UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended June 30, 2008Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                             to


Commission file number 000-33367



UNITED ONLINE, INC.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or other Jurisdiction of
Incorporation or Organization)

77-0575839(I.R.S. Employer Identification No.)21301 Burbank Boulevard,
Woodland Hills, California(Address of Principal Executive Office)

91367(Zip Code)(818) 287-3000(Registrant's Telephone Number, Including Area Code)Not applicable(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)




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 ý    No o

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. (Check one):

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes o    No ý

There were 69,040,202 shares of the Registrant's common stock outstanding at August 1, 2008.



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UNITED ONLINE, INC.    INDEX TO FORM 10-Q    For the Quarter Ended June 30, 2008

PagePART I.

FINANCIAL INFORMATIONItem 1.

Unaudited Condensed Consolidated Balance Sheets at June 30, 2008 and December 31, 2007


4Unaudited Condensed Consolidated Statements of Operations for the Quarters and Six Months Ended June 30, 2008 and 2007


5Unaudited Condensed Consolidated Statements of Comprehensive Income for the Quarters and Six Months Ended June 30, 2008 and 2007


6Unaudited Condensed Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2008


7Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007


8Notes to Unaudited Condensed Consolidated Financial Statements


9Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations


30Item 3.

Quantitative and Qualitative Disclosures About Market Risk


52Item 4.

Controls and Procedures


53PART II.

OTHER INFORMATIONItem 1.

Legal Proceedings


54Item 1A.

Risk Factors


55Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


72Item 4.

Submission of Matters to a Vote of Security Holders


72Item 6.

Exhibits


73SIGNATURES


76


In
this document, except where otherwise defined, "United Online," the "Company," "we," "us" and "our" refer to United Online, Inc. and its subsidiaries.

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial
condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business
outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about the markets in which we compete,
our pay accounts, our product and service offerings, the advertising market, operating expenses, operating efficiencies, revenues, dividends, including our intention to reduce the dividends following
the closing of our proposed acquisition (the "Acquisition") of FTD Group, Inc., capital requirements, capital expenditures, tax payments, stock-based compensation, restructuring charges, our
cash position, and the

2

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Acquisition. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking
statements. Any such forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore,
our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" in this Quarterly
Report on Form 10-Q and our other filings with the Securities and Exchange Commission set forth some of the important risk factors that may affect our business, financial position,
results of operations, and cash flows. Statements indicating factors that we believe may impact our results or financial condition are not intended to be exclusive. We undertake no obligation to
revise or update publicly any forward-looking statements, other than as required by law.

3

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PART IFINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands)

June 30, 2008

December 31, 2007AssetsCurrent assets:Cash and cash equivalents

$
113,667

$
149,507Short-term investments


126,323


68,800Accounts receivable, net of allowance for doubtful accounts of $3,026 and $2,378 at June 30, 2008 and December 31, 2007, respectively


26,894


28,765Deferred tax assets, net


9,719


7,050Other current assets


17,212


19,992Total current assets


293,815


274,114Property and equipment, net


36,489


39,570Deferred tax assets, net


54,955


57,559Goodwill


132,239


132,352Intangible assets, net


36,103


40,915Other assets


9,663


7,883Total assets

$
563,264

$
552,393Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
37,161

$
38,095Accrued liabilities


19,872


30,586Member redemption liability


21,507


19,499Deferred revenue


71,221


63,086Capital leases


5


13Total current liabilities


149,766


151,279Member redemption liability


5,181


5,061Deferred revenue


4,843


4,691Other liabilities


10,904


10,734Total liabilities


170,694


171,765Commitments and contingenciesStockholders' equity:Common stock


7


7Additional paid-in capital


400,173


414,841Accumulated other comprehensive income


52


182Accumulated deficit


(7,662
)

(34,402
)Total stockholders' equity


392,570


380,628Total liabilities and stockholders' equity

$
563,264

$
552,393


The
accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

4

---





UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share amounts)

Quarter Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007Revenues

$
122,273

$
131,417

$
244,084

$
261,268Operating expenses:Cost of revenues (including stock-based compensation, see Note 6)


26,830


30,409


54,669


59,656Sales and marketing (including stock-based compensation, see Note 6)


35,809


42,712


72,590


88,737Technology and development (including stock-based compensation, see Note 6)


12,521


13,065


25,423


26,536General and administrative (including stock-based compensation, see Note 6)


22,774


16,900


43,658


32,389Amortization of intangible assets


2,022


3,204


4,858


6,699Restructuring charges


357


394


563


394Total operating expenses


100,313


106,684


201,761


214,411Operating income


21,960


24,733


42,323


46,857Interest and other income, net


1,947


1,881


3,755


3,581Interest expense


(379
)

(372
)

(545
)

(732
)Income before income taxes


23,528


26,242


45,533


49,706Provision for income taxes


9,790


10,034


18,793


20,470Net income

$
13,738

$
16,208

$
26,740

$
29,236Basic net income per share

$
0.20

$
0.24

$
0.39

$
0.44Diluted net income per share

$
0.19

$
0.23

$
0.38

$
0.43Shares used to calculate basic net income per share


68,853


66,685


68,499


66,159Shares used to calculate diluted net income per share


70,492


69,351


70,109


68,719


The
accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

5

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UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME        (in thousands)

Quarter Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007Net income

$
13,738

$
16,208

$
26,740

$
29,236Change in unrealized gain (loss) on short-term investments, net of tax of $(54) and $43 for the quarter and six months ended June 30, 2008, respectively, and $6 and $48
for the quarter and six months ended June 30, 2007, respectively


(94
)

9


73


73Foreign currency translation


(158
)

(13
)

(203
)

(11
)Comprehensive income

$
13,486

$
16,204

$
26,610

$
29,298


The
accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

6

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UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY        (in thousands)

Common Stock



Accumulated
Other
Comprehensive
IncomeAdditional
Paid-In
Capital

Accumulated
Deficit

Total
Stockholders'
EquityShares

AmountBalance at January 1, 2008


68,019

$
7

$
414,841

$
182

$
(34,402
)
$
380,628Exercises of stock options


126





1,043








1,043Issuance of common stock through employee stock purchase plan


284





2,576








2,576Vesting of restricted stock units


608














Repurchases of common stock








(7,124
)







(7,124
)Dividends paid on shares outstanding and restricted stock units








(29,469
)







(29,469
)Dividends payable on restricted stock units








(70
)







(70
)Stock-based compensation








18,151








18,151Change in unrealized gain on short-term investments, net of tax











73





73Foreign currency translation











(203
)




(203
)Tax benefits from equity awards








225








225Net income














26,740


26,740Balance at June 30, 2008


69,037

$
7

$
400,173

$
52

$
(7,662
)
$
392,570


The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

7

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UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Six Months Ended
June 30,2008

2007Cash flows from operating activities:Net income

$
26,740

$
29,236Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


15,183


16,678Stock-based compensation


18,151


6,821Provision for doubtful accounts receivable


586


1,093Deferred taxes, net


18


550Tax benefits from equity awards


225


3,710Excess tax benefits from equity awards


(264
)

(2,533
)Other


87


508Changes in operating assets and liabilities:Accounts receivable


1,287


873Other assets


6,773


(4,324
)Accounts payable and accrued liabilities


(14,210
)

(3,616
)Member redemption liability


2,127


2,829Deferred revenue


8,287


9,292Other liabilities


100


(71
)Net cash provided by operating activities


65,090


61,046Cash flows from investing activities:Purchases of property and equipment


(7,256
)

(12,563
)Purchases of short-term investments


(120,378
)

(164,505
)Proceeds from maturities of short-term investments


48,300


26,520Proceeds from sales of short-term investments


14,523


109,061Cash paid for proposed acquisition


(3,165
)

Proceeds from sales of assets, net


29


21Net cash used for investing activities


(67,947
)

(41,466
)Cash flows from financing activities:Payments on capital leases


(8
)

(8
)Proceeds from exercises of stock options


1,043


6,837Proceeds from employee stock purchase plan


2,576


3,485Repurchases of common stock


(7,124
)

(3,782
)Payments for dividends


(29,469
)

(28,174
)Excess tax benefits from equity awards


264


2,533Net cash used for financing activities


(32,718
)

(19,109
)Effect of exchange rate changes on cash and cash equivalents


(265
)

(25
)Change in cash and cash equivalents


(35,840
)

446Cash and cash equivalents, beginning of period


149,507


19,252Cash and cash equivalents, end of period

$
113,667

$
19,698Supplemental disclosure of non-cash investing and financing activities:Increase in accounts payable and accrued liabilities for proposed acquisition

$
3,030

$
Dividends payable on restricted stock units

$
70

$



The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

8

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UNITED ONLINE, INC.        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS

Description of Business

United Online, Inc. ("United Online" or the "Company") is a leading provider of consumer Internet and media services through a
number of brands, including Classmates, MyPoints, NetZero, and Juno. The Company reports its business in two reportable operating segments: Classmates Media and Communications. The Company's
Classmates Media services are online social networking and online loyalty marketing. The Company's primary Communications services are Internet access and email. On a combined basis, the Company's Web
properties attract a significant number of Internet users and the Company offers a broad array of Internet marketing products and services for advertisers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements for the quarters and six months ended June 30, 2008 and
2007, which include United Online and its subsidiaries, are unaudited except for the condensed consolidated balance sheet information at December 31, 2007, which is derived from the Company's
audited consolidated financial statements, filed on February 20, 2008 with the Securities and Exchange Commission ("SEC"), in the Company's Annual Report on Form 10-K for the
year ended December 31, 2007 but does not include all disclosures required by accounting principles generally accepted in the United States of America
("GAAP"). The Company's unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, including those for interim financial information, and with the instructions
for Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and note disclosures required by
GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements, in the
opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the results for the periods shown. The results of
operations for such periods are not necessarily indicative of the results expected for any future periods.

The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates and assumptions. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2007 included in the Company's Annual
Report on Form 10-K filed on February 20, 2008 with the SEC.

The
most significant areas of the unaudited condensed consolidated financial statements that require management judgment and which are susceptible to possible change in the near term
include the Company's revenue recognition, goodwill, intangible assets and other long-lived assets, member redemption liability, income taxes, and legal contingencies.

ReclassificationsCertain prior year amounts have been reclassified to conform to the current year presentation. These changes
had no impact on the previously reported consolidated results of operations or stockholders' equity.

9

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

Recent Accounting Pronouncements

Business Combinations

In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 141(R),Business Combinations. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS
No. 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. SFAS No. 141(R) requires prospective
application for all acquisitions after the date of adoption. The Company expects SFAS No. 141(R) to have an impact on its consolidated financial statements when effective, but the timing,
nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisitions the Company consummates after the effective date. The Company will continue to evaluate the
impact of the adoption of SFAS No. 141(R).

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51.SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated
financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 160 is effective for financial statements issued for
fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company has not yet determined the effect on its consolidated financial statements, if any, upon adoption of
SFAS No. 160.

Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities

In June 2008, the FASB issued Staff Position ("FSP") EITF Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities("FSP
EITF 03-6-1"), in which the FASB concluded that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends (such as restricted
stock units granted by the Company) are considered participating securities. Because the awards are considered participating securities, the issuing entity is required to apply the
two-class method of computing basic and diluted earnings per share. The provisions of FSP EITF 03-6-1 will be effective for the Company on January 1,
2009 and will be applied retroactively to all prior-period earnings per share computations. The Company has not yet determined the effect on its earnings per share amounts upon adoption of FSP
EITF 03-6-1.

2. PROPOSED ACQUISITION OF FTD GROUP, INC.

In April 2008, the Company entered into a definitive merger agreement with FTD Group, Inc. ("FTD"), a leading provider of floral and related products and services to consumers and
retail florists in the United States, Canada, the United Kingdom, and the Republic of Ireland, providing for the proposed acquisition of FTD by the Company (the "Acquisition"). Under the terms of the
merger agreement and subject to the conditions therein, FTD stockholders will receive $10.15 in cash and 0.4087 of a share of United Online common stock for each share of FTD common stock (subject to
adjustment as described below), for a total value of $14.38 per share of FTD common stock, based on

10

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. PROPOSED ACQUISITION OF FTD GROUP, INC. (Continued)

the
Company's closing stock price of $10.36 on July 21, 2008. Based on the number of shares of FTD common stock outstanding on July 21, 2008, and the closing stock price of United Online
common stock on July 21, 2008, it is expected that FTD stockholders will receive total merger consideration of approximately $434 million, consisting of approximately $306 million
in cash and approximately 12.3 million shares of United Online common stock. Upon closing of the proposed transaction, the former FTD stockholders will own approximately 15% of the Company.

The
Company plans to finance a portion of the cash merger consideration with financing from Silicon Valley Bank, and received a commitment from Silicon Valley Bank to provide to the
Company, on the terms and subject to the conditions therein, a $60 million senior secured term loan facility (the "UOL Credit Facility") to be used to fund a portion of the cash merger
consideration for the proposed acquisition of FTD by the Company. The term loans under the UOL Credit Facility will bear interest at either LIBOR plus 3.5% per annum (with a LIBOR floor of 3.0%) or a
base rate plus 2% per annum. In connection with receipt of the commitment from Silicon Valley Bank, the Company and FTD entered into an amendment to the previously announced merger agreement pursuant
to which the Company has elected to exercise its right under the terms of the merger agreement related to the Company obtaining additional financing to increase the per share cash merger consideration
payable to FTD's stockholders by $2.81 in full substitution of the $3.31 principal amount of United Online 13% senior secured notes due in 2013 ("UOL notes").

If
the Silicon Valley Bank financing is unavailable to the Company for any reason, the Company is required to adjust the merger consideration so that FTD stockholders would instead
receive $7.34 in cash, 0.4087 of a share of United Online common stock and $3.31 principal amount of UOL notes for each share of FTD common stock in the Acquisition, for a total value of $14.88 per
share of FTD common stock based on United Online's closing stock price of $10.36 on July 21, 2008. In such case, the Company and FTD have agreed to notify FTD's stockholders by press release of
such change in merger consideration on or before the fifth business day prior to the scheduled date of the special meeting of the FTD stockholders to consider the merger. Based on the number of shares
of FTD common stock outstanding on July 21, 2008 and the closing stock price of United Online common stock on July 21, 2008, it is expected that FTD stockholders would receive total
merger consideration of approximately $449 million, consisting of approximately $221 million in cash, approximately 12.3 million shares of United Online common stock and
$100 million aggregate principal amount of UOL notes. The UOL notes would be secured by a pledge of the stock of Classmates Media Corporation ("CMC") and guaranteed by all of the Company's
domestic subsidiaries other than FTD, FTD's direct parent and FTD's subsidiaries. The UOL notes would be issued on the terms set forth in the form of indenture filed with the SEC as an exhibit to the
Company's registration statement on Form S-4 with respect to the proposed acquisition.

