Shares in dating website Cupid rose sharply on Monday morning after the AIM-listed company issued a trading update and responded to recent market speculation relating to its business model.
The group reported that trading "is ahead of where the business was at this time last year".
It said that revenues are more than 20% higher than in the same period of last year and the company has "a strong financial position", with cash at over £9.0m following a £3.0m share buyback, the marketing investment made in the first quarter and the £2.0m generated from a deferred purchase consideration payable for the acquisition of NSI Holdings, which trades as Uniform Dating.
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The company, which lists 54m members in 58 countries on its website, responded to recent media speculation, saying that it "strongly refutes all allegations that its business model or practices and procedures are in any way fundamentally flawed, inappropriate or illegal".
The company added: "The directors believe that there has been a great deal of misrepresentation and ill-informed speculation in the marketplace and the company is currently taking legal advice on these matters."
The first of the allegations is that Cupid uses fake profiles to entice prospective users to take out or extend subscriptions.
In response to this the company said: "Cupid does not behave in this manner and [...] does not condone any practices where employees use misleading activities to entice customers into new or to renew subscriptions."
The second allegation is related to scamming, but the group said "it should be emphasised that scamming exists across the entire online industry and is not something that is specific to Cupid".
It added that it is continuing to invest in increasingly sophisticated tools and systems to eliminate the practise, adding that it "intends to do more in this area to ensure that its sites are populated with genuine users".
Following the executive directors' investigation into the allegations across various media, the board said that it "unanimously concluded that the company does not employ members of staff to create fake profiles, impersonate users or use any other dubious practice to encourage customers to take out subscriptions or in order to retain existing customers, nor would the company condone, promote or persuade employees to do so".
Company commissions independent auditThe company has commissioned an independent audit of its customer database and database management processes by a "Big Four" accounting firm.
It said that it is anticipated that the findings of the audit will be announced by the end of second quarter.
To eliminate any speculation about related party transactions, the company said it had reached agreement with Interactive Dating & Entertainment for repayment of the full current balance outstanding of £2.2m within the next three months.
As a result, the company will see a cash inflow of £2.2m before the end of June, 2013, 54 months ahead of the previously announced repayment date.
Cupid's share price was up 67.86% to 82.25p at 08:51 on Monday. The stock is down almost 62% over the past year, and over 41% over the past month.
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