
      Average Exercise Price
                  
                  Number
                    Exercisable
      at
                    December
      31, 2007
                  
                  Weighted
      Average Exercise Price$ 0.40
                  
                  1,500,000
                  
                  4.96
                  
                  $   
      0.40
                  
                  1,500,000
                  
                  $   
      0.40$ 
      0.50  - 3.00
                  
                  1,300,000
                  
                  4.17
                  
                  $   
      1.29
                  
                  1,300,000
                  
                  $   
      1.29
 
 2008  Warrants
      Outstanding
                  
                  Options
      ExercisableRange
      of Exercise Price
                  
                  Number
                    Outstanding
      at
                    December
      31, 2008
                  
                  Weighted
      Average Remaining Contractual Life
                  
                  Weighted
      Average Exercise Price
                  
                  Number
                    Exercisable
      at
                    December
      31, 2008
                  
                  Weighted
      Average Exercise Price$   
      1.20
                  
                  250,000
                  
                  1.53
                  
                  $   
      1.20
                  
                  250,000
                  
                  $   
      1.20
   2007  Warrants
      Outstanding
                  
                  Options
      ExercisableRange
      of Exercise Price
                  
                  Number
                    Outstanding
      at December 31, 2007
                  
                  Weighted
      Average Remaining Contractual Life
                  
                  Weighted
      Average Exercise Price
                  
                  Number
                    Exercisable
      at December 31, 2007
                  
                  Weighted
      Average Exercise Price$    1.20
                  
                  250,000
                  
                  2.53
                  
                  $    
      1.20
                  
                  250,000
                  
                  $   
      1.20
  Item
6.           SELECTED
FINANCIAL DATA.
 Not
applicable.
 
 Item
7.           MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN 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 ten 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 a dating website, IamFreeTonight.com (http://www.IamFreeTonight.com),
in November 2006. IamFreeTonight.com
offers several unique features for singles including Group Dating & Dating
by Schedule.  In December 2006, IamFreeTonight.com introduced the
popular concept of the 'Wingman' into its dating offering. Bringing the
real-world wingman concept online enabled the site to grow virally as members
invited friends to register in order to utilize the ‘wingman’
feature.  In January 2007, IamFreeTonight.com launched its unique
‘Date Now!’ concept. The ‘Date Now!’ concept offered singles a new way to meet
online by enabling them to find and schedule dates in a matter of seconds by
giving users the ability to post when they're actually free to go out on a date
as well as what they'd like to do on their date. .
  7
 
 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.com 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 3.8
Million installations.
 
 In August
2007 we launched our second application on Facebook.com called Are You
Interested.  Since shortly after its launch, Are You Interested has
consistently been one of the leading pure-dating application on
Facebook.com as defined by Most Daily Active 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 send messages
and exchange virtual gifts on the application.  Are You Interested has
in excess of 12 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.  Flirt With 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.
 
 Collectively
we have eight applications across four social networking platforms: Facebook,
Myspace, Hi5, & Bebo.  Our three application brands are Are You
Interested, Meet New People, & Flirt With Me.  As of December 31,
2008 we have approximately 17.5 Million installations of our applications in
total.
 8
  Our
Applications
 
 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.  In March 2008 we launched Are You Interested on Myspace, in
April 2008 we launched Are You Interested on Hi5, and we recently launched Are
You Interested on Bebo.  Are You Interested now has in excess
of 12 Million total installs on Facebook and receives over 1 Million
visits per day on average.
 
 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 3.8 Million total installs and is also one of the
leading 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 December 31, 2008, Flirt With Me had approximately
900,000 total installs.
 
 In the
coming months we will continue to enhance our current applications as well as
consider building additional dating application on other large social networking
sites and mobile platforms as they launch or gain additional traction with their
developer 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.  Our revenue has increased by
virtue of the growth we have experienced in our applications over the past
year.  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 will also consider converting several of our
applications to a subscription-based pay model at some point in the next 12
months.  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,
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 exploring 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 applications in the future.
  9
 
 Our
Business Objectives
 
 ·     
  Continue to upgrade our existing applications
 
 .      
 Promotion and expansion of our iPhone application
 
 ·      
 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 analysis of subscription models and advertising revenue
optimization opportunities
 
 ·      
 Expand our programming resources
  Results
of Operations for the Year Ended December 31, 2008 Compared to the Year Ended
December 31, 2007
 
 Revenues
  Revenue
increased from $424,564 for the year ended December 31, 2007 to $3,011,627 for
the year ended December 31, 2008, an increase of $2,587,063.
 
 These
revenues are primarily generated from advertisements and premium features placed
on our various applications.  The increase in revenue was primarily
due to the growth of our applications and the increased usage in 2008 compared
to the same time period in 2007.  This increased
activity  resulted in more traffic to our applications which
produced more impressions and clicks on advertisements displayed on our
applications as well as use of our premium features.
  Cost
of Revenue
 
 Cost of
Revenue increased from $66,795 for the year ended December 31, 2007 to $770,765
for the year ended December 31, 2008, an increase of $703,970.  The
increase in Cost of Revenue 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.  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 year ended December 31, 2008 increased to $1,306,983 from
$1,274,082 for the year ended December 31, 2007, representing an increase of
$32,901.
 
 The
increase in Operating 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.   Primary Operating Expenses
include Compensation Expense, and General & Administrative
Expenses
 Compensation
Expense for the year ended December 31, 2008 increased to $772,853 from
$465,705 for the year ended December 31, 2007, representing an increase of
$307,148.  The increase in Compensation Expense was due to the hiring
of new employees and the implementation of a regular payroll for the first time
in 2008.
 
 General
and Administrative Expenses for the year ended December 31, 2008 increased to
$390,289 from $265,266 for the year ended December 31, 2007, representing an
increase of $125,023.  The increase in General and Administrative
Expense is due to the overall expansion of our operations as compared to last
year, at which time we were a development stage company.
 
 Professional
fees for the year ended December 31, 2008 increased to $89,559 from $0 for the
year ended December 31, 2007, representing an increase of $89,559.  
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.
  Net
Income
 
 Net
Income increased to $796,960 for the year ended December 31, 2008 from a
loss of $914,997 for the year ended December 31, 2007, an increase of
$1,711,957.
 
 The
increase in net income was primarily due to the increased revenue from the
growth of our applications and the increased usage in 2008 compared to the same
time period in 2007.  This increased activity resulted in more traffic to
our applications which produced more impressions and clicks on
advertisements displayed on our applications and use of our premium
features.
  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 various applications as well as premium features placed on our
applications.
  As of
December 31, 2008, the Company had $1,529,354 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.
 
  10
 The
Company’s net income for the year ended December 31, 2008 was $796,960. 
During the year we received a total of $3,011,627 in revenue and had total
operating expenses of $1,306,983.  Net cash provided by operating
activities was $1,238,500 during year ended December 31, 2008 as compared to
cash used in operating activities of $357,392 for the year ended December 31,
2007.  Cash provided by operating activities mainly consisted of net
income of $796,960 and an increase in accrued expenses of $277,399. 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 December 31, 2008, we have never accessed
this line of credit and do not anticipate accessing this line of credit in
2009.
 
 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.
   11
   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. 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.
  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.
  In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. The adoption of FASB 162 is not expected
to have a material impact on the Company’s financial position.
   12
  In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. The adoption of FASB 163 is not expected to
have a material impact on the Company’s financial position.
 
 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).
  Item
7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
 
 Not
applicable because we are a smaller reporting company.
 13
 Item
8.        FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
    SNAP
INTERACTIVE, INC AND SUBSIDIARY
 
 
 
 
 CONTENTS
 
 
 PAGE
                F-1
                REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPAGE
                F-2
                CONSOLIDATED
      BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007PAGE
                F-3
                CONSOLIDATED
      STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND
      2007PAGE
                F-4
                CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER
      31, 2008 AND 2007.PAGE
                F-5
                CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND
      2007PAGES
                F-6
      – F-29
                NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS












REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM








To the
Board of Directors of:
 Snap
Interactive, Inc. and Subsidiary
 
 We have
audited the accompanying consolidated balance sheets of Snap Interactive,
Inc. and Subsidiary as of December 31, 2008 and 2007, and the related statements
of operations, changes in stockholders’ equity and cash flows for the years
ended December 31, 2008 and 2007. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present
fairly in all material respects, the consolidated financial position of Snap
Interactive, Inc. and Subsidiary as of December 31, 2008 and 2007 and the
results of its operations and its cash flows for the years ended December 31,
2008 and 2007 in conformity with accounting principles generally accepted in the
United States of America.
  WEBB
& COMPANY, P.A.
 Certified
Public Accountants
 
 Boynton
Beach, Florida
 March 11,
2009




F
-1




Snap
      Interactive, Inc. and SubsidiaryConsolidated
      Balance SheetsASSETSDecember
      31, 2008
                          
                          
                          December
      31, 2007Current
      AssetsCash
                          
                          $
                          1,529,354
                          
                          
                          $
                          318,143Accounts
      receivable, net
                          
                          
                          386,507
                          
                          
                          
                          248,902Prepaid
      Expense
                          
                          
                          398
                          
                          
                          
                          24,904Total
      Current Assets
                          
                          
                          1,916,259
                          
                          
                          
                          591,949Property
      and Equipment, net
                          
                          
                          31,297
                          
                          
                          
                          16,640Other
      AssetsSecurity
      Deposit
                          
                          
                          18,750
                          
                          
                          