In
connection with the Acquisition, on August 4, 2008, UNOLA Corp., an indirect wholly-owned subsidiary of United Online, entered into senior secured credit facilities (the
"Credit Facilities") with Wells Fargo Bank, National Association ("Wells Fargo"), as lead arranger, providing for an aggregate principal amount of up to $425 million, consisting of (i) a
term loan A facility of up to $75 million, (ii) a term loan B facility of up to $300 million, and (iii) a revolving credit facility of up to $50 million. The
interest rate set forth in the Credit Facilities for loans made under the revolving credit facility and term loan A facility is either a base rate plus 2.5% per annum, or LIBOR plus 3.5% per annum
(with a LIBOR floor of 3.0%), in each case, with step-downs in the interest rate depending on FTD's leverage ratio. The interest rate set forth in the Credit Agreement for loans made under
the term loan B facility

11

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. PROPOSED ACQUISITION OF FTD GROUP, INC. (Continued)

is
either a base rate plus 3.5% per annum, or LIBOR plus 4.5% per annum (with a LIBOR floor of 3.0%), in each case, with a step-down in the interest rate depending on FTD's leverage ratio.
In addition, FTD will pay a commitment fee equal to 0.50% per annum (with step-downs in the interest rate depending on FTD's leverage ratio) on the unused portion of the revolving credit
facility. The Credit Facilities will be secured by substantially all of FTD's assets. It is expected that on the closing date of the Acquisition, the Credit Facilities will be funded and FTD and its
subsidiaries will undertake UNOLA Corp.'s obligations under the Credit Facilities.

Wells
Fargo's commitment to fund the Credit Facilities on the closing date of the Acquisition is subject to the satisfaction of certain conditions, including, among other things, the
consummation of the equity issuance of United Online common stock described above, its receipt of FTD's interim consolidated financial statements and other financial information, the satisfaction of
the conditions in the merger agreement that are material to the interests of the lenders under the Credit Facilities, the absence of a material adverse effect at FTD, the achievement by FTD of at
least $97.5 million of adjusted EBITDA, as defined in connection with the Credit Facilities, for the most recently completed trailing 12-month period ended at least 30 days
prior to the Acquisition closing date for which
financial statements are available, and the consummation of the defeasance of FTD's 7.75% senior subordinated notes due in 2014 (or, in the Company's discretion, the Company's funding of the purchase
of all such senior subordinated notes pursuant to a tender offer and consent solicitation by FTD and the defeasance of any such senior subordinated notes not so acquired in such tender offer).

In
connection with the Acquisition, on July 28, 2008, FTD, Inc. ("FTDI"), a wholly-owned subsidiary of FTD, commenced a cash tender offer for any and all of the
$170.1 million aggregate outstanding principal amount of FTDI's 7.75% senior subordinated notes due in 2014. In conjunction with the tender offer, noteholder consents are being solicited to
effect certain amendments and waivers to the indenture governing such notes. The tender offer is scheduled to expire at 5:00 p.m., New York City time, on August 25, 2008, unless extended
or earlier terminated by FTDI, including any extension required because the conditions to the closing of the Acquisition have not been satisfied as of that date. The consent solicitation is scheduled
to expire at 5:00 p.m., New York City time, on August 11, 2008, unless extended or earlier terminated by FTDI. The tender offer is conditioned on, among other things, consummation of the
Acquisition.

At
June 30, 2008, the Company had incurred approximately $6.5 million in costs associated with the Acquisition. These costs include charges associated with the Company's
due diligence efforts and expenses related to the negotiation and financing of the Acquisition and have been included in other assets on the Company's accompanying unaudited condensed consolidated
balance sheet at June 30, 2008.

The
Company has filed with the SEC a Registration Statement on Form S-4, which includes a proxy statement/prospectus of FTD and the Company and other relevant
materials in connection with the Acquisition. Investors and stockholders are urged to read the proxy statement/prospectus and Registration Statement, and any and all amendments or supplements thereto,
because they contain important information about the proposed transaction, including risk factors relating to the proposed transaction, the FTD business, and the Company's proposed financing of the
transaction.

12

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. BALANCE SHEET COMPONENTS

Short-Term Investments

Short-term investments consisted of the following (in thousands):

June 30, 2008Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair ValueMunicipal securities

$
69,170

$
422

$
(21
)
$
69,571Government agencies


52,811


1


(21
)

52,791U.S. corporate notes


3,961








3,961Total

$
125,942

$
423

$
(42
)
$
126,323




December 31, 2007Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair ValueMunicipal securities

$
68,546

$
254

$


$
68,800Total

$
68,546

$
254

$


$
68,800


Changes
in gross unrealized gains and losses are presented net of tax in accumulated other comprehensive income on the unaudited condensed consolidated balance sheets. The Company had no
material realized gains or losses from the sale of short-term investments in the quarters and six months ended June 30, 2008 and 2007.

The
Company did not have any gross unrealized losses in its short-term investments at December 31, 2007. The following table summarizes the fair value and gross
unrealized losses on the Company's short-term investments, aggregated by type of investment instrument and
length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2008 (in thousands):

June 30, 2008Less than 12 Months

12 Months or Greater

TotalFair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
LossesMunicipal securities

$
6,118

$
(9
)
$
16,273

$
(12
)
$
22,391

$
(21
)Government agencies


39,809


(21
)







39,809


(21
)Total

$
45,927

$
(30
)
$
16,273

$
(12
)
$
62,200

$
(42
)


13

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. BALANCE SHEET COMPONENTS (Continued)

Maturities
of short-term investments were as follows (in thousands):

June 30, 2008Amortized Cost

Estimated Fair ValueMaturing within 1 year

$
71,018

$
71,001Maturing between 1 year and 4 years


54,924


55,322Total

$
125,942

$
126,323


Accounts Receivable

At June 30, 2008, one individual customer comprised 10% of the consolidated net accounts receivable balance. For the quarters
and six months ended June 30, 2008 and 2007, the Company did not have any individual customers that comprised more than 10% of consolidated total revenues.

Other Current Assets

Other current assets consisted of the following (in thousands):

June 30, 2008

December 31, 2007Prepaid expenses

$
7,641

$
8,198Income taxes receivable


1,644


4,878Gift cards related to member redemption liability


4,135


3,653Interest receivable


1,243


1,448Other


2,549


1,815Total

$
17,212

$
19,992


Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

June 30, 2008

December 31, 2007Employee compensation and related expenses

$
15,669

$
25,902Income taxes payable





767Other


4,203


3,917Total

$
19,872

$
30,586


4. FAIR VALUE MEASUREMENTS

On January 1, 2008, the Company adopted certain provisions of SFAS No. 157,Fair Value Measurements, which establishes a
single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. The provisions of SFAS No. 157
relate to financial assets and liabilities as well as other assets and liabilities carried at

14

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. FAIR VALUE MEASUREMENTS (Continued)

fair
value on a recurring basis and did not have a material impact on the Company's consolidated financial statements. The provisions of SFAS No. 157 related to nonfinancial assets and
liabilities will be effective for the Company on January 1, 2009 in accordance with FASB Staff Position ("FSP") FAS 157-2,Effective Date of FASB
Statement No. 157and will be applied prospectively. The Company is currently evaluating the impact that these additional provisions will have on the Company's
consolidated financial statements. In accordance with FSP FAS 157-2, the Company will apply the provisions of SFAS No. 157 to property and equipment, goodwill and intangible
assets at January 1, 2009.

SFAS
No. 157 establishes a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) quoted prices (unadjusted) in active markets
for identical assets and liabilities (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and
(iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following table presents
information about assets required to be carried at fair value on a recurring basis at June 30, 2008 (in thousands):

Description

Fair Value Measurements at
June 30, 2008 Using Quoted
Prices (Unadjusted) in Active
Markets for Identical Assets
(Level 1)Cash equivalents

$
94,245Available-for-sale securities


126,323Total

$
220,568


5. STOCKHOLDERS' EQUITY

Common Stock Subject to Repurchase Rights

At December 31, 2007, there were 350,000 shares of common stock that were subject to repurchase related to unvested shares under
restricted stock agreements. The 350,000 restricted shares outstanding at December 31, 2007 vested entirely at the end of a four-year vesting period in January 2008, at which time
142,000 shares were withheld and employee withholding taxes of $1.5 million were paid.

Common Stock Repurchases

The Company's Board of Directors authorized a common stock repurchase program (the "program") that allows the Company to repurchase
shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors through December 31, 2008. From August 2001 through
June 30, 2008, the Company had repurchased $139.2 million of its common stock under the program. We have not repurchased any shares of our common stock under the program since February
2005, and at June 30, 2008, the remaining amount available under the program was $60.8 million.

Shares
withheld upon vesting of restricted stock units to pay applicable employee withholding taxes are considered common stock repurchases, but are not counted as purchases against the
program.

15

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. STOCKHOLDERS' EQUITY (Continued)

Upon
vesting, the Company currently does not collect the applicable employee withholding taxes for restricted stock units from employees. Instead, the Company automatically withholds, from the
restricted stock units that vest, the portion of those shares with a fair market value equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common
stock. The Company then pays the applicable withholding taxes in cash. In the six months ended June 30, 2008 and 2007, 485,000 and 265,000 shares, respectively, were withheld from restricted
stock units and restricted stock awards that vested in order to pay the applicable employee withholding taxes.

Dividends

Dividends are paid on shares of common stock and unvested restricted stock units outstanding as of the record date.

In
January and April 2008, the Company's Board of Directors declared quarterly cash dividends of $0.20 per share of common stock. The dividends were paid on February 29, 2008 and
May 30, 2008 and totaled $14.6 million and $14.9 million, respectively.

In
July 2008, the Company's Board of Directors declared a quarterly cash dividend of $0.20 per share of common stock. The record date for the dividend is August 14, 2008, and the
dividend is payable on August 29, 2008.

The
payment of future dividends is discretionary and is subject to determination by the Company's Board of Directors each quarter following its review of the Company's financial
performance and other factors. Dividends are declared and paid out of the Company's surplus, as defined and computed in accordance with the General Corporation Law of the State of Delaware. Following
the closing of the Acquisition, the Company expects to decrease its regular quarterly cash dividend from $0.20 per share of common stock to $0.10 per share of common stock.

6. STOCK-BASED COMPENSATION PLANS

The following table summarizes the stock-based compensation that has been included in the following captions within the unaudited condensed consolidated statements of operations for each
of the periods presented (in thousands):

Quarter Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007Operating expenses:Cost of revenues

$
174

$
254

$
394

$
448Sales and marketing


1,805


943


3,393


1,835Technology and development


1,311


1,211


2,599


2,456General and administrative


4,851


366


11,765


2,082Total stock-based compensation

$
8,141

$
2,774

$
18,151

$
6,821


16

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. STOCK-BASED COMPENSATION PLANS (Continued)

Classmates Media Corporation Equity Awards

In connection with the preparation for the potential initial public offering ("IPO") by the Company's CMC subsidiary, employment
agreements were signed with certain employees, which guaranteed such employees an aggregate $13.0 million of value in restricted stock units in CMC. If the employment agreements are not
modified, because the IPO was not effective by April 30, 2008, these equity awards will be issued as restricted stock units in the Company based on prices set forth in the employment
agreements. Stock-based compensation associated with these equity awards has been recorded in the Company's consolidated financial statements from the execution dates of these agreements. In the
quarter and six months ended June 30, 2008, certain of the employment agreements with guaranteed values totaling $1.3 million and $5.3 million in restricted stock units in CMC,
respectively, were canceled and $0.3 million and $0.6 million of stock-based compensation was reversed and reflected in general and administrative expenses in the Company's unaudited
condensed consolidated statement of operations for the quarter and six months ended June 30, 2008, respectively.

Recent Awards

Effective February 15, 2008, the Compensation Committee of the Board of Directors approved grants of 0.3 million
restricted stock units with a fair value equal to $3.9 million to certain members of the Company's senior management. Each restricted stock unit entitles the recipient to receive one share of
the Company's common stock upon vesting. The restricted stock units vest one-third annually over the three-year period beginning February 15, 2008.

Effective
February 15, 2008, the Company approved grants of 1.2 million restricted stock units with a fair value equal to $14.2 million to the Company's employees.
The restricted stock units vest twenty-five percent on February 15, 2009 and quarterly thereafter for three years.

Effective
February 15, 2008, 0.2 million shares of common stock with a fair value equal to $2.4 million were issued to certain members of senior management and
certain of the Company's employees.

17

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. STOCK-BASED COMPENSATION PLANS (Continued)

On March 14, 2008, the Compensation Committee of the Board of Directors awarded Mark. R. Goldston, the Company's Chairman, President and Chief Executive Officer, a restricted
stock unit award covering a minimum of 200,000 shares of the Company's common stock and a maximum of 600,000 shares under the Company's 2001 Stock Incentive Plan. The 200,000-share minimum
will vest and become issuable upon Mr. Goldston's continuation in the Company's service through February 28, 2011. The number of shares above that minimum that may vest and become
issuable pursuant to the restricted stock unit award will depend on the Company's highest 30-day volume-weighted average closing share price for any consecutive 30-day period
between December 1, 2010 and February 28, 2011. However, if, beginning July 1, 2009, the Company's closing share price is at least equal to the share price necessary to earn the
maximum shares, and the volume-weighted average closing share price for the subsequent six months is at least equal to such share price, 600,000 shares of the restricted stock unit award will vest and
become immediately issuable. Upon vesting, Mr. Goldston would be entitled to any dividend equivalents that are accrued with respect to any shares that vest.

7. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share for the quarters and six months ended June 30, 2008 and 2007 (in thousands, except per
share amounts):

Quarter Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007Numerator:Net income

$
13,738

$
16,208

$
26,740

$
29,236Denominator:Weighted-average common sharesbasic


68,853


67,153


68,549


66,630Less: weighted-average common shares subject to repurchase rights





(468
)

(50
)

(471
)Shares used to calculate basic net income per share


68,853


66,685


68,499


66,159Add: Dilutive effect of stock options and restricted stock


1,639


2,666


1,610


2,560Shares used to calculate diluted net income per share


70,492


69,351


70,109


68,719Basic net income per share

$
0.20

$
0.24

$
0.39

$
0.44Diluted net income per share

$
0.19

$
0.23

$
0.38

$
0.43


The
diluted net income per share computations exclude stock options and restricted stock units which are antidilutive. The number of antidilutive shares at June 30, 2008 and 2007
was 3.2 million and 2.7 million, respectively.

18

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. SEGMENT INFORMATION

Revenues and income from operations by segment are as follows (in thousands):

Quarter Ended June 30, 2008Classmates Media

Communications

TotalBillable services

$
34,134

$
56,134

$
90,268Advertising


22,879


9,126


32,005Total revenues

$
57,013

$
65,260

$
122,273Segment income from operations

$
7,937

$
21,131

$
29,068




Quarter Ended June 30, 2007Classmates Media

Communications

TotalBillable services

$
25,632

$
71,493

$
97,125Advertising


22,108


12,184


34,292Total revenues

$
47,740

$
83,677

$
131,417Segment income from operations

$
6,122

$
27,049

$
33,171




Six Months Ended June 30, 2008Classmates Media

Communications

TotalBillable services

$
65,375

$
115,555

$
180,930Advertising


43,522


19,632


63,154Total revenues

$
108,897

$
135,187

$
244,084Segment income from operations

$
15,890

$
41,616

$
57,506




Six Months Ended June 30, 2007Classmates Media

Communications

TotalBillable services

$
47,859

$
145,586

$
193,445Advertising


42,315


25,508


67,823Total revenues

$
90,174

$
171,094

$
261,268Segment income from operations

$
10,443

$
53,092

$
63,535


The
Company manages its working capital on a consolidated basis and does not allocate long-lived assets to segments. In addition, segment assets are not reported to, or used
by, the chief operating decision maker to allocate resources to, or assess performance of, the segments and therefore, pursuant to SFAS No. 131, total segment assets have not been disclosed.

19

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. SEGMENT INFORMATION (Continued)

A
reconciliation of segment income from operations (which excludes depreciation and amortization of intangible assets) to consolidated operating income, is as follows for each period
presented (in thousands):

Quarter Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007Segment income from operations:Classmates Media

$
7,937

$
6,122

$
15,890

$
10,443Communications


21,131


27,049


41,616


53,092Total segment income from operations


29,068


33,171


57,506


63,535Depreciation


(5,086
)

(5,234
)

(10,325
)

(9,979
)Amortization of intangible assets


(2,022
)

(3,204
)

(4,858
)

(6,699
)Consolidated operating income

$
21,960

$
24,733

$
42,323

$
46,857


International
revenues totaled $4.4 million and $7.8 million for the quarter and six months ended June 30, 2008, respectively. International revenues totaled
$1.5 million and $2.7 million for the quarter and six months ended June 30, 2007, respectively.

9. RESTRUCTURING CHARGES

In the quarter and six months ended June 30, 2008, the Company recorded restructuring charges totaling $0.4 million and $0.6 million, respectively, primarily
associated with the closure of its Orem, Utah facility. The Company believes these activities will result in total restructuring charges of approximately $0.7 million during 2008, comprised
largely of employee termination benefits and facility-exit costs.

In
the quarter and six months ended June 30, 2007, the Company recorded restructuring charges of $0.4 million primarily for termination benefits paid to certain employees
associated with our Web hosting and photo sharing businesses.

10. POTENTIAL SUBSIDIARY INITIAL PUBLIC OFFERING OF CLASSMATES MEDIA CORPORATION

CMC was formed in August 2007 for the purposes of consolidating the Company's Classmates, The Names Database and MyPoints business units in preparation of an IPO by CMC. The businesses
were contributed to CMC by the Company on August 9, 2007. In August 2007, CMC filed a Form S-1 registration statement with the SEC for the IPO of its common stock.

In
December 2007, the Company determined that proceeding with the IPO under then-current market conditions was not in the best interests of its stockholders and CMC withdrew
its Form S-1 registration statement previously filed with the SEC. Approximately $0.5 million of transaction costs were determined not to have continuing value after the
withdrawal of the IPO and were expensed in the quarter ended December 31, 2007. Because it remained the Company's strategy to complete an IPO of CMC during 2008, certain IPO transaction-
related costs incurred during 2007 and the first quarter of 2008 totaling $3.9 million were deferred and were included in other assets on the Company's consolidated balance sheet at
March 31, 2008. While it still remains the Company's strategy to

20

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. POTENTIAL SUBSIDIARY INITIAL PUBLIC OFFERING OF CLASSMATES MEDIA CORPORATION (Continued)

complete
an IPO of CMC, because the Company believes that capital markets have not improved significantly since the CMC Form S-1 registration statement was withdrawn in December
2007 and there is limited visibility as to when capital markets might improve significantly, the Company has concluded that it is unlikely that an IPO will be completed before 2009. As such, the
Company determined, on June 23, 2008, that the $3.9 million in deferred transaction-related costs relating to the IPO would be expensed in the quarter ended June 30, 2008 and the
Company's financial results and the financial results of its Classmates Media segment for the quarter and six months ended June 30, 2008 were negatively impacted.

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

If the UOL notes are issued in connection with the Acquisition, the UOL notes will be guaranteed by each of the Company's current and future domestic subsidiaries, other than UNOL
Intermediate, Inc., UNOLA Corp., FTD, and their respective subsidiaries. These guarantees will be full and unconditional joint and several obligations of the guarantors. The obligations of each
guarantor under its note guarantee will be limited as necessary to prevent that note guarantee from constituting a fraudulent conveyance under applicable law.

The
following presents the supplemental condensed consolidating financial information separately for:



Each
guarantor subsidiary is wholly owned, directly or indirectly, by the Parent Company at the date of each balance sheet presented. The UOL notes will be fully and unconditionally
guaranteed on a joint and several basis by each guarantor subsidiary. Each entity included in the supplemental condensed consolidating financial information follows the same accounting policies as
described in the notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on
February 20, 2008.

21

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Condensed Consolidating Balance Sheet
June 30, 2008
(in thousands)

Parent

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Elimination
Entries

ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$


$
101,588

$
12,079

$


$
113,667Short-term investments





126,323








126,323Accounts receivable, net





26,425


469





26,894Deferred tax assets, net





9,719








9,719Other current assets





16,442


770





17,212Total current assets





280,497


13,318





293,815Property and equipment, net





35,672


817





36,489Deferred tax assets, net





54,955








54,955Goodwill





132,024


215





132,239Intangible assets, net





35,481


622





36,103Investments in subsidiaries


416,867


3,170





(420,037
)

Other assets





9,618


45





9,663Total assets

$
416,867

$
551,417

$
15,017

$
(420,037
)
$
563,264Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$


$
33,999

$
3,162

$


$
37,161Accrued liabilities





18,869


1,003





19,872Intercompany payables


24,297


(22,224
)

(2,073
)




Member redemption liability





21,507








21,507Deferred revenue





61,466


9,755





71,221Capital leases





5








5Total current liabilities


24,297


113,622


11,847





149,766Member redemption liability





5,181








5,181Deferred revenue





4,843








4,843Other liabilities





10,904








10,904Total liabilities


24,297


134,550


11,847





170,694Total stockholders' equity


392,570


416,867


3,170


(420,037
)

392,570Total liabilities and stockholders' equity

$
416,867

$
551,417

$
15,017

$
(420,037
)
$
563,264


22

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Condensed Consolidating Balance Sheet
December 31, 2007
(in thousands)

Parent

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Elimination
Entries

ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$


$
142,172

$
7,335

$


$
149,507Short-term investments





68,800








68,800Accounts receivable, net





28,421


344





28,765Deferred tax assets, net





7,050








7,050Other current assets





19,305


687





19,992Total current assets





265,748


8,366





274,114Property and equipment, net





38,929


641





39,570Deferred tax assets, net





57,559








57,559Goodwill





132,153


199





132,352Intangible assets, net





40,282


633





40,915Investments in subsidiaries


406,541


2,759





(409,300
)

Other assets





7,871


12





7,883Total assets

$
406,541

$
545,301

$
9,851

$
(409,300
)
$
552,393Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$


$
35,476

$
2,619

$


$
38,095Accrued liabilities





29,699


887





30,586Intercompany payables


25,913


(23,672
)

(2,241
)




Member redemption liability





19,499





.


19,499Deferred revenue





57,259


5,827





63,086Capital leases





13








13Total current liabilities


25,913


118,274


7,092





151,279Member redemption liability





5,061








5,061Deferred revenue





4,691








4,691Other liabilities





10,734








10,734Total liabilities


25,913


138,760


7,092





171,765Total stockholders' equity


380,628


406,541


2,759


(409,300
)

380,628Total liabilities and stockholders' equity

$
406,541

$
545,301

$
9,851

$
(409,300
)
$
552,393


23

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Condensed Consolidating Statement of Operations
Quarter Ended June 30, 2008
(in thousands)

Parent

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Elimination
Entries

ConsolidatedRevenues

$


$
119,614

$
5,614

$
(2,955
)
$
122,273Operating expenses:Cost of revenues





27,111


382


(663
)

26,830Sales and marketing





33,352


2,481


(24
)

35,809Technology and development





13,106


1,324


(1,909
)

12,521General and administrative





22,309


811


(346
)

22,774Amortization of intangible assets





1,993


29





2,022Restructuring charges





357








357Total operating expenses





98,228


5,027


(2,942
)

100,313Operating income





21,386


587


(13
)

21,960Interest and other income, net





2,958


192


(1,203
)

1,947Interest expense





(1,582
)




1,203


(379
)Income before income taxes





22,762


779


(13
)

23,528Provision for income taxes





9,790








9,790Income before income in equity investees





12,972


779


(13
)

13,738Income in equity investees


13,738








(13,738
)

Net income

$
13,738

$
12,972

$
779

$
(13,751
)
$
13,738


24

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Condensed Consolidating Statement of Operations
Quarter Ended June 30, 2007
(in thousands)

Parent

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Elimination
Entries

ConsolidatedRevenues

$


$
137,633

$
2,820

$
(9,036
)
$
131,417Operating expenses:Cost of revenues





35,673


87


(5,351
)

30,409Sales and marketing





40,504


2,208





42,712Technology and development





13,198


1,181


(1,314
)

13,065General and administrative





16,660


240





16,900Amortization of intangible assets





3,179


25





3,204Restructuring charges





394








394Total operating expenses





109,608


3,741


(6,665
)

106,684Operating income





28,025


(921
)

(2,371
)

24,733Interest and other income, net





1,878


3





1,881Interest expense





(372
)







(372
)Income before income taxes





29,531


(918
)

(2,371
)

26,242Provision for income taxes





10,034








10,034Income before income in equity investees





19,497


(918
)

(2,371
)

16,208Income in equity investees


16,208








(16,208
)

Net income

$
16,208

$
19,497

$
(918
)
$
(18,579
)
$
16,208


25

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2008
(in thousands)

Parent

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Elimination
Entries

ConsolidatedRevenues

$


$
239,720

$
10,380

$
(6,016
)
$
244,084Operating expenses:Cost of revenues





55,263


792


(1,386
)

54,669Sales and marketing





67,769


4,845


(24
)

72,590Technology and development





26,518


2,832


(3,927
)

25,423General and administrative





42,872


1,452


(666
)

43,658Amortization of intangible assets





4,801


57





4,858Restructuring charges





563








563Total operating expenses





197,786


9,978


(6,003
)

201,761Operating income





41,934


402


(13
)

42,323Interest and other income, net





5,948


213


(2,406
)

3,755Interest expense





(2,951
)




2,406


(545
)Income before income taxes





44,931


615


(13
)

45,533Provision for income taxes





18,793








18,793Income before income in equity investees





26,138


615


(13
)

26,740Income in equity investees


26,740








(26,740
)

Net income

$
26,740

$
26,138

$
615

$
(26,753
)
$
26,740


26

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2007
(in thousands)

Parent

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Elimination
Entries

ConsolidatedRevenues

$


$
273,827

$
5,471

$
(18,030
)
$
261,268Operating expenses:Cost of revenues





69,977


158


(10,479
)

59,656Sales and marketing





84,761


3,976





88,737Technology and development





26,820


2,518


(2,802
)

26,536General and administrative





31,986


403





32,389Amortization of intangible assets





6,649


50





6,699Restructuring charges





394








394Total operating expenses





220,587


7,105


(13,281
)

214,411Operating income





53,240


(1,634
)

(4,749
)

46,857Interest and other income, net





3,578


3





3,581Interest expense





(731
)

(1
)




(732
)Income before income taxes





56,087


(1,632
)

(4,749
)

49,706Provision for income taxes





20,470








20,470Income before income in equity investees





35,617


(1,632
)

(4,749
)

29,236Income in equity investees


29,236








(29,236
)

Net income

$
29,236

$
35,617

$
(1,632
)
$
(33,985
)
$
29,236


27

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2008
(in thousands)

Parent

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Elimination
Entries

ConsolidatedNet cash provided by (used for) operating activities

$
(39
)
$
62,263

$
2,866

$


$
65,090Cash flows from investing activities:Purchases of property and equipment





(6,673
)

(583
)




(7,256
)Purchases of short-term investments





(120,378
)







(120,378
)Proceeds from maturities of short-term investments





48,300








48,300Proceeds from sales of short-term investments





14,523








14,523Cash paid for proposed acquisition





(3,146
)

(19
)




(3,165
)Proceeds from sales of assets, net





29








29Net cash used for investing activities





(67,345
)

(602
)




(67,947
)Cash flows from financing activities:Net contributions (distributions) of capital


32,749


(35,494
)

2,745





Payments on capital leases





(8
)







(8
)Proceeds from exercises of stock options


1,043











1,043Proceeds from employee stock purchase plan


2,576











2,576Repurchases of common stock


(7,124
)










(7,124
)Payments for dividends


(29,469
)










(29,469
)Excess tax benefits from equity awards


264











264Net cash provided by (used for) financing activities


39


(35,502
)

2,745





(32,718
)Effect of exchange rate changes on cash and cash equivalents








(265
)




(265
)Change in cash and cash equivalents





(40,584
)

4,744





(35,840
)Cash and cash equivalents, beginning of period





142,172


7,335





149,507Cash and cash equivalents, end of period

$


$
101,588

$
12,079

$


$
113,667


28

---



UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2007
(in thousands)

Parent

Combined
Guarantor
Subsidiaries

Combined
Non-Guarantor
Subsidiaries

Elimination
Entries

ConsolidatedNet cash provided by (used for) operating activities

$
1,177

$
62,626

$
(2,757
)
$


$
61,046Cash flows from investing activities:Purchases of property and equipment





(12,386
)

(177
)




(12,563
)Purchases of short-term investments





(164,505
)







(164,505
)Proceeds from maturities of short-term investments





26,520








26,520Proceeds from sales of short-term investments





109,061








109,061Proceeds from sales of assets, net





21








21Net cash used for investing activities





(41,289
)

(177
)




(41,466
)Cash flows from financing activities:Net contributions (distributions) of capital


17,924


(21,330
)

3,406





Payments on capital leases





(8
)







(8
)Proceeds from exercises of stock options


6,837











6,837Proceeds from employee stock purchase plan


3,485











3,485Repurchases of common stock


(3,782
)










(3,782
)Payments for dividends


(28,174
)










(28,174
)Excess tax benefits from equity awards


2,533











2,533Net cash provided by (used for) financing activities


(1,177
)

(21,338
)

3,406





(19,109
)Effect of exchange rate changes on cash and cash equivalents








(25
)




(25
)Change in cash and cash equivalents





(1
)

447





446Cash and cash equivalents, beginning of period





16,428


2,824





19,252Cash and cash equivalents, end of period

$


$
16,427

$
3,271

$


$
19,698


29

---





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

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference
contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates
and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect,"
"intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited
to, statements about the markets in which we compete, our pay accounts, our product and service offerings, the advertising market, operating expenses, operating efficiencies, revenues, dividends,
including our intention to reduce the dividends following the closing of our proposed acquisition (the "Acquisition") of FTD Group, Inc., capital requirements, capital expenditures, tax
payments, stock-based compensation, restructuring charges, our cash position, and the Acquisition. In addition, any statements that refer to expectations, projections or other characterizations of
future events or circumstances, including any underlying assumptions, are forward-looking statements. Any such forward-looking statements are not guarantees of future performance or results and are
subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors. The section entitled "Risk Factors" in this
Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission set forth some of the important risk factors that may affect our business, financial
position, results of operations, and cash flows. Statements indicating factors that we believe may impact our results or financial condition are not intended to be exclusive. We undertake no
obligation to revise or update publicly any forward-looking statements, other than as required by law.

Overview

We are a leading provider of consumer Internet and media services through a number of brands including Classmates, MyPoints, NetZero,
and Juno. Our Classmates Media segment services are online social networking and online loyalty marketing. Our primary Communications segment services are Internet access and email. On a combined
basis, our Web properties attract a significant number of Internet users, and we offer a broad array of Internet marketing products and services for advertisers.

Segment Definitions

We report our businesses in two reportable operating segments:

Segment

Internet ServicesClassmates Media

Social networking and loyalty marketingCommunications

Internet access, email, Internet security, and Web hosting


Segment Services

Classmates Media

Our Classmates Media services include online social networking under the Classmates brand and online loyalty marketing under the
MyPoints brand. Our Classmates Media services also include international social networking under the StayFriends and Trombi brands. For additional information regarding our Classmates Media segment,
see Note 8"Segment Information" of the notes to unaudited condensed consolidated financial statements, which appears in Part I, Item 1 of this Quarterly Report on
Form 10-Q.