                          1,210Total Other
      Assets
                          
                          
                          18,750
                          
                          
                          
                          1,210Total
      Assets
                          
                          $
                          1,966,306
                          
                          
                          $
                          609,799LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      LiabilitiesAccounts payable
      and accrued liabilities
                          
                          $
                          130,428
                          
                          
                          $
                          26,131Accrued salaries
      and bonus
                          
                          
                          202,303
                          
                          
                          
                          -Settlement
      Payable
                          
                          
                          21,888
                          
                          
                          
                          45,589Convertible Notes
      Payable - Related Party
                          
                          
                          35,348
                          
                          
                          
                          35,348Accrued
      interest
                          
                          
                          18,731
                          
                          
                          
                          16,039Total
      Current Liabilities
                          
                          
                          408,698
                          
                          
                          
                          123,107Long
      Term LiabilitiesSettlement
      Payable
                          
                          
                          23,238
                          
                          
                          
                          45,126Convertible Notes
      Payable - Related Party
                          
                          
                          10,138
                          
                          
                          
                          10,138Total
      Liabilities
                          
                          
                          442,074
                          
                          
                          
                          178,371Commitments
      and Contingencies
                          
                          
                          -
                          
                          
                          
                          -Stockholders'
      EquityPreferred stock,
      $0.001 par value, 10,000,000 shares authorized, noneissued
      and outstanding
                          
                          
                          -
                          
                          
                          
                          -Common
      stock,  $0.001 par value; 100,000,000 shares
      authorized,10,700,395 and
      10,333,895 shares issued and outstanding,
    respectively
                          
                          
                          10,700
                          
                          
                          
                          10,334Additional paid-in
      capital
                          
                          
                          2,368,397
                          
                          
                          
                          2,048,525Accumulated
      deficit
                          
                          
                          (822,581
                          )
                          
                          
                          (1,619,541
                          )Less: deferred
      compensation
                          
                          
                          (32,284
                          )
                          
                          
                          (7,890
                          )Total
      Stockholders' Equity
                          
                          
                          1,524,232
                          
                          
                          
                          431,428Total
      Liabilities and Stockholders' Equity
                          
                          $
                          1,966,306
                          
                          
                          $
                          609,799






See
accompanying notes to consolidated financial statements
 F
-2






Snap
      Interactive, Inc. and SubsidiaryConsolidated
      Statements of OperationsFor
      the Year EndedDecember
      31, 2008
                                
                                
                                December
      31, 2007Revenue
                                
                                $
                                3,011,627
                                
                                
                                $
                                424,564Cost
      of Revenue
                                
                                
                                770,765
                                
                                
                                
                                66,795Gross
      Profit
                                
                                
                                2,240,862
                                
                                
                                
                                357,769Operating
      ExpensesDepreciation
      and Amortization
                                
                                
                                12,631
                                
                                
                                
                                9,054Research
      and Development
                                
                                
                                -
                                
                                
                                
                                412,098Compensation
      expense
                                
                                
                                772,853
                                
                                
                                
                                465,705Consulting
      Fees
                                
                                
                                29,334
                                
                                
                                
                                52,000Advertising
      expense
                                
                                
                                12,317
                                
                                
                                
                                69,959Professional
      Fees
                                
                                
                                89,559
                                
                                
                                
                                -General
      and administrative
                                
                                
                                390,289
                                
                                
                                
                                265,266Total
      Operating Expenses
                                
                                
                                1,306,983
                                
                                
                                
                                1,274,082Income/(Loss)
      from Operations
                                
                                
                                933,879
                                
                                
                                
                                (916,313
                                )Other
      Income (Expense)Interest
      Expense
                                
                                
                                (6,103
                                )
                                
                                
                                (3,390
                                )Interest
      Income
                                
                                
                                9,284
                                
                                
                                
                                6,081Total
      Other Income (Expense), net
                                
                                
                                3,181
                                
                                
                                
                                2,691Income/(Loss)
      Before Provision For Income Taxes
                                
                                
                                937,060
                                
                                
                                
                                (913,622
                                )Provision
      for Income Taxes
                                
                                
                                (140,100
                                )
                                
                                
                                (1,375
                                )Net
      Income/(Loss)
                                
                                $
                                796,960
                                
                                
                                $
                                (914,997
                                )Net
      Income/(Loss) Per Share  - Basic
                                
                                
                                0.08
                                
                                
                                
                                (0.09
                                )Net
      Income/(Loss) Per Share  - Diluted
                                
                                
                                0.07
                                
                                
                                
                                (0.09
                                )Weighted
      average number of shares outstandingduring
      the period - Basic
                                
                                
                                10,420,680
                                
                                
                                
                                9,660,466Weighted
      average number of shares outstandingduring
      the period - Diluted
                                
                                
                                11,295,865
                                
                                
                                
                                9,660,466






See
accompanying notes to consolidated financial statements
 F
-3






Snap
      Interactive, Inc. and SubsidiaryConsolidated
      Statement of Changes in Stockholders' EquityFor
      the years ended December 31, 2007 and 2008Preferred
      Stock
                  
                  
                  Common
      stock$.001
      Par Value
                  
                  
                  $.001
      Par Value
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  
                  
                  
                  Totalpaid-in
                  
                  
                  Accumulated
                  
                  
                  Deferred
                  
                  
                  Stockholder'sShare
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  capital
                  
                  
                  Deficit
                  
                  
                  Compensation
                  
                  
                  EquityBalance,
      December 31, 2006
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  9,008,780
                  
                  
                  $
                  9,009
                  
                  
                  $
                  829,075
                  
                  
                  $
                  (704,544
                  )
                  
                  $
                  (5,250
                  )
                  
                  $
                  128,290Shares
      issued for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  304,286
                  
                  
                  
                  304
                  
                  
                  
                  215,996
                  
                  
                  
                  -
                  
                  
                  
                  (2,640
                  )
                  
                  
                  213,660Stock
      options granted for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  490,475
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  490,475Stockholder
      note payable converted to common  stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  200,000
                  
                  
                  
                  200
                  
                  
                  
                  49,800
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,000Shares
      issued for cash
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  820,829
                  
                  
                  
                  821
                  
                  
                  
                  463,179
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  464,000Net
      Loss, December 31, 2007
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (914,997
                  )
                  
                  
                  -
                  
                  
                  
                  (914,997
                  )Balance,  December
      31, 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,333,895
                  
                  
                  
                  10,334
                  
                  
                  
                  2,048,525
                  
                  
                  
                  (1,619,541
                  )
                  
                  
                  (7,890
                  )
                  
                  
                  431,428Deferred
      compensation realized
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,890
                  
                  
                  
                  7,890Stock
      options granted for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  106,573
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  106,573Share
      based compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  70,634
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  70,634Shares
      issued for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  116,500
                  
                  
                  
                  116
                  
                  
                  
                  92,915
                  
                  
                  
                  -
                  
                  
                  
                  (32,284
                  )
                  
                  
                  60,747Shares  issued
      for compensation to officer
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  250,000
                  
                  
                  
                  250
                  
                  
                  
                  49,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,000Net
      Income,  December 31, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  796,960
                  
                  
                  
                  -
                  
                  
                  
                  796,960Balance,
      December 31, 2008
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  10,700,395
                  
                  
                  $
                  10,700
                  
                  
                  $
                  2,368,397
                  
                  
                  $
                  (822,581
                  )
                  
                  $
                  (32,284
                  )
                  
                  $
                  1,524,232





See
accompanying notes to consolidated financial statements
 F
-4




Snap
      Interactive, Inc. and SubsidiaryConsolidated
      Statements of Cash FlowsFor
      the Year Ended
                          December
      31, 20082008
                        
                        
                        2007Cash
      Flows From Operating Activities:Net
      Income/(Loss)
                        
                        $
                        796,960
                        
                        
                        $
                        (914,997
                        )Adjustments
      to reconcile net loss to net cash used in operationsDepreciation/Amortization
                        
                        
                        12,632
                        
                        
                        
                        9,054Amortization
      of stock based compensation
                        
                        
                        (24,394
                        )
                        
                        
                        -Deferred
      Compensation
                        
                        
                        -
                        
                        
                        
                        -Stock
      based compensation
                        
                        
                        320,238
                        
                        
                        
                        704,135(Increase)
      Decrease in:Accounts
      Receivable
                        
                        
                        (137,605
                        )
                        
                        
                        (248,850
                        )Prepaid
      Expense
                        
                        
                        24,506
                        
                        
                        
                        (24,904
                        )Security
      Deposit
                        
                        
                        (17,540
                        )
                        
                        
                        (1,210
                        )Increase
      (Decrease) in:Accounts
      payable and accrued liabilities
                        
                        
                        80,596
                        
                        
                        
                        25,275Accrued
      salaries and bonus
                        
                        
                        202,303
                        
                        
                        
                        -Settlement
      payable
                        
                        
                        (21,888
                        )
                        
                        
                        90,715Accrued
      interest payable
                        
                        
                        2,692
                        
                        
                        
                        3,390Net
      Cash Provided/(Used In)  by Operating
      Activities
                        
                        
                        1,238,500
                        
                        
                        
                        (357,392
                        )Cash
      Flows From Investing Activities:Purchase
      of Fixed Assets
                        
                        
                        (27,289
                        )
                        
                        
                        (4,257
                        )Net
      Cash Used In Investing Activities
                        
                        
                        (27,289
                        )
                        
                        
                        (4,257
                        )Cash
      Flows From Financing Activities:Proceeds
      from issuance of stock, net of subscriptions
    receivable
                        
                        
                        -
                        
                        
                        
                        464,000Net
      Cash Provided By Financing Activities
                        
                        
                        -
                        
                        
                        
                        464,000Net
      Increase in Cash
                        
                        
                        1,211,211
                        
                        
                        
                        102,351Cash
      at Beginning of Period
                        
                        
                        318,143
                        
                        
                        
                        215,792Cash
      at End of Period
                        
                        $
                        1,529,354
                        
                        
                        $
                        318,143Supplemental disclosure of cash flow
      information:Cash
      paid for interest
                        
                        $
                        3,411
                        
                        
                        $
                        -Cash
      paid for taxes
                        
                        $
                        64,359
                        
                        
                        $
                        1,375Supplemental disclosure of non-cash investing and
      financing activities:$50,000
      of a convertible note payable was converted to 200,000 shares of Common
      Stock during March 2007.






See
accompanying notes to consolidated financial statements
 F
-5




SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 NOTE
1 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND ORGANIZATION
 
 (A)
Organization
 
 Snap
Interactive, Inc. (“the Company”) was incorporated under the laws of the State
of Delaware on July 19, 2005.  eTwine, Inc. was incorporated under the
laws of the State of New York on May 7, 2004.
 
 The
Company was organized to operate an online dating and social community website
that is proactive in understanding the singles environment.
 
 (B) Principles of
Consolidation
 
 The
accompanying 2008 and 2007 consolidated financial statements include the
accounts of Snap Interactive, Inc. and its 100% owned subsidiary eTwine, Inc.
All intercompany accounts have been eliminated in the
consolidation.
 
 (C) Use of
Estimates
 
 In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period.  Actual results could differ from
those estimates.
 
 (E) Cash and Cash
Equivalents
 
 For
purposes of the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at the time of
purchase to be cash equivalents.
 
 (F) Income
Taxes
 
 The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement
109”).  Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
 
 F
-6
  SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  The net
deferred tax liability in the accompanying balance sheet includes the following
amounts of deferred tax assets and liabilities:
  Years
      Ended December 31,2008
                                                
                                                
                                                2007Deferred
      tax liability:Property
      and Equipment
                                                
                                                $
                                                5,500
                                                
                                                
                                                $
                                                -Deferred
      tax assetStock
      Options for Services
                                                
                                                
                                                (337,937
                                                )
                                                
                                                
                                                (548,584
                                                )Valuation
      allowance
                                                
                                                
                                                337,937
                                                
                                                
                                                
                                                548,584Net
      deferred tax asset
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Net
      deferred tax liability
                                                
                                                $
                                                5,500
                                                
                                                
                                                $
                                                -The
      deferred tax liability results primarily form the use of accelerated
      methods of depreciation of equipment for tax purposes.The
      valuation allowance was established to reduce the deferred tax asset to
      the amount that will more likely than not berealized. This
      reduction is necessary due to the use of the prior year's net operating
      loss carryovers and the uncertaintyof
      the exercising of the outstanding stock options. The net change in
      the valuation allowance for the year endedDecember
      31, 2008 was a decrease of $210,647.The
      components of income tax expense related to continuing operations are as
      follows:2008
                                                
                                                
                                                2007FederalCurrent
                                                
                                                $
                                                102,300
                                                
                                                
                                                $
                                                -Deferred
                                                
                                                
                                                4,200
                                                
                                                
                                                
                                                -106,500
                                                
                                                
                                                
                                                -State
      and LocalCurrent
                                                
                                                
                                                32,300
                                                
                                                
                                                
                                                -Deferred
                                                
                                                
                                                1,300
                                                
                                                
                                                
                                                -33,600
                                                
                                                
                                                
                                                -$
                                                140,100
                                                
                                                
                                                $
                                                -
   F
-7
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 The
      Company's income tax expense differed from the statutory rates (federal
      34% and state 10.9%) as follows:Year
      Ended December 31,
                          
                          
                          Year
      Ended December 31,2008
                          
                          
                          2007Statutory
      rate applied to earnings before income taxes:
                          
                          $
                          342,061
                          
                          
                          $
                          -Increase
      (decrease) in income taxes resulting from:State
      income taxes
                          
                          
                          33,600
                          
                          
                          
                          -Change
      in deferred tax asset valuation allowance
                          
                          
                          46,991
                          
                          
                          
                          -Utilization
      of net operating loss carryforward
                          
                          
                          (257,638
                          )
                          
                          
                          -Other
                          
                          
                          (24,914
                          )
                          
                          
                          -Income
      Tax Expense
                          
                          $
                          140,100
                          
                          
                          $
                          -
 
 F
-8
   SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
   
 (G) Property and
Equipment
 
 The
Company values property and equipment at cost and depreciates these assets using
the straight-line method over their expected useful life. The Company uses a
three year life for software and five year life for computer
equipment.
 
 (H) Stock-Based
Compensation
 
 In
December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
replaces SFAS No. 123 and supersedes APB Opinion No. 25.  Under SFAS
No. 123(R), companies are required to measure the compensation costs of
share-based compensation arrangements based on the grant-date fair value and
recognize the costs in the financial statements over the period during which
employees are required to provide services. Share-based compensation
arrangements include stock options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase plans. In March
2005 the SEC issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107
expresses views of the staff regarding the interaction between SFAS No. 123(R)
and certain SEC rules and regulations and provides the staff's views regarding
the valuation of share-based payment arrangements for public companies. SFAS No.
123(R) permits public companies to adopt its requirements using one of two
methods.  On April 14, 2005, the SEC adopted a new rule amending the
compliance dates for SFAS 123R. Companies may elect to apply this statement
either prospectively, or on a modified version of retrospective application
under which financial statements for prior periods are adjusted on a basis
consistent with the pro forma disclosures required for those periods under SFAS
123. Effective January 1, 2006, the Company has fully adopted the provisions of
SFAS No. 123R and related interpretations as provided by SAB 107.  As
such, compensation cost is measured on the date of grant at their fair
value.  Such compensation amounts, if any, are amortized over the
respective vesting periods of the option grant.  The Company applies
this statement prospectively.
 
 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.
 
 F
-9
 
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 (I) Business
Segments
 
 The
Company operates in one segment and therefore segment information is not
presented.
 
 (J) Income (Loss) Per
Share
 
 Basic
income (loss) per common share is computed based upon the weighted average
common shares outstanding as defined by Financial Accounting Standards No. 128,
“Earnings per Share.”
 
 Diluted
income per share includes the dilutive effects of stock options, warrants, and
stock equivalents.  To the extent stock options, warrants, stock
equivalents and warrants are anti-dilutive, they are excluded from the
calculation of diluted income per share.  For the year ended December
31, 2007 the 175,185 shares issuable upon conversion of notes payable and
3,050,000 shares issuable upon the exercise of stock options and warrants were
not included in the computation of loss per share because their inclusion is
anti-dilutive.  For the year ended December 31, 2008, 2,730,000 shares
issuable upon the exercise of stock options and warrants were not included in
the computation of diluted income per share because their inclusion is
anti-dilutive.
    For
      the
                                                    
                                                    For
      theyear
      ended
                                                    
                                                    year
      endedDecember
      31, 2008
                                                    
                                                    December
      31,
                                                      2007Net
      income (loss) for the year
                                                    
                                                    $
                                                    796,960
                                                    
                                                    
                                                    $
                                                    (914,997
                                                    )Weighted
      average number of shares outstanding
                                                    
                                                    
                                                    10,420,680
                                                    
                                                    
                                                    
                                                    9,660,466Basic
      earnings (loss) per share
                                                    
                                                    $
                                                    0.08
                                                    
                                                    
                                                    $
                                                    (0.09
                                                    )
   F
-10
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  The
following table sets for the computation of diluted earnings per
share:
  For
      the
                                                        
                                                        For
      theyear
      ended
                                                        
                                                        year
      endedDecember
      31,
                                                          2008
                                                        
                                                        December
      31, 2007Net income (loss) for the
      year
                                                        
                                                        $
                                                        796,960
                                                        
                                                        
                                                        $
                                                        (914,997
                                                        )Add:
      Adjustment for interest on 6% convertible notes
                                                        
                                                        
                                                        2,729
                                                        
                                                        
                                                        
                                                        0Adjusted
      net income (loss)
                                                        
                                                        $
                                                        799,689
                                                        
                                                        
                                                        $
                                                        (914,997
                                                        )Weighted
      average number of shares outstanding
                                                        
                                                        
                                                        10,420,680
                                                        
                                                        
                                                        
                                                        9,660,466Add:
      Weighted Average shares assumed to be issued upon conversion of 6%
      convertible notes
                                                        
                                                        
                                                        175,185
                                                        
                                                        
                                                        
                                                        0Warrants
      and options
                                                        
                                                        
                                                        700,000
                                                        
                                                        
                                                        
                                                        0Weighted
      average number of common and common equivalent shares
                                                        
                                                        
                                                        11,295,865
                                                        
                                                        
                                                        
                                                        9,660,466Diluted
      earnings(loss) per share
                                                        
                                                        $
                                                        0.07
                                                        
                                                        
                                                        $
                                                        (0.09
                                                        )
 
 (K) Fair Value of
Financial Instruments
 
 The
carrying amounts reported in the balance sheet for accounts receivable, accounts
payable, advances from stockholder and notes payable approximate fair value
based on the short-term maturity of these instruments.
 