30

---



Communications

Our Communications pay services principally include consumer dial-up Internet access and email under the NetZero and Juno
brands. We also offer several additional pay services, such as DSL services, Internet security services, Web hosting services and premium email. For additional information regarding our Communications
segment, see Note 8"Segment Information" of the notes to unaudited condensed consolidated financial statements, which appears in Part I, Item 1 of this Quarterly
Report on Form 10-Q.

Key Business Metrics

We review a number of key business metrics to help us monitor our performance and trends affecting our businesses, and to develop
forecasts and budgets. These measures include:

Pay Accounts.Our pay accounts generate a significant portion of our revenues and represent one of the most important drivers of our business model. A pay account
is defined as a member who has subscribed to, and paid for, our billable services, and whose subscription has not expired. In general, the key metrics that drive revenues from our pay accounts base
include the number of pay accounts and the average monthly revenue per pay account. In general, a pay account becomes a free account following the expiration or termination of the related
subscription.

ARPU.We monitor the average monthly revenue per pay account, or ARPU. ARPU is calculated by dividing billable services revenues for a period by the average number
of pay accounts for that period, divided by the number of months in that period. The average number of pay accounts is the simple average of the number of pay accounts at the beginning and end of a
period. ARPU may fluctuate from period to period as a result of a variety of factors, including, but not limited to: changes in the mix of pay services and the related subscription pricing plans; the
use of promotional or retention pricing to attract new, or retain existing, paying subscribers; increases or decreases in the price of our services; a greater percentage of social networking pay
accounts represented by international pay accounts which have lower-priced subscription plans compared to U.S. social networking pay accounts; and the timing of pay accounts being added or removed
during a period.

Churn.To evaluate the retention characteristics of our membership base, we also monitor the percentage of pay accounts that terminate or expire, which we refer to
as our average monthly churn rate. Our average monthly churn rate is calculated as the total number of pay accounts that terminated or expired in a period divided by the average number of pay accounts
for the same period, divided by the number of months in that period. Our average monthly churn percentage may fluctuate from period to period due to our mix of subscription terms, which affects the
timing of subscription expirations, and other factors. We make certain normalizing adjustments to the calculation of our churn percentage for periods in which we add a significant number of pay
accounts due to acquisitions. Except with respect to our social networking pay accounts, we do not include in our churn calculation those accounts canceled during the first 30 days of service
unless the accounts have upgraded from free accounts, although a number of such accounts will be included in our account totals at any given measurement date. Subscribers who cancel one pay service
but subscribe to another pay service are not
necessarily considered to have canceled a pay account depending on the services and, as such, our overall churn rate is not necessarily indicative of the percentage of subscribers cancelling any
particular service.

Active Accounts.We monitor the number of active accounts among our membership base. Active Classmates Media segment accounts are defined as: all segment pay
accounts as of the date presented; the monthly average for the reporting period of all free social networking accounts who have visited the Company's domestic or international social networking Web
sites (excluding The Names Database) at least once during the reporting period; and the monthly average for the reporting period of all loyalty

31

---



marketing
members who have earned or redeemed points during such period. Active Communications segment accounts include all segment pay accounts as of the date presented and the number of free
Internet access and email accounts that logged on to the Company's services at least once during the preceding 31 days.

In
general, we count and track pay accounts and free accounts by unique member identifiers. Users have the ability to register for separate services under separate brands and member
identifiers independently. We do not track whether a pay account has purchased more than one of our services unless the account uses the same member identifier. As a result, total active accounts may
not represent total unique users. At any point in time, our pay account base includes a number of accounts receiving a free period of service as either a promotion or retention tool and a number of
accounts that have notified us that they are terminating their service but whose service remains in effect.

The
following table sets forth, for the dates or three-month periods presented, as applicable, our pay accounts (at the end of the period), segment revenues, ARPU (monthly average for
the period), churn (monthly average for the period) and active accounts.

June 30, 2008

March 31, 2008

December 31, 2007

September 30, 2007

June 30, 2007Consolidated:Total pay accounts(a) (in thousands)


5,725


5,564


5,349


5,239


5,118Churn(a)


4.3
%

4.5
%

4.6
%

4.8
%

4.6
%Classmates Media:Segment revenues (in thousands)

$
57,013

$
51,884

$
53,273

$
49,972

$
47,740% of Total revenues


46.6
%

42.6
%

42.5
%

39.4
%

36.3
%Pay accounts (in thousands)


3,809


3,521


3,199


2,983


2,710% of Total pay accounts


66.5
%

63.3
%

59.8
%

56.9
%

53.0
%Segment churn


4.2
%

4.3
%

4.7
%

4.6
%

4.6
%ARPU

$
3.10

$
3.10

$
3.26

$
3.33

$
3.32Segment active accounts (in millions)


15.1


13.9


12.6
(b)

12.8


11.7Communications:Segment revenues (in thousands)

$
65,260

$
69,927

$
72,137

$
76,853

$
83,677% of Total revenues


53.4
%

57.4
%

57.5
%

60.6
%

63.7
%Pay accounts(a) (in thousands):Access


1,560


1,682


1,786


1,886


2,016Other


356


361


364


370


392Total Communications pay accounts


1,916


2,043


2,150


2,256


2,408% of Total pay accounts


33.5
%

36.7
%

40.2
%

43.1
%

47.0
%Segment churn(a)


4.5
%

4.8
%

4.4
%

4.9
%

4.7
%ARPU

$
9.45

$
9.45

$
9.28

$
9.45

$
9.61Segment active accounts (in millions)


2.9


3.1


3.3


3.5


3.7


---

32

---



Potential Subsidiary Initial Public Offering of Classmates Media Corporation

Classmates Media Corporation, or CMC, was formed in August 2007 for the purposes of consolidating our Classmates, The Names Database
and MyPoints business units in preparation of an initial public offering, or IPO, by CMC. The businesses were contributed to CMC by
us on August 9, 2007. In August 2007, CMC filed a Form S-1 registration statement with the Securities and Exchange Commission, or SEC, for the IPO of its common stock.

In
December 2007, we determined that proceeding with the IPO under then-current market conditions was not in the best interests of our stockholders and CMC withdrew its
Form S-1 registration statement previously filed with the SEC. Approximately $0.5 million of transaction costs were determined not to have continuing value after the
withdrawal of the IPO and were expensed in the quarter ended December 31, 2007. Because it remained our strategy to complete an IPO of CMC during 2008, certain IPO transaction-related costs
incurred during 2007 and the first quarter of 2008 totaling $3.9 million were deferred and were included in other assets on our consolidated balance sheet at March 31, 2008. While it
still remains our strategy to complete an IPO of CMC, because we believe that capital markets have not improved significantly since the CMC Form S-1 registration statement was
withdrawn in December 2007 and there is limited visibility as to when capital markets might improve significantly, we have concluded that it is unlikely that an IPO will be completed before 2009. As
such, we determined, on June 23, 2008, that the $3.9 million in deferred transaction-related costs relating to the IPO would be expensed in the quarter ended June 30, 2008 and our
financial results and the financial results of our Classmates Media segment for the quarter and six months ended June 30, 2008 were negatively impacted.

Results of Operations

The following tables set forth, for the periods presented, selected historical statements of operations data. The information contained
in the tables below should be read in conjunction with Liquidity and Capital Resources, Contractual Obligations, and Other Commitments included in this Item 2 as well as the unaudited condensed
consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

33

---



Consolidated
information was as follows (in thousands):

Quarter Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007Billable services

$
90,268

$
97,125

$
180,930

$
193,445Advertising


32,005


34,292


63,154


67,823Total revenues


122,273


131,417


244,084


261,268Operating expenses:Cost of revenues


26,830


30,409


54,669


59,656Sales and marketing


35,809


42,712


72,590


88,737Technology and development


12,521


13,065


25,423


26,536General and administrative


22,774


16,900


43,658


32,389Amortization of intangible assets


2,022


3,204


4,858


6,699Restructuring charges


357


394


563


394Total operating expenses


100,313


106,684


201,761


214,411Operating income


21,960


24,733


42,323


46,857Interest and other income, net


1,947


1,881


3,755


3,581Interest expense


(379
)

(372
)

(545
)

(732
)Income before income taxes


23,528


26,242


45,533


49,706Provision for income taxes


9,790


10,034


18,793


20,470Net income

$
13,738

$
16,208

$
26,740

$
29,236


Information
for our two reportable operating segments was as follows (in thousands):

Classmates Media

CommunicationsQuarter Ended
June 30,

Quarter Ended
June 30,2008

2007

2008

2007Billable services

$
34,134

$
25,632

$
56,134

$
71,493Advertising


22,879


22,108


9,126


12,184Total revenues


57,013


47,740


65,260


83,677Operating expenses:Cost of revenues


10,628


9,758


14,073


18,566Sales and marketing


20,904


20,806


14,802


21,815Technology and development


5,245


3,932


5,689


7,601General and administrative


12,299


7,122


9,208


8,252Restructuring charges








357


394Total operating expenses


49,076


41,618


44,129


56,628Segment income from operations

$
7,937

$
6,122

$
21,131

$
27,049


34

---





Classmates Media

CommunicationsSix Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007Billable services

$
65,375

$
47,859

$
115,555

$
145,586Advertising


43,522


42,315


19,632


25,508Total revenues


108,897


90,174


135,187


171,094Operating expenses:Cost of revenues


19,915


18,650


30,276


36,919Sales and marketing


40,462


41,204


31,915


47,315Technology and development


10,452


7,433


11,850


16,510General and administrative


22,178


12,444


18,967


16,864Restructuring charges








563


394Total operating expenses


93,007


79,731


93,571


118,002Segment income from operations

$
15,890

$
10,443

$
41,616

$
53,092


A
reconciliation of segment income from operations (which excludes depreciation and amortization of intangible assets) to consolidated operating income, is as follows for each period
presented (in thousands):

Quarter Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007Segment income from operations:Classmates Media

$
7,937

$
6,122

$
15,890

$
10,443Communications


21,131


27,049


41,616


53,092Total segment income from operations


29,068


33,171


57,506


63,535Depreciation


(5,086
)

(5,234
)

(10,325
)

(9,979
)Amortization of intangible assets


(2,022
)

(3,204
)

(4,858
)

(6,699
)Consolidated operating income

$
21,960

$
24,733

$
42,323

$
46,857


Quarter and Six Months Ended June 30, 2008 compared to Quarter and Six Months Ended June 30, 2007

Revenues

Billable Services Revenues

Billable services revenues are comprised of amounts charged to pay accounts for our billable services. Classmates Media billable
services revenues consist of amounts charged to pay accounts for social networking services. Communications billable services revenues consist of amounts charged to pay accounts for Internet access,
email, Web hosting, Internet security, and other services, with substantially all of such revenues generated from Internet access. Our billable services revenues are primarily dependent on two
factors: the average number of pay accounts for a period and the ARPU.

Consolidated Billable Services Revenues.Consolidated billable services revenues decreased by $6.9 million, or 7%, to $90.3 million for the quarter
ended June 30, 2008, compared to $97.1 million for the quarter ended June 30, 2007. Consolidated billable services revenues decreased by $12.5 million, or 6%, to
$180.9 million for the six months ended June 30, 2008, compared to $193.4 million for the six months ended June 30, 2007. The decrease in billable services revenues for the
quarter and six months ended June 30, 2008 was due to a decrease in revenues from our Communications segment, partially offset by an increase in revenues from our Classmates Media segment.
Billable services revenues

35

---



related
to our Classmates Media segment and our Communications segment constituted 37.8% and 62.2%, respectively, of our consolidated billable services revenues for the quarter ended June 30,
2008, compared to 26.4% and 73.6%, respectively, for the quarter ended June 30, 2007. Billable services revenues related to our Classmates Media segment and our Communications segment
constituted 36.1% and 63.9%, respectively, of our consolidated billable services revenues for the six months ended June 30, 2008, compared to 24.7% and 75.3%, respectively, for the six months
ended June 30, 2007. We anticipate that our consolidated billable services revenues will continue to decline in 2008 when compared to 2007 as a result of an expected continued decline in
Communications billable services revenues which is expected to exceed the anticipated increase in Classmates Media billable services revenues.

Classmates Media Billable Services Revenues.Classmates Media billable services revenues increased by $8.5 million, or 33%, to $34.1 million for the
quarter ended June 30, 2008, compared to $25.6 million for the quarter ended June 30, 2007. The increase in Classmates Media billable services revenues was due to a 43% increase
in our average number of pay accounts from 2.6 million for the quarter ended June 30, 2007 to 3.7 million for the quarter ended June 30, 2008. The increase was partially
offset by a 7% decrease in ARPU from $3.32 for the quarter ended June 30, 2007 to $3.10 for the quarter ended June 30, 2008. The decrease in ARPU was primarily attributable to
limited-time promotional subscription offerings in the fourth quarter of 2007 which negatively impacted ARPU in the quarter ended June 30, 2008 and, to a lesser extent, a greater
percentage of pay accounts represented by international social networking pay accounts which have lower-priced subscription plans compared to U.S. social networking pay accounts. We anticipate our
Classmates Media pay accounts and billable services revenues will continue to grow, at least in the near term.

Classmates
Media billable services revenues increased by $17.5 million, or 37%, to $65.4 million for the six months ended June 30, 2008, compared to
$47.9 million for the six months ended June 30, 2007. The increase in Classmates Media billable services revenues was due to a 44% increase in our average number of pay accounts from
2.4 million for the six months ended June 30, 2007 to 3.5 million for the six months ended June 30, 2008. This increase was partially offset by a 5% decrease in ARPU from
$3.27 for the six months ended June 30, 2007 to $3.11 for the six months ended June 30, 2008. The decrease in ARPU was primarily attributable to limited-time promotional
subscription offerings in the fourth quarter of 2007 which negatively impacted ARPU in the six months ended June 30, 2008 and, to a lesser extent, a greater percentage of pay accounts
represented by international social networking
pay accounts which have lower-priced subscription plans compared to U.S. social networking pay accounts.

Communications Billable Services Revenues.Communications billable services revenues decreased by $15.4 million, or 21%, to $56.1 million for the
quarter ended June 30, 2008, compared to $71.5 million for the quarter ended June 30, 2007. The decrease in Communications billable services revenues was due to a 24% decrease in
our average number of dial-up Internet access pay accounts from 2.1 million for the quarter ended June 30, 2007 to 1.6 million for the quarter ended June 30,
2008. In addition, the decrease in revenues was partially due to a $0.5 million decrease in revenues associated with our VoIP business, which we exited in the third quarter of 2007. These
decreases were partially offset by an increase in revenues from our DSL services in the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. We anticipate continued
declines in our Communications pay accounts, which will result in continued declines in Communications billable services revenues.

Communications
billable services revenues decreased by $30.0 million, or 21%, to $115.6 million for the six months ended June 30, 2008, compared to
$145.6 million for the six months ended June 30, 2007. The decrease in Communications billable services revenues was due to a 24% decrease in our average number of dial-up
Internet access pay accounts from 2.1 million for the six months ended June 30, 2007 to 1.6 million for the six months ended June 30, 2008. In addition, the decrease in

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revenues
was partially due to a $1.0 million decrease in revenues associated with our VoIP business, which we exited in the third quarter of 2007. These decreases were partially offset by an
increase in revenues from our DSL services in the six months ended June 30, 2008 compared to the six months ended June 30, 2007.

Advertising Revenues

We provide advertising solutions to marketers with both brand and direct response objectives through a full suite of display, search,
email, and text-link opportunities across our various properties. We also use targeting technologies, Web site sponsorships and Web site integrations in order to provide effective
solutions for advertisers.