 (L) Research and
Development
 
 The
Company has adopted the provisions of Emerging Issues Task Force 00-2,
“Accounting for Web Site Development Costs.”  Costs incurred in the
planning stage of a website are expensed as research and development while costs
incurred in the development stage are capitalized and amortized over the life of
the asset, estimated to be five years.  Expenses subsequent to the
launch have been expensed as research and development expenses.
 
 (M) Concentration of Credit
Risk
 
 At
December 31, 2008, 21.01% of sales earned were due from Customer A, 14.51% were
due from Customer B, 11.77% were due from Customer C, and 10.43% were due from
Customer D.
   F
-11
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  At
December 31, 2008 50.31% of Accounts Receivable are due from Customer C, 16.12%
are due from Customer A and 23.75% are due from Customer B.
 
 At
December 31, 2007, 21.1% of sales were earned from Customer A, 17.9% of sales
were earned from Customer B, 16.5% of sales were earned from Customer C, 13.5%
of sales were earned from Customer D, and 10.5% from Customer E.
 
 At
December 31, 2007, 21.5% of accounts receivable were due from Customer A, 19.8%
were due from Customer D, 18.3% were due from Customer B, 15.4% were due from
Customer F,  and 14.8% were due from Customer C.
 
 The
Company at times has cash in banks in excess of FDIC insurance limits. The
Company had approximately $852,078 in excess of FDIC insurance limits as of
December 31, 2008.
 
 (N) Revenue
Recognition
  The
Company recognizes revenue on arrangements in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in
Financial Statements” and No. 104, “Revenue Recognition”.  In all
cases, revenue is recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, the service is performed and
collectability is reasonably assured.
 
 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.
 
 The
Company received 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 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.
 F
-12
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 (O)
Cost of Revenue
  Cost of
revenues includes the expenses associated with the operation of our data
centers, including labor, consulting, hosting, server and web design and
programming expenses.
 
 (P)
Reclassification
 
 Certain
amounts from prior periods have been reclassified to conform to the current
period presentation.
 
 (Q)
Advertising
 
 Advertising
costs are expensed as incurred.  Advertising expense was $12,316 and
$69,959 for the years ended December 31, 2008 and 2007,
respectively.
 
 (R) 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.
  F
-13
 
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS No. 162 is effective 60 days
following the SEC’s approval of PCAOB Std. No. 6, evaluating consistency of
financial statements. The adoption of FASB 162 is not expected to have a
material impact on the Company’s financial position.
 
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008 and interim periods
within those years.  The adoption of FASB 163 is not expected to have
a material impact on the Company’s financial position.
  F
-14
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 NOTE
2 PROPERTY AND
EQUIPMENT
 
 At
December 31, 2008 and 2007 property and equipment is as follows:
 
 2008
                        
                        
                        2007Computer
      and Equipment
                        
                        $
                        31,142
                        
                        
                        $
                        4,257Software
                        
                        
                        1,353
                        
                        
                        
                        949Website
      costs
                        
                        
                        40,500
                        
                        
                        
                        40,500Less
      accumulated depreciation and amortization
                        
                        
                        (41,698
                        )
                        
                        
                        (29,066
                        )$
                        31,297
                        
                        
                        $
                        16,640
  Depreciation
and amortization expense for the years ended December 31, 2008 and 2007 was
$12,632 and $9,054, respectively.
 
 Estimated
future amortization of intangible assets is as follows:
 
 Year
                                
                                Amount2009
                                
                                12,0362010
                                
                                6,2892011
                                
                                5,4742012
                                
                                4,9522013
                                
                                2,546$   31,297
  NOTE
3 STOCKHOLDERS’
EQUITY
  (A) Common Stock Issued for
Cash
  On
October 29, 2007 the Company sold 30,769 shares of common stock for
$20,000.
 
 On
October 3, 2007 the Company sold 33,333 shares of common stock for
$20,000.
 
 On July
3, 2007 the Company sold 250,000 units that consisted of 250,000 shares of
common stock and 250,000 warrants exercisable at $1.20 which expire July 3,
2010, for total cash of $150,000.
 
 On July
12, 2007 the Company collected $219,000 for the sale of 406,727 shares of common
stock.
 
 On May
14, 2007, the Company sold 100,000 shares of common stock for $55,000 pursuant
to the terms of a private placement.
  F
-15
  SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 (B) Common Stock Issued for
Services
 
 On
December 30, 2008 the Company authorized the issuance of 10,000 shares of common
stock as compensation having a fair value of $7,000.  The shares vest
equally on January 1, 2010 and January 1, 2011.  As of December 31,
2008 no compensation expense was recorded.
 
 On
December 30, 2008 the Company authorized the issuance of 5,000 shares of common
stock as compensation having a fair value of $3,500.  The shares vest
on January 1, 2010 and require one year holding period.  As of
December 31, 2008 no compensation expense was recorded.
 
 On
December 15, 2008 the Company issued 12,500 shares of common stock for
consulting services having a fair value of $8,451 based upon fair value on the
date of grant.  As of December 31, 2008 $5,833 is recorded as
compensation and $2,617 is recorded as deferred compensation. (See Note 6
(B)).
 
 On
December 8, 2008 the Company authorized the issuance of 15,000 shares of common
stock as compensation having a fair value of $9,750 on the date of
grant.  As of December 31, 2008 $225 is recorded as
compensation.
 
 On
October 10, 2008, the Company issued 250,000 shares of common stock to an
executive for professional services rendered having a fair value of $50,000
based upon fair value on the date of grant (See Note
6(A)).
 On
October 4, 2008  the Company issued 3,500 shares of common stock for
consulting services having a fair value of $700 based upon fair value on the
date of grant (See Note 6 (B)).
 
 On
November 4, 2008  the Company issued 3,500 shares of common stock for
consulting services having a fair value of $1,575 based upon fair value on the
date of grant (See Note 6 (B)).
 
 On
December 2, 2008  the Company issued 18,500 shares of common stock for
consulting services having a fair value of $13,690 based upon fair value on the
date of grant (See Note 6(B)).
  On
September 15, 2008 the Company issued 50,000 shares of common stock as
compensation for legal services for a one year period having a fair value of
$44,500.  As of December 31, 2008 $14,833 is recorded as professional
fees and $29,667 is recorded as deferred compensation (see Note
6(B)).
    F
-16
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 On
September 2, 2008 the Company issued 3,500 shares of common stock for consulting
services having a fair value of $3,115 based upon fair value on the date of
grant (See Note 6 (B)).
 
 On
September 2, 2008 the Company issued 12,500 shares of common stock for
consulting services having a fair value of $11,125 based upon fair value on the
date of grant.  As of December 31, 2008 $11,125 is recorded as
compensation (See Note 6(B)).
 
 On June
1, 2008 the Company issued 12,500 shares of common stock for consulting services
having a fair value of $9,875 based upon fair value on the date of
grant.  As of December 31, 2008 $9,875 is recorded as compensation.
(See Note 6(B)).
 
 On April
22, 2008 the Company granted 21,429 shares of common stock as compensation
having a fair value of $15,000.  The shares vest on April 22, 2009 and
require one year holding period.  As of December 31, 2008 $5,199 is
recorded as compensation expense.
 
 On
January 5, 2008 the Company granted 50,000 shares of common stock as
compensation having a fair value of $47,500.  The shares vest equally
on January 5, 2010 and January 5, 2011.  As of December 31, 2008
$19,792 is recorded as compensation expense.
 
 On
January 5, 2008 the Company granted 10,000 shares of common stock as
compensation having a fair value of $9,500.  The shares vest on
January 5, 2010.  As of December 31, 2008 $4,750 is recorded as
compensation expense.
 
 On
January 5, 2008 the Company granted 10,000 shares of common stock as
compensation having a fair value of $9,500.  The shares vest on
January 5, 2011.  As of December 31, 2008 $3,167 is recorded as
compensation expense.
 
 On
January 1, 2008 the Company granted 50,000 shares of common stock for consulting
services having a fair value of $37,500 based upon fair value on the date of
grant.  The shares vest on January 1, 2009 and as of December 31, 2008
$37,500 is recorded as compensation expense.  The shares were issued
on January 2, 2009 (See Note 8).
 
 On
October 15, 2007, the Company issued 14,286 shares of common stock as
compensation having a fair value of $10,000 based upon fair value on the date of
grant.  The stock vests on October 13, 2008 and as of December 31,
2008, $10,000 has been recognized as compensation expense for the year ended
December 31, 2008.
 
 On
December 19, 2007 the Company issued 50,000 shares of common stock for web
development and programming services having a fair value of
$36,000.
  F
-17
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  On
December 1, 2007 the Company issued 100,000 shares of common stock as
compensation having a fair value of $72,000.
 
 On
October 2, 2007 the Company issued 50,000 shares of common stock for public
relations services having a fair value of $35,000.
  On June
30, 2007, the Company issued 50,000 shares of common stock having a fair value
of $47,500 in exchange for web development and programming
services.
  On March
6, 2007, the Company executed an agreement with an unrelated third party to
provide business investor relations services for a period of 90 days in exchange
for total compensation of $15,000 and 60,000 shares of common stock payable
monthly.   The Company issued 20,000 shares of common stock which
had a fair value of $4,000 based upon the quoted closing trading price on the
date of the agreement.  The Company was obligated to issue an
additional 20,000 shares of common stock on April 5, 2007 and May 5, 2007 and
pay $5,000 on each date.  The fair value of the April 5, 2007 issuance
was $11,800. The Company also paid $5,000.
  During
May 2007,   the Company and the service provider mutually agreed
to terminate the contract. In summary, during the six months ended June 30,
2007, the Company issued 40,000 shares of common stock having a fair value of
$15,800 and paid $10,000.  No further amounts are due under the
contact.
 
 (B)  Stock Options
Issued for Services
 
 On
January 1, 2008, the Company issued 50,000 options having an exercise price of
$2 per share. The options vest one year after grant.  For the year
ended December 31, 2008 the Company recorded compensation expense of $26,360
with an offsetting credit to additional paid in capital. The Company has valued
these options at their fair value using the Black-Scholes option pricing
method.  The assumptions used were as follows:
 
 Expected
life                                             3
years
 Expected
volatility                                   148.90%
 Risk free
interest
rate                              2.89%
 Expected
dividends                                 0%
 
 On
January 5, 2008, the Company issued 20,000 options having an exercise price of
$2 The options vest one year after grant.  For the year ended December
31, 2008 the Company recorded compensation expense of $5,760 with an offsetting
credit to additional paid in capital. The Company has valued these options at
their fair value using the Black-Scholes option pricing method.  The
assumptions used were as follows:
 
 F
-18
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
   Expected
life                                             2-3
years
 Expected
volatility                                   150.99%
 Risk free
interest
rate                              2.76%
 Expected
dividends                                 0%
 
 On
January 5, 2008, the Company issued 20,000 options having an exercise price of
$2 The options vest two years after grant.  For the year ended
December 31, 2008 the Company recorded compensation expense of $3,840 with an
offsetting credit to additional paid in capital. The Company has valued these
options at their fair value using the Black-Scholes option pricing
method.  The assumptions used were as follows:
 
 Expected
life                                             2-3
years
 Expected
volatility                                   150.99%
 Risk free
interest
rate                              2.76%
 Expected
dividends                                 0%
 
 On
January 5, 2008, the Company issued 250,000 options having an exercise price of
$1, $2 and $3, per share (50,000 options at $1, 100,000 options at $2 and
100,000 options at $3). The options vest at various dates ranging from two years
to three years.  For the year ended December 31, 2008 and the Company
recorded compensation expense of $64,760 with an offsetting credit to additional
paid in capital. The Company has valued these options at their fair value using
the Black-Scholes option pricing method.  The assumptions used were as
follows:
 
 Expected
life                                             2-3
years
 Expected
volatility                                   150.99%
 Risk free
interest
rate                              2.76%
 Expected
dividends                                 0%
 
 On
January 9, 2008, the Company issued 10,000 options having an exercise price of
$1 per share. The options vest over a one year term.  For the year
ended December 31, 2008 the Company recorded compensation expense of $5,180 with
an offsetting credit to additional paid in capital. The Company has valued these
options at their fair value using the Black-Scholes option pricing
method.  The assumptions used were as follows:
 
 Expected
life                                             1
years
 Expected
volatility                                   150.69%
 Risk free
interest
rate                              3.04%
 Expected
dividends                                 0%
   F
-19
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 On
December 30, 2008, the Company issued 10,000 options having an exercise price of
$1 per share. The options vest over on January 1, 2011 and require an additional
one year holding period. For the year ended December 31, 2008 no compensation
expense has been recorded. The Company has valued these options at their fair
value using the Black-Scholes option pricing method.  The assumptions
used were as follows:
 
 Expected
life                                             3
years
 Expected
volatility                                   250.26%
 Risk free
interest
rate                              0.34%
 Expected
dividends                                 0%
 
 On
December 30, 2008, the Company issued 10,000 options having an exercise price of
$1 per share. The options vest over on January 1, 2011 and require an additional
one year holding period. For the year ended December 31, 2008 no compensation
expense has been recorded. The Company has valued these options at their fair
value using the Black-Scholes option pricing method.  The assumptions
used were as follows:
 
 Expected
life                                              3
years
 Expected
volatility                                   250.26%
 Risk free
interest
rate                              0.34%
 Expected
dividends                                
0%
 
 On
October 13, 2008, the Company issued 5,000 options having an exercise price of
$1 per share. The options vest over a one year term and require an additional
one year holding period. For the year ended December 31, 2008 the Company
recorded compensation expense of $276 with an offsetting credit to additional
paid in capital. The Company has valued these options at their fair value using
the Black-Scholes option pricing method.  The assumptions used were as
follows:
 
 Expected
life                                             1
years
 Expected
volatility                                   240.24%
 Risk free
interest
rate                              1.22%
 Expected
dividends                                 0%
 
 On
September 29, 2008 the Company issued 5,000 options having an exercise price of
$1 per share. The options vest over a one year term and require an additional
one year holding period. For the year ended December 31, 2008 the Company
recorded compensation expense of $397 with an offsetting credit to additional
paid in capital. The Company has valued these options at their fair value using
the Black-Scholes option pricing method.  The assumptions used were as
follows:
 
 Expected
life                                             1
years
 Expected
volatility                                   214.05%
 Risk free
interest
rate                              1.60%
 Expected
dividends                                 0%
  F
-20
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 On
December 31, 2007, the Company issued 150,000 options having an exercise price
of $3 per share. The options vest immediately and the Company recorded research
and development expense of $98,880 with an offsetting credit to additional paid
in capital. The Company has valued these options at their fair value using the
Black-Scholes option pricing method.  The assumptions used were as
follows:
 
 Expected
life                                             3
years
 Expected
volatility                                   146.35%
 Risk free
interest
rate                              3.07%
 Expected
dividends                                 0%
 
 On
December 31, 2007, the Company issued 150,000 options having an exercise price
of $1.00 and $0.50 per share (100,000 at $1.00 and 50,000 at
$0.50).  The options vest immediately and the Company recorded
research and development expense of $86,445, with an offsetting credit to
additional paid in capital. The Company has valued these options at their fair
value using the Black-Scholes option pricing method.  The assumptions
used were as follows:
 
 Expected
life                                             1
year
 Expected
volatility                                   146.35%
 Risk free
interest
rate                              3.34%
 Expected
dividends                                 0%
 
 On
December 1, 2007, the Company executed an employment agreement with its
co-founder.  The term ceases December 1, 2008, there is an automatic
option to extend the agreement for a period of three additional
years.  Pursuant to the terms of the agreement, the individual will
receive 1,000,000 options of the Company having an exercise price of $0.70 and
$1.50 per share (500,000 at $0.70 and 500,000 at $1.50).  The options
vest immediately and the Company recorded compensation expense of $305,150, with
an offsetting credit to additional paid in capital.   The Company
has valued these options at their fair value using the Black-Scholes option
pricing method.  The assumptions used were as follows:
 
 Expected
life                                             1
year
 Expected
volatility                                   141.34%
 Risk free
interest
rate                              3.31%
 Expected
dividends                                 0%
  F
-21
 
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  The
following tables summarize all stock option grants to employees and consultants
as of December 31, 2008 and 2007, and the related changes during these periods
are presented below.
  Number
      of
                              Options
                            
                            
                            Weighted
      Average Exercise PriceStock OptionsBalance
      at December 31, 2006
                            
                            
                            1,500,000
                            
                            
                            $
                            0.40Granted
                            
                            
                            1,300,000
                            
                            
                            
                            1.29Exercised
                            
                            
                            -Forfeited
                            
                            
                            -Balance
      at December 31, 2007
                            
                            
                            2,800,000
                            
                            
                            
                            0.81Granted
                            
                            
                            380,000
                            
                            
                            
                            2.03Exercised
                            
                            
                            -Forfeited
                            
                            
                            -Balance
      at December 31, 2008
                            
                            
                            3,180,000Options
      exercisable at December 31, 2008
                            
                            
                            2,860,000
                            
                            
                            $
                            0.89Weighted
      average fair value of options
                              granted
      during 2008
                            
                            
                            
                            
                            
                            $
                            2.03
     The
following tables summarize information about stock options and warrants for the
Company at December 31, 2008 and 2007:
  2008
      Options Outstanding
                      
                      Options
      ExercisableRange
      of Exercise Price
                      
                      Number
                        Outstanding
      at December 31, 2008
                      
                      Weighted
      Average Remaining Contractual Life
                      
                      Weighted
      Average Exercise Price
                      
                      Number
                        Exercisable
      at
                        December
      31, 2008
                      
                      Weighted
      Average Exercise Price$            
      0.40
                      
                      1,500,000
                      
                      3.95
                      
                      $   
      0.40
                      
                      1,500,000
                      
                      $   
      0.40$ 
      0.50  - 3.00
                      
                      1,680,000
                      
                      3.68
                      
                      $   
      1.46
                      
                      1,360,000
                      
                      $   
      1.31
  2007
      Options Outstanding
                    
                    Options
      ExercisableRange
      of Exercise Price
                    
                    Number
                      Outstanding
      at December 31, 2007
                    
                    Weighted
      Average Remaining Contractual Life
                    
                    Weighted
      Average Exercise Price
                    
                    Number
                      Exercisable
      at
                      December
      31, 2007
                    