Our
social networking services generate advertising revenues primarily from display advertisements and from post-transaction sales. Advertising inventory on our social
networking Web sites includes text and graphic placements on the user home page, profile page, class list page, and most other pages on our Web sites. We are able to target the advertising delivered
to most of our members
based on a wide variety of factors, including age, gender, demographic data, affiliations, profile data, and zip code. We also sell a portion of our advertising inventory through third-party
advertising resellers. Post-transaction sales are generated when a Classmates pay account is provided a third-party offer at the end of the pay account registration process.

Our
loyalty marketing service revenues are derived almost entirely from advertising fees, consisting primarily of fees generated when emails are transmitted to members, when members
respond to emails and when members complete online transactions. We sell marketing solutions to advertisers with both brand and direct response objectives through a full suite of email, display and
other advertising opportunities. We also use targeting technologies and Web site integrations in order to provide effective solutions for advertisers.

Our
Communications services generate advertising revenues from our search agreement with Yahoo!, display advertisements, referring members to third-party Web sites or services, and
online market research. Substantially all of our Communications advertising revenues are generated from our Internet access services. We host and customize the initial Web site displayed to users of
our Internet access services. This Web site, or "start page," displays sponsored links to a variety of content, products and services, including Internet search. We also display a toolbar on Internet
access users' screens throughout their online access sessions that is generally visible regardless of the particular Web site they visit. The toolbar contains Internet search functionality and a
variety of buttons, icons and drop-down menus. A variety of advertising opportunities also exist through our email platforms.

Consolidated Advertising Revenues.Consolidated advertising revenues decreased by $2.3 million, or 7%, to $32.0 million for the quarter ended
June 30, 2008, compared to $34.3 million for the quarter ended June 30, 2007. Consolidated advertising revenues decreased by $4.7 million, or 7%, to $63.2 million
for the six months ended June 30, 2008, compared to $67.8 million for the six months ended June 30, 2007. The decrease was primarily attributable to a decrease in advertising
revenues in our Communications segment, partially offset by an increase in advertising revenues in our Classmates Media segment. Advertising revenues related to our Classmates Media segment and our
Communications segment constituted 71.5% and 28.5%, respectively, of our consolidated advertising revenues for the quarter ended June 30, 2008, compared to 64.5% and 35.5%, respectively, for
the quarter ended June 30, 2007. Advertising revenues related to our Classmates Media segment and our Communications segment constituted 68.9% and 31.1%, respectively, of our consolidated
advertising revenues for the six months ended June 30, 2008, compared to 62.4% and 37.6%, respectively, for the six months ended June 30, 2007.

Classmates Media Advertising Revenues.Classmates Media advertising revenues increased by $0.8 million, or 3%, to $22.9 million for the quarter ended
June 30, 2008, compared to $22.1 million

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for
the quarter ended June 30, 2007. The increase was primarily related to a $1.7 million increase in revenues from our loyalty marketing service and, to a lesser extent, a
$0.4 million increase in revenues associated with our international social networking services. These increases were partially offset by a $1.3 million decrease in revenues from
post-transaction sales resulting from a change in our advertising partner in the fourth quarter of 2007. Our new post-transaction sales partners have not generated as much
revenue as generated under the agreement with our previous advertising partner.

Classmates
Media advertising revenues increased by $1.2 million, or 3%, to $43.5 million for the six months ended June 30, 2008, compared to $42.3 million for
the six months ended June 30, 2007. The increase was primarily related to a $3.1 million increase in revenues from our loyalty marketing service and, to a lesser extent, a
$0.7 million increase in revenues associated with our international social networking services. These increases were partially offset by a $2.6 million decrease in revenues from
post-transaction sales resulting from a change in our advertising partner in the fourth quarter of 2007.

Communications Advertising Revenues.Communications advertising revenues decreased by $3.1 million, or 25%, to $9.1 million for the quarter ended
June 30, 2008, from $12.2 million for the quarter ended June 30, 2007. The decrease was primarily attributable to a decrease in advertising revenue from our start pages and, to a
lesser extent, search revenues, as a result of a decrease in pay accounts. We anticipate that Communications advertising revenues will decrease going forward as a result of decreasing pay accounts.

Communications
advertising revenues decreased by $5.9 million, or 23%, to $19.6 million for the six months ended June 30, 2008, from $25.5 million for the six
months ended June 30, 2007. The decrease was primarily attributable to a decrease in advertising revenue from our start pages and, to a lesser extent, search revenues, as a result of a decrease
in pay accounts.

Cost of Revenues

Cost of revenues includes telecommunications and data center costs; costs of providing rewards to members of our loyalty marketing
service; personnel- and overhead-related costs associated with operating our networks and data centers; depreciation of network computers and equipment; email technical support and license fees; costs
related to providing telephone technical support; customer billing and billing support for our pay accounts; fees associated with the storage and processing of customer credit cards and associated
bank fees; and domain name registration fees. Costs associated with our social networking services are relatively fixed. Costs associated with our loyalty marketing service, primarily costs of
providing rewards to members, are largely variable based on revenues. The majority of the costs that comprise our Communications cost of revenues are variable. As such, our Communications cost of
revenues as a percentage of revenues is highly dependent on our ARPU, our average hourly telecommunications cost and usage, and our average customer billing and billing support costs per pay account.

Consolidated Cost of Revenues.Consolidated cost of revenues decreased by $3.6 million, or 12%, to $26.8 million for the quarter ended
June 30, 2008, compared to $30.4 million for the quarter ended June 30, 2007. The decrease was primarily due to decreased costs associated with our Communications segment,
partially offset by increased costs associated with our Classmates Media segment. Cost of revenues related to our Classmates Media segment and our Communications segment constituted 43.0% and 57.0%,
respectively, of our total segment cost of revenues for the quarter ended June 30, 2008, compared to 34.5% and 65.5%, respectively, for the quarter ended June 30, 2007.

Consolidated
cost of revenues decreased by $5.0 million, or 8%, to $54.7 million for the six months ended June 30, 2008, compared to $59.7 million for the six
months ended June 30, 2007. The decrease was primarily due to decreased costs associated with our Communications segment, partially offset by increased costs associated with our Classmates
Media segment and a $0.4 million increase in

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depreciation.
Cost of revenues related to our Classmates Media segment and our Communications segment constituted 39.7% and 60.3%, respectively, of our total segment cost of revenues for the six
months ended June 30, 2008, compared to 33.6% and 66.4%, respectively, for the six months ended June 30, 2007.

Classmates Media Cost of Revenues.Classmates Media cost of revenues increased by $0.9 million, or 9%, to $10.6 million, or 18.6% of Classmates Media
revenues, for the quarter ended June 30, 2008, compared to $9.8 million, or 20.4% of Classmates Media revenues, for the quarter ended June 30, 2007. The
increase in costs was primarily related to a $0.7 million increase in overhead, personnel- and customer support-related costs associated with our social networking services and a
$0.2 million increase in costs associated with our loyalty marketing service.

Classmates
Media cost of revenues increased by $1.3 million, or 7%, to $19.9 million, or 18.3% of Classmates Media revenues, for the six months ended June 30, 2008,
compared to $18.7 million, or 20.7% of Classmates Media revenues, for the six months ended June 30, 2007. The increase in costs was primarily related to a $1.3 million increase in
overhead, personnel- and customer support-related costs associated with our social networking services.

Communications Cost of Revenues.Communications cost of revenues decreased by $4.5 million, or 24%, to $14.1 million, or 21.6% of Communications
revenues, for the quarter ended June 30, 2008, compared to $18.6 million, or 22.2% of Communications revenues, for the quarter ended June 30, 2007. The decrease in costs was due
to a $3.7 million decrease in telecommunications costs associated with our dial-up Internet access business primarily due to a decrease in the number of pay accounts, a decrease in
hourly usage per pay account as well as slightly lower average hourly telecommunications costs. In addition, Communications costs of revenues decreased as a result of a $1.1 million decrease in
customer support- and billing-related costs in the quarter ended June 30, 2008, compared to the quarter ended June 30, 2007, as a result of a decrease in the number of
dial-up Internet access pay accounts and a decrease in the hourly rate charged by our third-party vendor, a $0.6 million decrease in costs associated with our VoIP services as a
result of our decision to exit the VoIP business in the third quarter of 2007, and a $0.4 million decrease in overhead costs. These decreases were partially offset by a $1.7 million
increase in costs associated with our DSL services.

Communications
cost of revenues decreased by $6.6 million, or 18%, to $30.3 million, or 22.4% of Communications revenues, for the six months ended June 30, 2008,
compared to $36.9 million, or 21.6% of Communications revenues, for the six months ended June 30, 2007. The decrease in costs was due to a $6.3 million decrease in
telecommunications costs associated with our dial-up Internet access business primarily due to a decrease in the number of pay accounts, a decrease in hourly usage per pay account as well
as slightly lower average hourly telecommunications costs. In addition, Communications costs of revenues decreased as a result of a $1.8 million decrease in customer support-and billing-related
costs in the quarter ended June 30, 2008, compared to the quarter ended June 30, 2007, as a result of a decrease in the number of dial-up Internet access pay accounts and a
decrease in the hourly rate charged by our third-party vendor, a $1.3 million decrease in costs associated with our VoIP services as a result of our decision to exit the VoIP business in the
third quarter of 2007, and a $0.8 million decrease in overhead costs. These decreases were partially offset by a $4.2 million increase in costs associated with our DSL services.

Sales and Marketing

Sales and marketing expenses include expenses associated with promoting our services and with generating advertising revenues. Expenses
associated with promoting our services include advertising and promotion expenses; fees paid to distribution partners, third-party advertising networks and co-registration partners to
acquire new pay and free accounts; personnel and overhead-related expenses for marketing personnel; and telemarketing costs incurred to acquire and retain pay accounts and

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up-sell
pay accounts to additional services. Expenses associated with generating advertising revenues include sales commissions and personnel-related expenses. We have expended significant
amounts on sales and marketing, including branding and customer acquisition campaigns consisting of television, Internet, radio, print and outdoor advertising, and on retail and other
performance-based distribution relationships. Marketing and advertising costs to promote our products and services are expensed in the period incurred. Advertising and promotion expenses include
media, agency and promotion expenses. Media production costs are expensed the first time the advertisement is run. Media and agency costs are expensed over the period the advertising runs.

Consolidated Sales and Marketing Expenses.Consolidated sales and marketing expenses decreased by $6.9 million, or 16%, to $35.8 million, or 29.3% of
consolidated revenues, for the quarter ended June 30, 2008, compared to $42.7 million, or 32.5% of consolidated revenues, for the quarter ended June 30, 2007. The decrease was
primarily attributable to a reduction in marketing expenses related to our Communications segment, partially offset by a slight increase in marketing expenses related to our Classmates Media segment.
Sales and marketing expenses related to our Classmates Media segment and our Communications segment constituted 58.5% and 41.5%, respectively, of total segment sales and marketing expenses for the
quarter ended June 30, 2008 versus 48.8% and 51.2%, respectively, for the quarter ended June 30, 2007.

Consolidated
sales and marketing expenses decreased by $16.1 million, or 18%, to $72.6 million, or 29.7% of consolidated revenues, for the six months ended June 30,
2008, compared to $88.7 million, or 34.0% of consolidated revenues, for the six months ended June 30, 2007. The decrease was primarily attributable to a reduction in marketing expenses
related to our Communications segment and, to a lesser extent, a decrease in marketing expenses related to our Classmates Media segment. Sales and marketing expenses related to our Classmates Media
segment and our Communications segment constituted 55.9% and 44.1%, respectively, of total segment sales and marketing expenses for the six months ended June 30, 2008 versus 46.5% and 53.5%,
respectively, for the six months ended June 30, 2007.

Classmates Media Sales and Marketing Expenses.Classmates Media sales and marketing expenses increased by $0.1 million to $20.9 million, or 36.7% of
Classmates Media revenues, for the quarter ended June 30, 2008, compared to $20.8 million, or 43.6% of Classmates Media revenues, for the quarter ended June 30, 2007.

Classmates
Media sales and marketing expenses decreased by $0.7 million, or 2%, to $40.5 million, or 37.2% of Classmates Media revenues, for the six months ended
June 30, 2008, compared to $41.2 million, or 45.7% of Classmates Media revenues, for the six months ended June 30, 2007. The decrease was the result of a $0.6 million
decrease in personnel- and overhead-related expenses and a $0.4 million decrease in marketing costs related to acquiring new members. These decreases were partially offset by a
$0.3 million increase in stock-based compensation primarily related to new equity awards issued in 2007 and the six months ended June 30, 2008.

Communications Sales and Marketing Expenses.Communications sales and marketing expenses decreased by $7.0 million, or 32%, to $14.8 million, or
22.7% of Communications revenues, for the quarter ended June 30, 2008, compared to $21.8 million, or 26.1% of Communications revenues, for the quarter ended June 30, 2007. This
decrease was attributable to a $5.6 million decline in advertising, promotion and distribution costs related to our dial-up Internet access services, a $1.3 million decrease
in personnel- and overhead-related expenses as a result of lower headcount, and a $0.9 million decrease in promotion costs related to our DSL services. These decreases were partially offset by
a $0.7 million increase in stock-based compensation primarily related to new equity awards issued in 2007 and the six months ended June 30, 2008.

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Communications
sales and marketing expenses decreased by $15.4 million, or 33%, to $31.9 million, or 23.6% of Communications revenues, for the six months ended
June 30, 2008, compared to $47.3 million, or 27.7% of Communications revenues, for the six months ended June 30, 2007. This decrease was attributable to a $12.4 million
decline in advertising, promotion and distribution costs related to our dial-up Internet access services, a $2.9 million decrease in personnel- and overhead-related expenses as a
result of lower headcount, and a $1.1 million decrease in promotion costs related to our DSL services. These decreases were partially offset by a $1.3 million increase in stock-based
compensation primarily related to new equity awards issued in 2007 and the six months ended June 30, 2008.

Technology and Development

Technology and development expenses include expenses for the maintenance of existing software and technology and the development of new
or improved software and technology, including personnel-related expenses for the software engineering department and the costs associated with operating our facility in India. Costs incurred by us to
manage and monitor our technology and development activities are expensed as incurred. Costs relating to the acquisition and development of internal-use software are capitalized and
depreciated over their estimated useful lives, generally three years.

Consolidated Technology and Development Expenses.Consolidated technology and development expenses decreased by $0.5 million, or 4%, to
$12.5 million, or 10.2% of consolidated revenues, for the quarter ended June 30, 2008, compared to $13.1 million, or 9.9% of consolidated revenues, for the quarter ended
June 30, 2007. The decrease in costs was attributable to a decrease in expenses in the Communications segment, partially offset by an increase in expenses in the Classmates Media segment and a
$0.1 million increase in depreciation. Technology and development expenses related to our Classmates Media segment and our Communications segment constituted 48.0% and 52.0%, respectively, of
total segment technology and development expenses for the quarter ended June 30, 2008, compared to 34.1% and 65.9%, respectively, for the quarter ended June 30, 2007.

Consolidated
technology and development expenses decreased by $1.1 million, or 4%, to $25.4 million, or 10.4% of consolidated revenues, for the six months ended
June 30, 2008, compared to $26.5 million, or 10.2% of consolidated revenues, for the six months ended June 30, 2007. The decrease in costs was attributable to a decrease in
expenses in the Communications segment, partially offset by an increase in expenses in the Classmates Media segment and a $0.5 million increase in depreciation. Technology and development
expenses related to our Classmates Media segment and our Communications segment constituted 46.9% and 53.1%, respectively, of total segment technology and development expenses for the six months ended
June 30, 2008, compared to 31.0% and 69.0%, respectively, for the six months ended June 30, 2007.