                    Weighted
      Average Exercise Price$           
      0.40
                    
                    1,500,000
                    
                    4.96
                    
                    $   
      0.40
                    
                    1,500,000
                    
                    $   
      0.40$ 
      0.50  - 3.00
                    
                    1,300,000
                    
                    4.17
                    
                    $   
      1.29
                    
                    1,300,000
                    
                    $   
      1.29
 
 F
-22
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 2008  Warrants
      Outstanding
                    
                    Options
      ExercisableRange
      of Exercise Price
                    
                    Number
                      Outstanding
      at December 31, 2008
                    
                    Weighted
      Average Remaining Contractual Life
                    
                    Weighted
      Average Exercise Price
                    
                    Number
                      Exercisable
      at
                      December
      31, 2008
                    
                    Weighted
      Average Exercise Price$   
      1.20
                    
                    250,000
                    
                    1.53
                    
                    $   
      1.20
                    
                    250,000
                    
                    $   
      1.20
 
 2007  Warrants
      Outstanding
                    
                    Options
      ExercisableRange
      of Exercise Price
                    
                    Number
                      Outstanding
      at December 31, 2007
                    
                    Weighted
      Average Remaining Contractual Life
                    
                    Weighted
      Average Exercise Price
                    
                    Number
                      Exercisable
      at
                      December
      31, 2007
                    
                    Weighted
      Average Exercise Price$    1.20
                    
                    250,000
                    
                    2.53
                    
                    $    
      1.20
                    
                    250,000
                    
                    $   
      1.20
 
 NOTE
4      CONVERTIBLE NOTES PAYABLE –
RELATED PARTY
 
 On
December 29, 2005, $92,648 of stockholder advances were converted into an
unsecured convertible note payable, due December 31, 2008 (extended to December
31, 2009) and bearing interest at a rate of 6% per annum. All debt can be
converted at the rate of $0.25 per share for each $1 of debt.  The
cash offering price at that time was $0.25 and therefore there was no beneficial
conversion feature on the note as the market price and conversion price were
equivalent.  During 2006, the stockholder exchanged $7,300 of the note
payable in full payment of a subscription receivable.  On March 27,
2007, a stockholder converted additional debt totaling $50,000 in exchange for
200,000 shares of common stock.  The fair value of the common stock
was $0.25 per share based upon the terms of the convertible note entered into on
December 29, 2005.  Accordingly, no gain or loss is recognized in this
transaction. At December 31, 2008, the Company had a remaining balance due of
$35,348 on December 31, 2009.
  On March
1, 2007, $10,138 of the stockholder advances were converted into an unsecured
convertible note payable, due March 1, 2010 and bearing interest at a rate of 6%
per annum.  All debt can be converted at the rate of $0.30 per share
for each $1 of debt.  There was no beneficial conversion recognized on
the conversion.  At December 31, 2008, the Company had a remaining
balance due March 1, 2010 of $10,138.
  NOTE
5      SETTLEMENT
PAYABLE
  On
January 5, 2008 the Company entered into an agreement with a service provider
requiring a total payment of $97,000.  $25,000 was paid on January 5,
2008 with the remaining $72,000 payable in 36 monthly installments with imputed
interest at a rate of 6% starting January 5, 2008.
  F
-23
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 NOTE
6      COMMITMENTS
 
 (A) Employment
Agreements
 
 In
January 2008, the Company entered into agreements with employees for two-year
terms at annual salaries for the first year totaling $169,000 and minimum
bonuses of $25,000 subject to performance requirements.  The annual
salaries and bonuses for the second year will be determined at a rate no less
than the first year rate.  In addition, the Company will issue the
25,000 shares of stock and 125,000 options (25,000 at $1.00, 50,000 at $2.00,
and 50,000 at $3.00) over the term in each of the two years, and up to an
additional 35,000 shares of stock and 145,000 options (25,000 at $1.00, 70,000
at $2.00, and 50,000 at $3.00) subject to performance
requirements.  The agreements also call for the employees to receive
health benefits.
 
 On
December 1, 2007 the Company entered into a one year employment agreement with
its co-founder. As compensation for services received, the Company is required
to issue 100,000 shares of common stock, an option to purchase 1,000,000 shares
and annual compensation of $160,000 a year beginning January 2008 with annual
bonus and salary increases determined by the Company. The agreement also calls
for the employee to receive health benefits, monthly membership for a health and
fitness facility as well as a complete annual physical. In addition, upon a
change in control of the Company, the employee will receive severance payments
equal to the remaining amounts due under the employment agreement plus a minimum
of two years base compensation, plus any prorated share of incentive
compensation and stock options associated with any signing bonus, plus health
benefits up to two years and up to $50,000 in job search costs. On October 10,
2008, the Company issued 250,000 shares of common stock as a bonus for
professional services rendered having a fair value of $50,000 on the date of
grant. The Company also issued a $25,000 cash bonus for the year ended December
31, 2008. As of December 31, 2008 the employment agreement has expired and has
not yet been extended.
 On
December 13, 2006 the Company executed an employment agreement with its
President and CEO.  The term ceases December 1, 2007 but it was
renewed for a period of one additional year through December 1,
2008.  As compensation for services, the President will receive annual
compensation of $160,000 a year beginning January 1, 2008.  The
agreement also calls for the employee to receive health benefits, monthly
membership for a health and fitness facility as well as a complete annual
physical.  In addition, upon a change in control of the Company, the
employee will receive severance payments equal to the remaining amounts due
under the employment agreement plus a minimum of two years base compensation,
plus any prorated share of incentive compensation and stock options associated
with any signing bonus, plus health benefits up to two years and up to $50,000
in job search costs.  For the year ended December 31, 2008 a $100,000
cash year end bonus has been issued. As of December 31, 2008 the employment
agreement has expired and has not yet been extended
 
 F
-24
 
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 (B) Consulting
Agreements
  On
September 11, 2008, the Company entered into a one year consulting agreement
with an unrelated third party to provide legal services.  In exchange
for the services provided the Company was required to issue 50,000 shares of the
Company’s common stock.
 
 On
September 4, 2008, the Company entered into a one year consulting agreement with
an unrelated third party to provide professional services.  In
exchange for the services provided the Company will be required to issue 42,000
shares of the Company’s common stock on a monthly basis of 3,500 shares per
month and a monthly payment of $3,000 for September through October and $7,500
per month for December 2008 through August 2009.  In addition, upon
satisfactory performance of services for a three month period, the Company will
issue 18,000 shares of stock or a cash payment of $13,500.  The
additional payment will be issued no later then December 31, 2008. Effective,
December 3, 2008 the terms of the original agreement have been
amended.  The Company made a one time payment of $5,000 and issued
15,000 shares of the Company’s common stock as full satisfaction for the
additional payment required for extending the agreement beyond the initial
three-month period.  The term of the agreement has been amended to run
from  December 4, 2008 through March 3, 2009 at a monthly fee of $5,000 and
10,500 shares issued in equal monthly installments of 3,500 shares.
 On May 1,
2008, the Company entered into a one year consulting agreement with an unrelated
third party to provide professional services.  In exchange for the
services provided the Company will be required to issue 50,000 shares of the
Company’s common stock on a quarterly basis beginning with May 1, 2008 and
continuing on September 1, 2008, December 1, 2008 and March 1,
2009.  This agreement was terminated on January 2, 2009 when the
consultant became a full time employee.
 
 Effective
January 9, 2008, the Company entered into a consulting agreement with an
unrelated third party to provide marketing and advertising
services.  In exchange for consulting services the Company granted an
option to purchase 10,000 shares of the Company’s common stock at an exercise
price of $1.  These options vest immediately and have an expiration
date of 3 years.
 
 On
October 1, 2007, the company entered in to a three month consulting agreement
with a
public-relations company.  The company is required to issue 50,000
shares of common stock and
$17,000 payable in two installments.  The first payment of $10,000 is
to be paid upon
entering into the agreement and $7,000 shall be paid seventy five days after the
first payment. On October 1, 2007 $10,000 was paid and on October 2, 2007 50,000
shares of common stock have been issued.  As of December 31, 2008 the $7,000
payment has not been made and is being disputed by the Company due to breach of
contract.
 
 F
-25
 
  SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 During
May 2007, the Company entered into an agreement with a consultant to issue the
consultant up to 50,000 shares of common stock and up to 50,000 common stock
options at an exercise price of $2.00 per share expiring in 2011 at the
discretion of the Company based on services performed through December 31,
2007.  The stock and options will vest 1 year from
issuance.  On January 1, 2008 50,000 stock options and 50,000 shares
of stock have been awarded.
 
 On May
15, 2007, the Company entered into a service agreement with an unrelated third
party to provide public relations services.  The term of the services
to be provided is from May 15, 2007 to September 15, 2007.  As
compensation for services received the Company will be required to pay $6,500
per month.  The agreement was terminated effective November 9,
2007.  During December, 2007 the Company renewed the agreement for an
additional four months for a fee of $6,500.  On June 13, 2008 the
Company terminated the agreement, effective July 13, 2008.  For the
period ended September 30, 2008, in total $39,339 in compensation has been
paid.
 
 (C) Operating Lease
Agreements
 
 On April
4, 2008, the Company executed a two-year non-cancelable operating lease for its
corporate office space. The lease begins on May 1, 2008 and expires on April 30,
2010.  The amount paid during 2008 is $40,667.
 