Classmates Media Technology and Development Expenses.Classmates Media technology and development expenses increased by $1.3 million, or 33%, to
$5.2 million, or 9.2% of Classmates Media revenues, for the quarter ended June 30, 2008, compared to $3.9 million, or 8.2% of Classmates Media revenues, for the quarter ended
June 30, 2007. The increase was primarily due to a $1.0 million increase in personnel-related expenses due to increased headcount and, to a lesser extent, a $0.3 million increase
in overhead-related expenses.

Classmates
Media technology and development expenses increased by $3.0 million, or 41%, to $10.5 million, or 9.6% of Classmates Media revenues, for the six months ended
June 30, 2008, compared to $7.4 million, or 8.2% of Classmates Media revenues, for the six months ended June 30, 2007. The increase was primarily due to a $2.5 million
increase in personnel-related expenses due to increased headcount and, to a lesser extent, a $0.5 million increase in overhead-related expenses.

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Communications Technology and Development Expenses.Communications technology and development expenses decreased by $1.9 million, or 25%, to
$5.7 million, or 8.7% of Communications revenues, for the quarter ended June 30, 2008, compared to $7.6 million, or 9.1% of Communications revenues, for the quarter ended
June 30, 2007. The decrease was primarily the result of a $2.1 million decrease in personnel-related expenses as a result of lower headcount. We anticipate that Communications technology
and development expenses will continue to decline in 2008 when compared to 2007 as a result of a restructuring-related reduction in the number of technology and development employees in this segment
in October 2007.

Communications
technology and development expenses decreased by $4.7 million, or 28%, to $11.9 million, or 8.8% of Communications revenues, for the six months ended
June 30, 2008, compared to $16.5 million, or 9.6% of Communications revenues, for the six months ended June 30, 2007. The decrease was primarily the result of a
$4.7 million decrease in personnel-related expenses as a result of lower headcount.

General and Administrative

General and administrative expenses include personnel-related expenses for executive, finance, legal, human resources, facilities, and
internal customer support personnel. In addition, general and administrative expenses include, among other costs, professional fees for legal, accounting and financial services; non-income
taxes; insurance; occupancy and other overhead-related costs; and expenses incurred and credits received as a result of certain legal settlements.

General
and administrative expenses, in the aggregate and as a percentage of revenues, increased in the six months ended June 30, 2008 compared to the six months ended
June 30, 2007. Stock-based compensation has increased as a result of several factors, including: bonuses for certain members of
senior management for the year ending December 31, 2008 (the "2008 Bonuses") will be paid primarily in shares of our common stock whereas such bonuses were historically paid primarily in cash;
the effect of shares of common stock and restricted stock units awarded in the first quarter of fiscal 2008; and the effect of restricted stock units awarded in 2007 to members of senior management in
connection with the renewal of employment agreements or in connection with initial employment agreements. Also, the resignation of an executive officer in 2007 resulted in the reversal in 2007 of
stock-based compensation recorded in prior periods which reduced stock-based compensation associated with general and administrative expenses in 2007. The payment of the 2008 Bonuses in shares of
common stock as opposed to cash, while increasing stock-based compensation, is not anticipated to have a significant impact on general and administrative expenses in 2008.

Consolidated General and Administrative Expenses.Consolidated general and administrative expenses increased by $5.9 million, or 35%, to
$22.8 million, or 18.6% of consolidated revenues, for the quarter ended June 30, 2008, compared to $16.9 million, or 12.9% of consolidated revenues, for the quarter ended
June 30, 2007. The increases were due to an increase in expenses associated with our Classmates Media segment and, to a lesser extent, an increase in expenses associated with our Communications
segment, partially offset by a $0.3 million decrease in depreciation. General and administrative expenses related to our Classmates Media segment and our Communications segment constituted
57.2% and 42.8%, respectively, of total segment general and administrative expenses for the quarter ended June 30, 2008, compared to 46.3% and 53.7%, respectively, for the quarter ended
June 30, 2007.

Consolidated
general and administrative expenses increased by $11.3 million, or 35%, to $43.7 million, or 17.9% of consolidated revenues, for the six months ended
June 30, 2008, compared to $32.4 million, or 12.4% of consolidated revenues, for the six months ended June 30, 2007. The increases were due to an increase in expenses associated
with our Classmates Media segment and, to a lesser extent, an increase in expenses associated with our Communications segment, partially offset by a

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$0.6 million
decrease in depreciation. General and administrative expenses related to our Classmates Media segment and our Communications segment constituted 53.9% and 46.1%, respectively, of
total segment general and administrative expenses for the six months ended June 30, 2008, compared to 42.5% and 57.5%, respectively, for the six months ended June 30, 2007.

Classmates Media General and Administrative Expenses.Classmates Media general and administrative expenses increased by $5.2 million, or 73%, to
$12.3 million, or 21.6% of Classmates Media revenues, for the quarter ended June 30, 2008, compared to $7.1 million, or 14.9% of Classmates Media revenues, for the quarter ended
June 30, 2007. The increase was primarily related to the expensing of $3.9 million in deferred transaction-related costs relating to the proposed IPO of CMC, a $1.7 million
increase in stock-based compensation primarily related to guaranteed equity awards to be issued to certain members of senior management and to recent equity awards, and a $0.5 million increase
in personnel-related expenses due to increased headcount. These increases were partially offset by a
$0.6 million decrease in consulting expenses and a $0.3 million decrease in facilities and other overhead-related costs.

Classmates
Media general and administrative expenses increased by $9.7 million, or 78%, to $22.2 million, or 20.4% of Classmates Media revenues, for the six months ended
June 30, 2008, compared to $12.4 million, or 13.8% of Classmates Media revenues, for the six months ended June 30, 2007. The increase was primarily related to a
$4.5 million increase in stock-based compensation primarily related to guaranteed equity awards to be issued to certain members of senior management and to recent equity awards, the expensing
of $3.9 million in deferred transaction-related costs relating to the proposed IPO of CMC in the quarter ended June 30, 2008, a $1.3 million increase in personnel-related expenses
due to increased headcount, and a $0.4 million increase in facilities and other overhead-related costs. These increases were partially offset by a $0.4 million decrease in consulting
expenses.

Communications General and Administrative Expenses.Communications general and administrative expenses increased by $1.0 million, or 12%, to
$9.2 million, or 14.1% of Communications revenues, for the quarter ended June 30, 2008, compared to $8.3 million, or 9.9% of Communications revenues, for the quarter ended
June 30, 2007. The increase was due to a $2.8 million increase in stock-based compensation primarily related to the accrual for the 2008 Bonuses for certain members of senior management
and equity awards issued in 2007 and in the six months ended June 30, 2008. The increase was partially offset by a $0.9 million decrease in personnel-related expenses as a result of the
2008 Bonuses being expensed as stock-based compensation as described above as well as lower headcount, a $0.7 million decrease in facilities and other overhead-related expenses and a
$0.2 million decrease in recruiting and relocation costs.

Communications
general and administrative expenses increased by $2.1 million, or 12%, to $19.0 million, or 14.0% of Communications revenues, for the six months ended
June 30, 2008, compared to $16.9 million, or 9.9% of Communications revenues, for the six months ended June 30, 2007. The increase was due to a $5.2 million increase in
stock-based compensation primarily related to the accrual for the 2008 Bonuses for certain members of senior management and equity awards issued in 2007 and in the six months ended June 30,
2008. The increase was partially offset by a $1.6 million decrease in personnel-related expenses as a result of the 2008 Bonuses being expensed as stock-based compensation as described above as
well as lower headcount, a $1.1 million decrease in facilities and other overhead-related expenses and a $0.4 million decrease in recruiting and relocation costs.

Amortization of Intangible Assets

Amortization of intangible assets principally includes amortization of: acquired pay accounts and free accounts; acquired trademarks
and trade names; purchased software and technology; acquired contracts and related relationships; acquired patents and domain names; and other identifiable

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intangible
assets. In accordance with the provisions set forth in SFAS No. 142, goodwill is not being amortized but is tested for impairment at a reporting unit level on an annual basis and
between annual tests if an event occurs or circumstances change that would indicate the fair value of a reporting unit is below its carrying value.

Consolidated
amortization of intangible assets decreased by $1.2 million, or 37%, to $2.0 million for the quarter ended June 30, 2008, compared to
$3.2 million for the quarter ended June 30, 2007. Consolidated amortization of intangible assets decreased by $1.8 million, or 27%, to $4.9 million for the six months ended
June 30, 2008, compared to $6.7 million for the six months ended June 30, 2007. These decreases were primarily attributable to the accelerated amortization of intangible assets in
earlier years associated with our Classmates acquisition in November 2004 and, to a lesser extent, a decrease in amortization in the six months ended June 30, 2008 compared to the six months
ended June 30, 2007 as a result of certain assets from the acquisition of Web hosting assets in April 2004 becoming fully amortized in March 2007.

Restructuring Charges

In the quarter and six months ended June 30, 2008, we recorded restructuring charges totaling $0.4 million and
$0.6 million, respectively, primarily associated with the closure of our Orem, Utah facility. We believe these activities will result in total restructuring charges of approximately
$0.7 million during 2008, comprised largely of employee termination benefits and facility-exit costs.

In
the quarter and six months ended June 30, 2007, the Company recorded restructuring charges of $0.4 million primarily for termination benefits paid to certain employees
associated with our Web hosting and photo sharing businesses.

Interest and Other Income, Net

Interest income consists of earnings on our cash, cash equivalents and short-term investments. Other income, net, consists
of realized gains and losses recognized in connection with the sale of short-term investments.

Interest
and other income, net, remained flat at $1.9 million for the quarter ended June 30, 2008, compared to the quarter ended June 30, 2007. Interest and other
income, net, increased by $0.2 million, or 5%, to $3.8 million for the six months ended June 30, 2008, compared to $3.6 million for the six months ended June 30,
2007. These increases were primarily due to an increase in cash, cash equivalents and short-term investments, partially offset by lower average interest rates. Net realized gains on sales
of our short-term investments were not significant for the quarters and six months ended June 30, 2008 and 2007.

Interest Expense

Interest expense consists of interest expense on capital leases, the amortization of premiums on certain of our short-term
investments, and imputed interest on the acquired member redemption liability related to our acquisition of MyPoints in April 2006, which was amortized through the quarter ended September 30,
2007.

Interest
expense remained flat at $0.4 million for the quarter ended June 30, 2008, compared to the quarter ended June 30, 2007. Interest expense decreased by
$0.2 million, or 26%, to $0.5 million for the six months ended June 30, 2008, compared to $0.7 million for the six months ended June 30, 2007. The decrease in the
six months ended June 30, 2008 compared to the six months ended June 30, 2007 was primarily related to a decrease in imputed interest on the acquired member redemption liability, which
was amortized through the quarter ended September 30, 2007.

44

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Provision for Income Taxes

For the quarter and six months ended June 30, 2008, we recorded a provision for income taxes of $9.8 million and
$18.8 million, respectively on pre-tax income of $23.5 million and $45.5 million, respectively, resulting in a year-to-date effective income
tax rate of 41.3%. For the quarter and six months ended June 30, 2007, we recorded a provision for income taxes of $10.0 million and $20.5 million, respectively, on
pre-tax income of $26.2 million and $49.7 million, respectively, resulting in a year-to-date effective income tax rate of 41.2%. The increase in the
effective income tax rate was primarily due to (1) an increase in compensation, including stock-based compensation in the quarter and six months ended June 30, 2008 versus the
prior-year comparable periods that is limited under Section 162(m) of the Internal Revenue Code and (2) lower amounts of tax-free interest income generated in the
quarter and six months ended June 30, 2008 compared to the prior-year comparable periods. These increases were partially offset by (1) the benefits of a lower state income
tax rate, net of federal benefit, in 2008 as a result of changes to our state nexus profile and (2) the release of a portion of the deferred tax valuation allowance in the quarter and six
months ended June 30, 2008 attributable to the utilization of certain foreign net operating loss carryforwards. The quarterly effective income tax rate is subject to fluctuation due to discrete
items.

Liquidity and Capital Resources

In April 2008, we entered into a definitive merger agreement with FTD Group, Inc. ("FTD"), a leading provider of floral and
related products and services to consumers and retail florists in the United States, Canada, the United Kingdom, and the Republic of Ireland, providing for the proposed acquisition of FTD by us. Under
the terms of the merger agreement and
subject to the conditions therein, FTD stockholders will receive $10.15 in cash and 0.4087 of a share of United Online common stock for each share of FTD common stock (subject to adjustment as
described below), for a total value of $14.38 per share of FTD common stock, based on United Online's closing stock price of $10.36 on July 21, 2008. Based on the number of shares of FTD common
stock outstanding on July 21, 2008, and the closing stock price of United Online common stock on July 21, 2008, it is expected that FTD stockholders will receive total merger
consideration of approximately $434 million, consisting of approximately $306 million in cash and approximately 12.3 million shares of United Online common stock. Upon closing of
the proposed transaction, the former FTD stockholders will own approximately 15% of United Online.

We
plan to finance a portion of the cash merger consideration with financing from Silicon Valley Bank, and received a commitment from Silicon Valley Bank to provide to us, on the terms
and subject to the conditions therein, a $60 million senior secured term loan facility (the "UOL Credit Facility") to be used to fund a portion of the cash merger consideration for the proposed
acquisition of FTD by us. The term loans under the UOL Credit Facility will bear interest at either LIBOR plus 3.5% per annum (with a LIBOR floor of 3.0%) or a base rate plus 2% per annum. In
connection with receipt of the commitment from Silicon Valley Bank, United Online and FTD entered into an amendment to the previously announced merger agreement pursuant to which we have elected to
exercise our right under the terms of the merger agreement related to United Online obtaining additional financing to increase the per share cash merger consideration payable to FTD's stockholders by
$2.81 in full substitution of the $3.31 principal amount of United Online 13% senior secured notes due in 2013 ("UOL notes").

If
the Silicon Valley Bank financing is unavailable to us for any reason, we are required to adjust the merger consideration so that FTD stockholders would instead receive $7.34 in cash,
0.4087 of a share of United Online common stock and $3.31 principal amount of UOL notes for each share of FTD common stock in the Acquisition, for a total value of $14.88 per share of FTD common stock
based on United Online's closing stock price of $10.36 on July 21, 2008. In such case, United Online and FTD have agreed to notify FTD's stockholders by press release of such change in merger
consideration on or before the fifth business day prior to the scheduled date of the special meeting of

45

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the
FTD stockholders to consider the merger. Based on the number of shares of FTD common stock outstanding on July 21, 2008 and the closing stock price of United Online common stock on
July 21, 2008, it is expected that FTD stockholders would receive total merger consideration of approximately $449 million, consisting of approximately $221 million in cash,
approximately 12.3 million shares of United Online common stock and $100 million aggregate principal amount of UOL notes. The UOL notes would be secured by a pledge of the stock of CMC
and guaranteed by all of our domestic subsidiaries other than FTD, FTD's direct parent and FTD's subsidiaries. The UOL notes would be issued on the terms set forth in the form of indenture filed with
the SEC as an exhibit to our registration statement on Form S-4 with respect to the proposed acquisition.

In
connection with the Acquisition, on August 4, 2008, UNOLA Corp., an indirect wholly-owned subsidiary of United Online, entered into senior secured credit facilities (the
"Credit Facilities") with Wells Fargo Bank, National Association ("Wells Fargo"), as lead arranger, providing for an aggregate principal amount of up to $425 million, consisting of (i) a
term loan A facility of up to $75 million, (ii) a
term loan B facility of up to $300 million, and (iii) a revolving credit facility of up to $50 million. The interest rate set forth in the Credit Facilities for loans made under
the revolving credit facility and term loan A facility is either a base rate plus 2.5% per annum, or LIBOR plus 3.5% (with a LIBOR floor of 3.0%), in each case, with step-downs in the
interest rate depending on FTD's leverage ratio. The interest rate set forth in the Credit Agreement for loans made under a term loan B facility is either the base rate plus 3.5% per annum, or LIBOR
plus 4.5% per annum (with a LIBOR floor of 3.0%), in each case, with a step-down in the interest rate depending on FTD's leverage ratio. In addition, FTD will pay a commitment fee equal to
0.50% per annum (with step-downs in the interest rate depending on FTD's leverage ratio) on the unused portion of the revolving credit facility. The Credit Facilities will be secured by
substantially all of FTD's assets. It is expected that on the closing date of the Acquisition, the Credit Facilities will be funded and FTD and its subsidiaries will undertake UNOLA Corp.'s
obligations under the Credit Facilities.

Wells
Fargo's commitment to fund the Credit Facilities on the closing date of the Acquisition is subject to the satisfaction of certain conditions, including, among other things, the
consummation of the equity issuance of United Online common stock described above, its receipt of FTD's interim consolidated financial statements and other financial information, the satisfaction of
the conditions in the merger agreement that are material to the interests of the lenders under the Credit Facilities, the absence of a material adverse effect at FTD, the achievement by FTD of at
least $97.5 million of adjusted EBITDA, as defined in connection with the Credit Facilities, for the most recently completed trailing 12-month period ended at least 30 days
prior to the Acquisition closing date for which financial statements are available, and the consummation of the defeasance of FTD's 7.75% senior subordinated notes due in 2014 (or, in our discretion,
our funding of the purchase of all such senior subordinated notes pursuant to a tender offer and consent solicitation by FTD and the defeasance of any such senior subordinated notes not so acquired in
such tender offer).

In
connection with the Acquisition, on July 28, 2008, FTD, Inc. ("FTDI"), a wholly-owned subsidiary of FTD, commenced a cash tender offer for any and all of the
$170.1 million aggregate outstanding principal amount of FTDI's 7.75% senior subordinated notes due in 2014. In conjunction with the tender offer, noteholder consents are being solicited to
effect certain amendments and waivers to the indenture governing such notes. The tender offer is scheduled to expire at 5:00 p.m., New York City time, on August 25, 2008, unless extended
or earlier terminated by FTDI, including any extension required because the conditions to the closing of the Acquisition have not been satisfied as of that date. The consent solicitation is scheduled
to expire at 5:00 p.m., New York City time, on August 11, 2008, unless extended or earlier terminated by FTDI. The tender offer is conditioned on, among other things, consummation of the
Acquisition.

46

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Our
total cash, cash equivalent and short-term investments balances increased by $21.7 million, or 10%, to $240.0 million at June 30, 2008, compared to
$218.3 million at December 31,
2007. Our summary cash flows for the six months ended June 30, 2008 and 2007 were as follows (in thousands):

Six Months Ended
June 30,2008

2007Net cash provided by operating activities

$
65,090

$
61,046Net cash used for investing activities

$
(67,947
)
$
(41,466
)Net cash used for financing activities

$
(32,718
)
$
(19,109
)


Net
cash provided by operating activities increased by $4.0 million, or 7%, for the six months ended June 30, 2008 compared to the six months ended June 30, 2007.
Net cash provided by operating activities is driven by our net income adjusted for non-cash items, including, but not limited to, depreciation and amortization, provision for doubtful
accounts receivable, stock-based compensation, impairment of goodwill, intangible assets and long-lived assets, deferred taxes, tax and excess tax benefits from equity awards, and changes
in operating assets and liabilities. The increase was primarily due to a $7.6 million increase in non-cash items, partially offset by a $2.5 million decrease in net income
for the six months ended June 30, 2008, compared to the six months ended June 30, 2007, and a $0.6 million unfavorable change in operating assets and liabilities.

Net
cash used for investing activities increased by $26.5 million, or 64%, for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The
increase was primarily the result of a $28.6 million increase in net purchases of short-term investments and a $3.2 million increase in cash paid for the Acquisition,
partially offset by a $5.3 million decrease in purchases of property and equipment.

We
have invested significantly in our network infrastructure, software licenses, leasehold improvements, and computer equipment and we will need to make further investments in the
future. Capital expenditures for the six months ended June 30, 2008 were $7.3 million. We currently anticipate that our total capital expenditures for 2008 will be in the range of
$18 million to $22 million. The actual amount of future capital expenditures may fluctuate due to a number of factors including, without limitation, potential future acquisitions and new
business initiatives, which are difficult to predict and which could change significantly over time. Additionally, technological advances may require us to make capital expenditures to develop or
acquire new equipment or technology in order to replace aging or technologically obsolete equipment.

Net
cash used for financing activities increased by $13.6 million, or 71%, for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The
increase was related to a combined $6.7 million decrease in proceeds from exercises of stock options and proceeds from our employee stock
purchase plan; a $3.3 million increase in repurchases of common stock in connection with shares withheld upon vesting of restricted stock awards and restricted stock units to pay applicable
employee withholding taxes; a $2.3 million decrease in excess tax benefits from equity awards; and a $1.3 million increase in the payment of dividends.

In
January 2008 and April 2008, our Board of Directors declared regular quarterly cash dividends of $0.20 per share of common stock, which were paid on February 29, 2008 and
May 30, 2008 and totaled $14.6 million and $14.9 million, respectively. In July 2008, our Board of Directors declared a regular quarterly cash dividend of $0.20 per share of
common stock. The record date for the dividend is August 14, 2008, and the dividend is payable on August 29, 2008. Following the closing of the Acquisition, we expect to decrease our
regular quarterly cash dividend from $0.20 per share of common stock to $0.10 per share of common stock. In addition, the UOL notes impose certain restrictions on our ability to pay dividends
following the closing of the Acquisition, and as a result of the terms of the Credit Facilities, cash flows at FTD will, in general, not be available to United Online and its

47

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subsidiaries
(other than subsidiaries of FTD). The payment of future dividends is discretionary and is subject to determination by our Board of Directors each quarter following its review of our
financial performance and other factors. The payment of dividends will negatively impact cash flows from financing activities.

Future
cash flows from financing activities may also be affected by our repurchases of our common stock. Our Board of Directors authorized a common stock repurchase program (the
"program") that allows us to repurchase shares of our common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors through
December 31, 2008. From August 2001 through June 30, 2008, we had repurchased a total of $139.2 million of our common stock under the program. We have not repurchased any shares
of our common stock under the program since February 2005, and at June 30, 2008, the remaining amount available under the program was $60.8 million. Other than pursuant to the program or
in connection with the withholding of shares related to the vesting of restricted stock units and the issuance of stock awards as discussed below, the merger agreement for the Acquisition imposes
restrictions on our ability to repurchase shares of our common stock prior to the closing of the Acquisition. Following the Acquisition closing, the UOL notes or the UOL Credit Facility, as
applicable, will impose certain restrictions on our ability to repurchase shares of our common stock.

Cash
flows from financing activities may also be negatively impacted by the withholding of a portion of shares underlying the restricted stock units, restricted stock awards and stock
awards we award to employees. We currently do not collect the applicable employee withholding taxes upon vesting of restricted stock units and restricted stock awards and upon the issuance of stock
awards from employees. Instead, we automatically withhold, from the restricted stock units that vest and the stock awards that are issued, the portion of those shares with a fair market value equal to
the amount of the employee withholding taxes due. We then pay the applicable withholding taxes in cash. The withholding of these shares, although accounted for as a common stock repurchase, does not
reduce the amount available under the program. Similar to repurchases of common stock under the program, the net effect of such withholding will adversely impact our cash flows from financing
activities. The amounts
remitted in the six months ended June 30, 2008 and 2007 were $7.1 million and $3.8 million, respectively, for which we withheld 627,000 shares and 265,000 shares of common stock,
respectively, that were underlying the restricted stock units and restricted stock awards which vested and stock awards that were issued. The amount we pay in future quarters will vary based on our
stock price and the number of restricted stock units vesting and stock awards being issued during the quarter.

On
August 8, 2007, Classmates Online, Inc. and MyPoints.com, Inc. declared a dividend to us, which was evidenced by unsecured notes payable in the aggregate
principal amount of $50.0 million (the "Notes"). The Notes bear interest at an annual rate of 9.625%, payable quarterly in arrears. No principal is due on the Notes until maturity on
August 31, 2013, and the Notes may be repaid in whole or in part at any time prior to maturity without penalty. Historically, our net cash provided by operating activities has been positively
impacted by our Classmates and MyPoints businesses which have been transferred to CMC. We attempted to effect an IPO of CMC in the fourth quarter of 2007. However, CMC withdrew its
Form S-1 registration statement previously filed with the SEC for the proposed IPO in December 2007 due to then-current market conditions. It remains our strategy to
complete an IPO of CMC. If an IPO occurs, the Notes may be repaid in whole or in part from the proceeds from the offering, although there can be no assurance that the IPO will occur or that the Notes
will be repaid. If the IPO were to occur, it is likely that the net cash provided by operating, investing and financing activities associated with CMC will remain with CMC and will not be available
for our use. As such, cash flows available to us may significantly decrease if an IPO of CMC is consummated. In addition, the UOL notes provide that, in the event CMC completes an IPO, we must retire
$50 million of the UOL notes at par and repay accrued but unpaid interest on the retired UOL notes. We expect that the UOL Credit Facility will provide that, in the event CMC completes an IPO,

48

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UOL
must repay the loans under the UOL Credit Facility in an amount equal to the greater of (i) 50% of the net cash proceeds received by UOL in connection with the IPO and
(ii) $30 million.

Based
on our current projections, we expect to continue to generate positive cash flows from operations, at least in the near term. We intend to use our existing cash balances and future
cash generated from operations to fund, among other things, dividend payments, if declared by our Board of Directors; to develop and acquire other services, businesses or technologies with our focus
in the near term primarily on the proposed acquisition of FTD; to repurchase our common stock underlying restricted stock units and stock awards and pay the employee withholding taxes due on vested
restricted stock units and stock awards issued; and to fund future capital expenditures. To fund the proposed acquisition of FTD, we intend to use a substantial portion of our cash balances and to
incur significant indebtedness. In accordance with the terms of the Credit Facilities with Wells Fargo, the UOL Credit Facility and the UOL notes, there will be significant limitations on our ability
to use cash flows from operations generated by our Communications and Classmates Media segments for the benefit of FTD and, conversely, there will be significant limitations on our ability to use cash
flows from operations generated by FTD for the benefit of United Online or the Communications and Classmates Media segments. Following the Acquisition, among other factors, the degree to which our
assets are leveraged and the terms of our debt could materially and adversely affect our ability to obtain additional capital. In addition, a significant amount of our cash generated from operations
will be used for debt service.

If
we need to raise additional capital through public or private debt or equity financings, strategic relationships or other arrangements, this capital might not be available to us in a
timely manner, on acceptable terms, or at all. Our failure to raise sufficient capital when needed could severely constrain or prevent us from, among other factors, developing new or enhancing
existing services or products, repurchasing our common stock, acquiring other services, businesses or technologies or funding significant capital expenditures, and have a material adverse effect on
our business, financial position, results of operations, and cash flows as well as impair our ability to pay future dividends. If additional funds were raised through the issuance of equity or
convertible debt securities, the percentage of stock owned by the then-current stockholders could be reduced. Furthermore, such equity or debt securities that we issue might have rights,
preferences or privileges senior to holders of our common stock.

Contractual Obligations

Contractual obligations at June 30, 2008 were as follows (in thousands):

Total

Less than
1 Year

1 Year to
Less than
3 Years

3 Years to
Less than
5 Years

More than
5 YearsCapital leases

$
5

$
5

$


$


$
Operating leases(1)


41,340


11,763


15,050


8,977


5,550Telecommunications purchases


4,968


3,493


1,475





Media purchases


3,151


3,018


133





Member redemption liability, long-term


5,181





5,181





Total

$
54,645

$
18,279

$
21,839

$
8,977

$
5,550


---

49

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Commitments
under standby letters of credit at June 30, 2008 are scheduled to expire as follows (in thousands):

Total

Less than
1 Year

1 Year to
Less than
3 Years

3 Years to
Less than
5 Years

More than
5 YearsStandby letters of credit

$
1,895

$
933

$
866

$
16

$
80


Standby
letters of credit are maintained pursuant to certain of our lease arrangements. The standby letters of credit remain in effect at declining levels through the terms of the
related leases.

Other Commitments

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business
partners, and other parties with respect
to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by
third-parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers and employees that will require us, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service as directors, officers or employees. We have also agreed to indemnify certain former officers, directors and employees
of acquired companies in connection with the acquisition of such companies, and under the proposed merger agreement with FTD we are required to indemnify FTD's officers and directors for certain
claims. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and certain of our officers and employees, and former
officers, directors and employees of acquired companies, in certain circumstances.

It
is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique
facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.

Off-Balance Sheet Arrangements

At June 30, 2008, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or
future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

Business Combinations

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations. SFAS
No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition
date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 141(R) is effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early
adoption is prohibited. SFAS No. 141(R) requires prospective application for all acquisitions after the date of adoption. We expect SFAS No. 141(R) to have an impact on our consolidated
financial statements when effective, but the timing, nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisitions we consummate after the effective
date. We will continue to evaluate the impact of the adoption of SFAS No. 141(R).

50

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Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51.SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated
financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 160 is effective for financial statements issued for
fiscal years beginning after December 15, 2008. Early adoption is prohibited. We have not yet determined the effect on our consolidated financial statements, if any, upon adoption of SFAS
No. 160.

Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities

In June 2008, the FASB issued Staff Position ("FSP") EITF Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities("FSP
EITF 03-6-1"), in which the FASB concluded that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends (such as restricted
stock units granted by the Company) are considered participating securities. Because the awards are considered participating securities, the issuing entity is required to apply the
two-class method of computing basic and diluted earnings per share. The provisions of FSP EITF 03-6-1 will be effective for us on January 1, 2009 and
will be applied retroactively to all prior-period earnings per share computations. We have not yet determined the effect on our earnings per share amounts upon adoption of FSP
EITF 03-6-1.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks arising from transactions in the normal course of business, principally risk associated with
interest rate and foreign currency fluctuations.

Interest Rate Risk

We have interest rate risk as well as market rate risk primarily related to our short-term investments portfolio. As a
result, we are exposed to the impact of interest rate changes and changes in the market values of our investments. Our interest income is sensitive to changes in the general level of U.S. interest
rates.

We
maintain a short-term investments portfolio consisting, at times, of U.S. commercial paper, U.S. corporate notes, U.S. Government or U.S. Government agencies obligations,
and municipal securities, including auction rate securities. We have not used derivative financial instruments in our short-term investments portfolio. Our primary objective in managing
our short-term investments is the preservation of principal and liquidity while maximizing yield without significantly increasing risk. The minimum long-term credit rating is
A, and if a long-term credit rating is not available, we require a minimum
short-term credit rating of A1 and P1. Furthermore, by policy, we limit the amount of credit exposure to any one issuer. Our short-term investments, at times in both
fixed-rate and variable-rate interest-earning instruments, carry a degree of interest rate risk. Fixed-rate securities may have their fair market value adversely
impacted due to a rise in interest rates, while variable-rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment
income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal by selling securities which have declined in market value due to changes in interest rates.