 Future
minimum annual rental payments are as follows:
  Year
      1
                                              
                                              $
                                              61,000Year
      2
                                              
                                              
                                              20,333Total
      future minimum lease payments
                                              
                                              $
                                              81,333
 (D) Investment
Agreement
 On
November 22, 2006, we entered into an Investment Agreement (the “Agreement”)
with Dutchess Private Equities Fund, Ltd. (“Dutchess”) to provide us with an
equity line of credit. Pursuant to this Agreement, Dutchess is
contractually obligated to purchase up to $10,000,000 of the Company’s
Stock over the course of 36 months (“Line Period”), after our registration
statement was declared effective (“Effective Date”). The amount that the Company
is entitled to request from each of the purchase “Puts”,
is  equal to either 1) $100,000 or 2) 200% of the average daily volume
(U.S market only) (“ADV”), multiplied by the average of the three (3) daily
closing prices immediately preceding the Put Date.  The ADV is computed
using the ten (10) trading days prior to the Put Date. The Purchase Price for
the common stock identified in the Put Notice is set at ninety-five percent
(95%) of the lowest closing bid price of the common stock during the Pricing
Period. The Pricing Period is equal to the period beginning on the Put Notice
Date and ending on and including the date that is five (5) trading days after
such Put Notice Date.  As of December 31, 2008, we have never accessed
this line of credit and do
not anticipate accessing this line of credit in 2009.
  (E) Placement
Agreement
 
 On August
20, 2008, we entered into a non-exclusive Placement Agent Agreement (the
“Agreement”) with a firm to serve as our placement agent for certain
transactions.  Pursuant to this Agreement, the placement agent will receive
a fee based on a formula that includes cash and warrants for transactions which
occur via an introduction made by the firm.  As of December 31, 2008, we
have not entered into any such transactions.
 F
-26
 
  SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 NOTE
7      RELATED PARTY
TRANSACTIONS
 
 On
October 10, 2008, 250,000 shares of common stock was issued to an executive for
compensation having a fair value of $50,000 based upon fair value on the date of
grant (See Note 3(A)).
 
 On
December 1, 2007 the Company entered into a one year employment agreement with a
co-founder.  As compensation for services received the Company is
required to issue 100,000 shares of common stock, an option to purchase
1,000,000 shares and an annual compensation of $160,000 per year beginning
January 2008. As of December 31, 2008 the employment agreement has expired and
has not yet been extended.
 
 On March
27, 2007, a stockholder converted $50,000 of a convertible note payable into
200,000 shares of common stock.
 
 On March
1, 2007, $10,138 of the stockholder advances were converted into an unsecured
convertible note payable, due March 1, 2010 and bearing interest at a rate of 6%
per annum.
  On
December 29, 2005, $92,648 of stockholder advances were converted into an
unsecured convertible note payable, due December 31, 2008 and bearing interest
at a rate of 6% per annum. Effective December 15, 2008, the note was extended to
December 31, 2009.  All debt can be converted at the rate of $0.25 per
share for each $1 of debt.  The cash offering price at that time was
$0.25 and therefore there was no beneficial conversion feature on the note as
the market price and conversion price were equivalent.  During 2006,
the stockholder exchanged $7,300 of the note payable in full payment of a
subscription receivable.  On March 27, 2007, a stockholder converted
additional debt totaling $50,000 in exchange for 200,000 shares of common
stock.  The fair value of the common stock was $0.25 per share based
upon the terms of the convertible note entered into on December 29,
2005.  Accordingly, no gain or loss is recognized in this transaction.
At December 31, 2008, the Company had a remaining balance due of
$35,348.
  On March
1, 2007, $10,138 of the stockholder advances were converted into an unsecured
convertible note payable, due March 1, 2010 and bearing interest at a rate of 6%
per annum.  All debt can be converted at the rate of $0.30 per share
for each $1 of debt.  There was no beneficial conversion recognized on
the conversion.  At December 31, 2008, the Company had a remaining
balance due March 1, 2010 of $10,138.
  F
-27
 SNAP
INTERACTIVE, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 NOTE
8      SUBSEQUENT
EVENTS
  On
January 2, 2009, the Company issued 50,000 shares of vested common stock for
consulting services having a fair value of $37,500 based upon fair value on the
date of grant.
 
 On
January 2, 2009, the Company issued 3,500 shares of common stock for consulting
services having a fair value of $2,275 based upon fair value on the date of
grant.
 
 On
January 15, 2009, the Company issued 15,000 shares of Company’s common stock,
having a fair value of $14,850 on the grant date and $10,000 in exchange for the
purchase of a business product. name.
 
 In
January 2009, the Company entered into agreements with an employee for one year
term, at an annual salary of $100,000 and 50,000 shares of Company’s common
stock.
 
 On
February 3, 2009, the Company issued 3,500 shares of common stock for consulting
services having a fair value of $3,465 based upon fair value on the date of
grant.
 
 On
February 3, 2009, the Company issued 5,000 shares of common stock for services
having a fair value of $4,950 based upon fair value on the date of
grant.
 
 On March
2, 2009, the Company issued 3,500 shares of common stock for consulting services
having a fair value of $3,325 based upon fair value on the date of
grant.
 
 On March
1, 2009, the Company issued 12,500 shares of common stock to an employee as per
the terms of an employment agreement, having a fair value of $11,875 based upon
fair value on the date of grant.
 
 On
February 25, 2009 the Company executed a three-year non-cancelable operating
lease for its new corporate office space. The lease begins on April 1, 2009 and
expires on March 31, 2012.  Total base rent due during the term of the
lease is $313,680.
 
 
 F-28




Item
9.          CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE




Our
accountant is Webb & Company, P.A. Independent Registered Public
Accounting Firm. We do not presently intend to change accountants. At no time
have there been any disagreements with such accountants regarding any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.




Item
9A(T).   CONTROLS AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based upon that evaluation, the
Company’s CEO and CFO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CFO, as appropriate, to allow timely decisions regarding required
disclosure.





Management's
Annual Report on Internal Control Over Financial Reporting.





The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company.  Our internal control system was designed to, in general,
provide reasonable assurance to the Company’s management and board regarding the
preparation and fair presentation of published financial statements, but because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





Our
management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2008.  The framework used by
management in making that assessment was the criteria set forth in the document
entitled “ Internal Control – Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on that assessment,
our management has determined that as of December 31, 2008, the Company’s
internal control over financial reporting was effective for the purposes for
which it is intended.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.




Changes
in Internal Control over Financial Reporting





No change
in our system of internal control over financial reporting occurred during the
period covered by this report, fourth quarter of the fiscal year ended December
31, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




PART
III




Item
10.       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT





Our sole
executive officer’s and director’s and his respective age as of March 23, 2009
are as follows:




NAME
              AGE
              POSITIONClifford
      Lerner
              31
              President,
      Chief Executive Officer, Chief Financial Officer,
  Chairman




Set forth
below is a brief description of the background and business experience of our
sole executive officer and director for the past five years.




14






CLIFFORD LERNER is our
President and Chief Executive Officer as well as Chairman of our Board of
Directors. Prior to joining us in July 2005, Clifford spent his professional
career from July 2000 to May 2005 at Lehman Brothers Inc. as an Analyst in its
Equities division. Clifford worked as an Analyst in the Product Management Group
where his duties involved helping to coordinate the morning and afternoon equity
research calls. He received his undergraduate degree from Cornell University in
2000 where he majored in Applied Economics & Business
Management.




Term
of Office




Our sole
director was appointed for a one-year term to hold office until the next annual
general meeting of our shareholders or until removed from office in accordance
with our bylaws. Our sole officer was appointed by our board of directors and
holds office until removed by the board





Current
Issues and Future Management Expectations





No board
audit committee has been formed as of the filing of this Annual
Report.




Compliance
With Section 16(A) Of The Exchange Act.




Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
persons who beneficially own more than 10% of a registered class of the
Company’s equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and are required to
furnish copies to the Company. To the best of the Company’s knowledge, any
reports required to be filed were timely filed in fiscal year ended December 31,
2008.




Code
of Ethics




We have
adopted a Code of Ethics applicable to our Chief Executive Officer and Chief
Financial Officer. This Code of Ethics is filed herewith as an
exhibit.




The
following
summary
compensation table sets forth all compensation
awarded to, earned by, or paid to the named executive officer during the years
ended December
31,
2008, 2007, and 2006 in all capacities for the accounts of our executive,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
  SUMMARY
COMPENSATION TABLE
  Name
      and Principal Position
              Year
              
              Salary
                ($)
              
              Bonus
                ($)
              
              Stock
                Awards
                ($)
              
              Option
      Awards
                ($)
              
              Non-Equity
      Incentive Plan Compensation ($)
              
              Non-Qualified
      Deferred Compensation Earnings
                ($)
              All
      Other Compensation
                ($)
              
              Totals
                ($)Clifford
      Lerner,
              2008
              
              $
              160,000
              
              $  106,154
              
              
              0
              
              0
              
              
              0
              
              0
              0
              
              $
              266,154President,
              2007
              
              $
              0
              
              $  30,000
              
              
              0
              
              0
              
              
              0
              
              0
              0
              
              $
              30,000CEO,
      and CFO
              2006
              
              $
              0
              
              $      
      0
              
              
              
              $
              365,250
              
              
              0
              
              0
              0
              
              $
              365,250
 
 Outstanding Equity Awards at Fiscal
Year-End Table.  Pursuant to his employment agreement with us, we
granted to Clifford Lerner options to purchase one million five hundred thousand
shares of the Company’s Common Stock at a price of $0.40, such options to expire
in 2012.  The options vested immediately and we recorded compensation
expense of $365,250, with an offsetting credit to additional paid in
capital.  We have valued these options at their fair value using the
Black-Scholes option pricing method.  The assumptions used were as
follows:
  Expected
      life
                                      2
      yearsExpected
      volatility
                                      71.86%Risk
      free interest rate
                                      4.86%Expected
      dividends
                                      0%
  Aggregated Option Exercises and Fiscal Year-End Option Value Table.There were no stock options exercised during period ending March 23, 2009 by the executive officer named in the Summary Compensation Table.
  Long-Term
Incentive Plan (“LTIP”) Awards Table.There were no awards made
to a named executive officer in the last completed fiscal year under any
LTIP
  Compensation of Directors
  Directors
are permitted to receive fixed fees and other compensation for their services as
directors. The Board of Directors has the authority to fix the compensation of
directors. No amounts have been paid to, or accrued to, directors in such
capacity.


15




Employment
Agreements





Employment
and Consulting Agreements




In
January 2008, the Company entered into agreements with employees for two-year
terms at annual salaries for the first year totaling $169,000 and minimum
bonuses of $25,000 subject to performance requirements.  The annual
salaries and bonuses for the second year will be determined at a rate no less
than the first year rate.  In addition, the Company will issue the
25,000 shares of stock and 125,000 options (25,000 at $1.00, 50,000 at $2.00,
and 50,000 at $3.00) over the term in each of the two years, and up to an
additional 35,000 shares of stock and 145,000 options (25,000 at $1.00, 70,000
at $2.00, and 50,000 at $3.00) subject to performance
requirements.  The agreements also call for the employees to receive
health benefits.





On
December 1, 2007 the Company entered into a one year employment agreement with
its co-founder. As compensation for services received, the Company is required
to issue 100,000 shares of common stock, an option to purchase 1,000,000 shares
and annual compensation of $160,000 a year beginning January 2008 with annual
bonus and salary increases determined by the Company.  The agreement
also calls for the employee to receive health benefits, monthly membership for a
health and fitness facility as well as a complete annual physical.  In
addition, upon a change in control of the Company, the employee will receive
severance payments equal to the remaining amounts due under the employment
agreement plus a minimum of two years base compensation, plus any prorated share
of incentive compensation and stock options associated with any signing bonus,
plus health benefits up to two years and up to $50,000 in job search
costs.  On October 10, 2008, the Company issued 250,000 shares of
common stock as a bonus for professional services rendered having a fair value
of $50,000 on the date of grant. The company also awarded a $25,000 cash bonus
for the year ending December 31, 2008.  As of December 31, 2008 the
employment agreement has expired and has not yet been
extended.


We
entered into an employment agreement with Mr. Clifford Lerner, our Chief
Executive Officer, President, and Chairman of the Board of Directors, on
December 14, 2006. Pursuant to such agreement, we granted to Clifford Lerner
options to purchase one million five hundred thousand shares of the Company’s
Common Stock at a price of $0.40, such options to expire in 2012.  The
term ceased December 1, 2007, but it was renewed for a period of one additional
year through December 1, 2008.  Beginning January 1, 2008, Clifford
Lerner shall receive annual compensation of $160,000 per year during the term of
the Agreement. During 2007, we paid a bonus of $30,000 to Mr.
Lerner.  For the year ending December 31, 2008 we awarded Mr. Lerner a
$106,124 bonus.  As of December 1, 2008 the employment agreement has
expired and has not yet been extended.


Item
12.        SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT




The
following table provides the names and addresses of each person known to us to
own more than 5% of our outstanding shares of common stock as of March 23,
2009 and by the officers and directors, individually and as a group. Except as
otherwise indicated, all shares are owned directly.




Title
      of Class
                      Name
      and Address
                        of
      Beneficial Owner
                      Amount
      and Nature
                        of
      Beneficial Owner
                      Percent
      of
                        Class
      (1)Common
      Stock
                      Clifford
      Lerner
                        366
      North Broadway, Suite 41042,
                        Jericho,
      NY 11753
                      7,000,000
                      67.41%Common
      Stock
                      All
      executive officers and directors as a group
                      7,000,000
                      67.41%




Stock Option
Grants




Pursuant
to his employment agreement with us, we granted to Clifford Lerner options to
purchase one million five hundred thousand shares of the Company’s Common Stock
at a price of $0.40, such options to expire in 2012.  The options
vested immediately and we recorded compensation expense of $365,250, with an
offsetting credit to additional paid in capital.  We have valued these
options at their fair value using the Black-Scholes option pricing
method.  The assumptions used were as follows:
  Expected
      life
                                  2
      yearsExpected
      volatility
                                  71.86%Risk
      free interest rate
                                  4.86%Expected
      dividends
                                  0%




Aggregated
Option Exercises and Fiscal Year-End Option Value Table.There were no stock options
exercised during period ending March 23, 2009 by the executive officer named in
the Summary Compensation Table.




16






Item
13.        CERTAIN RELATIONSHIPS AND RELATED
TRANSACTION, AND DIRECTORINDEPENDENCE





On
October 10, 2008, 250,000 shares of common stock was issued to an executive for
compensation having a fair value of $50,000 based upon fair value on the date of
grant.
 
 On
December 1, 2007 the Company entered into a one year employment agreement with a
co-founder.  As compensation for services received the Company is
required to issue 100,000 shares of common stock, an option to purchase
1,000,000 shares and an annual compensation of $160,000 per year beginning
January 2008. As of December 31, 2008 the employment agreement has expired and
has not yet been extended.
 
 On March
27, 2007, a stockholder converted $50,000 of a convertible note payable into
200,000 shares of common stock.
 
 On March
1, 2007, $10,138 of the stockholder advances were converted into an unsecured
convertible note payable, due March 1, 2010 and bearing interest at a rate of 6%
per annum.
 
 On
December 29, 2005, $92,648 of stockholder advances were converted into an
unsecured convertible note payable, due December 31, 2008 and bearing interest
at a rate of 6% per annum. Effective December 15, 2008, the note was extended to
December 31, 2009.  All debt can be converted at the rate of $0.25 per
share for each $1 of debt.  The cash offering price at that time was
$0.25 and therefore there was no beneficial conversion feature on the note as
the market price and conversion price were equivalent.  During 2006,
the stockholder exchanged $7,300 of the note payable in full payment of a
subscription receivable.  On March 27, 2007, a stockholder converted
additional debt totaling $50,000 in exchange for 200,000 shares of common
stock.  The fair value of the common stock was $0.25 per share based
upon the terms of the convertible note entered into on December 29,
2005.  Accordingly, no gain or loss is recognized in this transaction.
At December 31, 2008, the Company had a remaining balance due of
$35,348.
  On March
1, 2007, $10,138 of the stockholder advances were converted into an unsecured
convertible note payable, due March 1, 2010 and bearing interest at a rate of 6%
per annum.  All debt can be converted at the rate of $0.30 per share
for each $1 of debt.  There was no beneficial conversion recognized on
the conversion.  At December 31, 2008, the Company had a remaining
balance due March 1, 2010 of $10,138.





Item
14.        PRINCIPAL ACCOUNTANT FEES AND
SERVICES





Audit
Fees




For the
Company’s fiscal years ended December 31, 2008 and 2007, we were billed
approximately $ 26,781 and $ 14,926 for professional services rendered for
the audit and review of our financial statements.




17




Audit Related
Fees





There
were no fees for audit related services for the years ended December 31, 2008
and 2007.





Tax Fees




For our
fiscal years ended December 31, 2008 and December 31, 2007, we were billed
$1,231 and $1,000, respectively. for professional services rendered for tax
compliance, tax advice, and tax planning.





All Other
Fees




The
Company did not incur any other fees related to services rendered by our
principal accountant for the fiscal years ended December 31, 2008 and
2007.




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.





Effective
May 6, 2003, the Securities and Exchange Commission adopted rules that require
that before our auditor is engaged by us to render any auditing or permitted
non-audit related service, the engagement be:





-approved
by our audit committee; or





-entered
into pursuant to pre-approval policies and procedures established by the audit
committee, provided the policies and procedures are detailed as to the
particular  service,  the  audit committee is
informed of each service, and such policies and procedures do not include
delegation of the audit committee's responsibilities to management.





We do not
have an audit committee.  Our entire board of directors pre-approves
all services provided by our independent auditors.





The
pre-approval process has just been implemented in response to the new rules.
Therefore, our board of directors does  not have  records
of  what percentage of the above fees were
pre-approved.  However, all of the above services and fees were
reviewed and approved by the entire board of directors either before or after
the respective services were rendered.




PART
IV





Item
15.        EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.




a)
Documents filed as part of this Annual Report




1.
Consolidated Financial Statements




2.
Financial Statement Schedules




3.
Exhibits




14.1
              Code
      of Ethics31.1
              Rule
      13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer and Chief
      Financial Officer


32.1
            Section
      1350 Certification of Chief Executive Officer and Chief Financial
      Officer







18








SIGNATURES




In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.




Dated:
March 23, 2009




By/s/Clifford
Lerner


Clifford
Lerner,


President,
Chief Executive Officer,


Chief
Financial Officer










In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




Signature
            
            Title
            
            Date/s/
      Clifford Lerner
            
            President,
      Chief Executive Officer,
            
            March
      23, 2009Clifford
      Lerner
            
            Chief
      Financial Officer
















19