Our
short-term investments at June 30, 2008 consisted of municipal securities, U.S. Government agencies securities and U.S. corporate notes. As a result of the recent
adverse conditions in the U.S. credit markets, during 2007, we liquidated, without any losses in principal, our investments in auction rate securities and did not hold any auction rate securities in
our portfolio at June 30, 2008. We classify all of our short-term investments as available-for-sale. Available-for-sale securities
are carried at fair value, with unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. At June 30, 2008, gross unrealized gains and gross unrealized
losses in our short-term investments aggregated $423,000 and $42,000, respectively.

During
the quarter ended June 30, 2008, our short-term investments portfolio yielded an effective annualized interest rate of 2.04% and an annualized taxable
equivalent yield of 2.59%. If interest rates were to decrease 100 basis points on a sustained parallel basis throughout the remainder of the year, the result would be an annualized decrease in our
interest income related to our short-term investments and cash and cash equivalents of approximately $1.4 million.

Foreign Currency Risk

We transact business in different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign
currency exchange rates, particularly the Indian Rupee (INR) and the Euro, which may result in a gain or loss of earnings to us. The volatilities of the INR and the Euro (and all other applicable
foreign currencies) are monitored by us throughout the year. We face two risks related to foreign currency exchange rates: translation risk and transaction risk. Amounts invested in our foreign
operations are translated into U.S. dollars using period-end exchange rates. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income in
stockholders' equity. Our foreign subsidiaries generally collect revenues and pay expenses in currencies other than the U.S. dollar. When the functional currencies of our foreign operations are
denominated in the local currency of our subsidiaries, the foreign currency translation adjustments are reflected as a

52

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component
of stockholders' equity and do not impact our operating results. Net foreign currency transaction gains or losses arising from transactions in our foreign operations denominated in
currencies other than the local functional currency are included in other income (expense), net in the consolidated statements of operations. Revenues and expenses in foreign currencies translate into
higher or lower revenues and expenses in U.S. dollars as the U.S. dollar weakens or strengthens against other currencies. Therefore, changes in foreign currency exchange rates may negatively affect
our consolidated revenues and expenses. The effect of foreign currency exchange rate fluctuations for the quarter and six months ended June 30, 2008 was not material to our consolidated results
of operations. While we have not engaged in foreign currency hedging, we may in the future use hedging programs, including currency forward contracts, currency options and/or other derivative
financial instruments commonly utilized to reduce financial market risks, if it is determined that such hedging activities are appropriate to reduce risk.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of
the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such
period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.

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PART IIOTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

In April 2001 and in May 2001, lawsuits were filed in the United States District Court for the Southern District of New York against
NetZero, Inc. ("NetZero"), certain officers and directors of NetZero and the underwriters of NetZero's initial public offering, Goldman Sachs Group, Inc., BancBoston Robertson
Stephens, Inc. and Salomon Smith Barney, Inc. A consolidated amended complaint, which is the operative complaint, was filed in April 2002. The complaint alleges that the prospectus
through which NetZero conducted its initial public offering in September 1999 was materially false and misleading because it failed to disclose, among other things, that (i) the underwriters
had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the restricted number
of NetZero shares issued in connection with the offering; and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate NetZero shares to
those customers in the offering in exchange for which the customers agreed to purchase additional NetZero shares in the aftermarket at pre-determined prices. Plaintiffs are seeking
injunctive relief and damages. The case against NetZero was coordinated with approximately 300 other suits filed against more than 300 issuers that conducted their initial public offerings between
1998 and 2000, their underwriters and an unspecified number of their individual corporate officers and directors. On October 13, 2004, the district court certified a class in six of the other
nearly identical actions (the "focus cases"). The underwriter defendants appealed the decision and the United States Court of Appeals for the Second Circuit vacated the district court's decision
granting class certification on December 5, 2006. Plaintiffs filed a petition for rehearing. On April 6, 2007, the Second Circuit denied
the petition, but noted that the plaintiffs could ask the district court to certify a more narrow class than the one that was rejected. Prior to the Second Circuit's decision, the majority of issuers,
including NetZero, and their insurers had submitted a settlement agreement to the district court for approval. In light of the Second Circuit opinion, the parties agreed that the settlement could no
longer be approved, and on June 25, 2007, the court approved a stipulation filed by the plaintiffs and the issuers which terminated the proposed settlement. On August 14, 2007, the
plaintiffs filed Second Amended class action complaints in the focus cases. The issuers' motion to dismiss the Second Amended class action complaints has been granted in part and denied in part. A
ruling on the plaintiffs' motion for class certification in the focus cases is pending.

On
March 6, 2006, plaintiff Anthony Piercy filed a purported consumer class action lawsuit in the Superior Court of the State of California, County of Los Angeles, against NetZero
claiming that NetZero continues to charge consumers fees after they cancel their Internet access account. On July 27, 2006, plaintiff Donald E. Ewart filed a purported consumer class action
lawsuit in the Superior Court of the State of California, County of Los Angeles, against NetZero containing substantially similar allegations to the Piercy case. Plaintiffs in both cases are seeking
injunctive and declaratory relief and damages. NetZero filed a response to both lawsuits denying the material allegations of the complaints. Both Messrs. Piercy and Ewart subsequently withdrew
from the actions as class representatives. On March 16, 2007, Barbara Rasnake and Robert Du Verger were substituted as purported class representatives. On May 25, 2007, the court
consolidated the actions under the captionRasnake v. NetZero, Inc. On July 13, 2007, the plaintiffs filed a consolidated amended class action
complaint at which time Peter Chrisler was also substituted as a purported class representative. A settlement agreement has been entered into by all parties in this case and will be presented to the
court for preliminary approval on August 12, 2008.

The
pending lawsuits involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to defend. Although we do not
believe the outcome of the above outstanding legal proceedings, claims and litigation will have a material adverse effect on our business, financial position, results of operations or cash flows, the
results of legal

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proceedings,
claims and litigation are inherently uncertain and we cannot assure you that we will not be materially and adversely impacted by the results of such proceedings. At June 30, 2008,
we had not established allowances for losses relating to any of the matters described above, with the exception of the Rasnake v. NetZero matter.

We
are subject to various legal proceedings, claims and litigation that arise in the ordinary course of business. Based on information at this time, we believe the amount, and ultimate
liability, if any, with respect to these actions will not materially affect our business, financial position, results of operations or cash flows. We cannot assure you, however, that such actions will
not materially and adversely affect our business, financial position, results of operations, or cash flows.

ITEM 1A.    RISK FACTORS

RISKS RELATING TO OUR CLASSMATES MEDIA SEGMENT

We expect to face increasing competition that could result in a loss of users and reduced revenues and decreased profitability.

The market for our services is competitive, and we expect competition to significantly increase in the future. Our social networking
services compete with a wide variety of social networking Web sites, including broad social networking Web sites such as MySpace and Facebook; a number of specialty Web sites, including LinkedIn,
Reunion.com and Monster.com's Military.com service, that offer online social networking services based on school, work or military communities; and an increasing number of schools, employers and
associations that maintain their own Internet-based alumni information services. We also compete with a wide variety of Web sites that provide users with alternative networks and ways of locating and
interacting with acquaintances from various affiliations, including Web portals such as Yahoo!, MSN and AOL, and online services designed to locate individuals such as White Pages and US Search. As
Internet search engines continue to improve their technology and their ability to locate individuals, including by finding individuals through their profiles on social networking Web sites, these
services will increasingly compete with our services. As a result of the growth of the social networking market and minimal barriers to entry, a number of companies have entered or are attempting to
enter our market, either directly or indirectly, some of which may become significant competitors in the future. In addition, many existing social networking services are broadening their service
offerings to compete with our services. As we broaden our services and also evolve into a service used for meeting new people with similar interests or affiliations, we may compete with the increasing
number of social networking Web sites for special niches and areas of interest.

The
market for loyalty marketing services is highly competitive, and we expect competition to significantly increase in the future as loyalty marketing programs grow in popularity. Our
MyPoints loyalty marketing business faces competition for members from several other online loyalty marketing programs, including Ebates, Upromise, FatWallet, and Inboxdollars. We also face
competition from offline loyalty marketing programs that have a significant online presence, such as those operated by credit card, airline and hotel companies.

Some
of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater financial, technical, sales, and marketing
resources, and engage in more extensive research and development than we do. Some of our competitors also have lower customer acquisition costs than we do and offer a wider variety of services. If our
competitors are more successful than we are in attracting users, our ability to maintain a large and growing user base will be adversely affected. Some of our social networking competitors have more
compelling Web sites with more extensive user-generated content and offer their services free to their users. If our social networking services are not as compelling and we do not stay
current with evolving consumer trends, we may not succeed in maintaining or increasing our membership base. If our competitors provide similar services for free, we may not be able to charge for any
of our services. Competition could have

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a
material adverse affect on our subscription revenues from social networking services, as well as on advertising revenues from our social networking and loyalty marketing services. More intense
competition could also require us to increase our marketing expenditures. As a result of competition, our revenues and profitability could be adversely affected.

Failure to increase or maintain the number of pay accounts for our social networking services could cause our business and financial results to suffer.

We may not be successful in increasing or maintaining the number of pay accounts for our social networking services. Only a small
percentage of members initially registering for our social networking services sign up for a paid subscription at the time of registration. As a result, our ability to generate subscription revenue is
highly dependent on our ability to convince free members to return to our Web sites and become pay accounts. The number of free members returning to our Web sites has decreased from time to time, and
if we were to continue to experience such decreases, it would likely adversely impact our number of pay accounts.

Although
we have recently experienced an increase in the number of pay accounts, this trend may not continue at the same rate, or at all. We believe that most of our pay accounts elect
to purchase our services as a result of a limited number of features. For example, we believe that our Classmates Online digital guestbook feature is responsible for a significant portion of the
increase in our new pay accounts since the end of 2006. In addition, international pay accounts are becoming an increasingly large component of our pay account mix and have constituted a significant
portion of our growth in pay accounts. If our social networking pay features are not as compelling and we do not stay current with evolving consumer trends, our free members may not subscribe for our
pay features. Any decrease in our conversion rate of free members to pay accounts could adversely affect our business and financial results.

A
number of our social networking pay account subscriptions each month are not renewed or are cancelled which we refer to as "churn." The level of churn we experience fluctuates from
quarter to quarter due to a variety of factors, including our mix of subscription terms, which affects the timing of subscription expirations. We must continually add new social networking pay
accounts both to replace pay accounts who churn and to grow our business beyond our current pay account base. We expect that our churn rate will continue to fluctuate from period to period. A
significant majority of our pay accounts are on plans that automatically renew at the end of their subscription period and we have received complaints with respect to our renewal policies. Any change
in our renewal policies or practices could have a material impact on our churn rate. If we experience a higher than expected level of churn, it will make it more difficult for us to increase or
maintain the number of pay accounts for our services, which could reduce our revenues and adversely affect our financial results.

Failure to increase or maintain the number of free members for our social networking services could cause our business and financial results to suffer.

The success of our social networking services depends upon our ability to increase or maintain our base of free members because we
generate new pay accounts and advertising revenues from our free member base. Our ability to increase our base of free members is dependent upon attracting users to our Web sites. From time to time,
we have experienced decreases in the number of new free member registrations, and we may not be able to increase or maintain the level of new free member registrations. Failure to increase or maintain
our base of free members could have a material adverse effect on our business, our ability to implement our strategies, and our financial results.

We
use online advertising to promote our social networking services to potential new free members. Most of our online advertising arrangements are structured such that we pay a fee for
each new free account registration generated through a particular advertisement. The cost of online

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advertising
has increased from time to time, which has resulted in an increase in our marketing expenditures. If the cost of online advertising continues to escalate, we may experience decreases in
the number of new account registrations unless we increase our marketing expenditures. Increases in our marketing expenditures could adversely impact our profitability, and there can be no assurance
that our marketing activities will be successful.

If we are not successful in increasing or maintaining the number of our loyalty marketing service members, and in convincing members to actively participate in our program,
our business and financial results will suffer.

The success of our MyPoints loyalty marketing service is dependent upon our ability to maintain and expand our active member base. The
majority of our new loyalty marketing members are derived from a limited number of co-registration sources, which are services that generate new member registrations for MyPoints and
unrelated third-party services. The loss of any of these sources of new member registrations, a decrease in the number of new members acquired through these sources or an increase in the cost to
acquire new members through these sources could have an adverse affect on our loyalty marketing service. In addition, we generate a significant portion of our loyalty marketing service revenues from
the activity of a small percentage of MyPoints members. If the advertising campaigns directed to our MyPoints members and the rewards offered are not sufficiently compelling, we may not be able to
maintain or increase the percentage of our MyPoints members who actively participate in our loyalty marketing service. If we are unable to increase or maintain the number of new MyPoints members and
convince existing members to actively participate in our service, our business and financial results would be adversely affected.

If our social networking members do not interact with our Web sites, our business and financial results will suffer.

Our success is dependent upon our social networking members interacting with our Web sites. Currently, the network effect on our social
networking Web sites is limited, and the vast majority of our member activity is within our high school communities. Our members do not visit our Web sites frequently and spend a limited amount of
time on our Web sites when they visit. In addition, only a limited number of our social networking members post photographs and information about themselves, engage in message board discussions, view
other members' profiles or participate in the other features on our Web sites. If we are unable to convince our members to interact more frequently with our social networking Web sites and to increase
the amount of user-generated content they provide, our ability to attract new users to our Web sites, convert free members to pay accounts and attract advertisers to our Web sites will be
adversely affected. As a result, our business and financial results will suffer, and we will not be able to grow our business as planned.

Our social networking and loyalty marketing businesses rely heavily on email campaigns, and any restrictions on the sending of emails could adversely affect our results of
operations.

Our businesses are highly dependent upon email. Our emails generate the majority of the traffic on our social networking Web sites and
are the most important driver of member activity for our loyalty marketing service. Each month, a significant number of email addresses for our social networking and loyalty marketing members become
invalid. This disrupts our ability to email these members. Further, social networking members cannot contact or interact online with members with invalid emails, which undermines a key reason that
members use our social networking services. Due to the importance of email to our businesses, if we are unable to successfully deliver emails to our members, our revenue and profitability would be
adversely affected.

With
respect to those members for whom we do have valid email addresses, a significant number of our social networking members elect to opt out of receiving our subscription-based
emails, such as

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Classmates
Connections. Without the ability to email these members, we have very limited means of otherwise notifying those members of updates to their affiliations in order to persuade such members
to return to our Web sites. If there is an increase in the number of members who opt out of receiving our subscription-based emails and if we are unable to find other ways to convince such members to
return to our Web sites, our business and results of operations could be adversely affected.

The
CAN-SPAM Act regulates the distribution of commercial emails. Among other things, the CAN-SPAM Act provides a right on the part of an email recipient to
request the sender to stop sending certain categories of email messages. In compliance with the CAN-SPAM Act, we do not send commercial emails to our members if they elect to opt out of
receiving these emails, and a significant number of our members have opted out of receiving commercial emails from us. An increase in the number of members who opt out of receiving commercial emails
from us could adversely affect our business and results of operations. In addition, voluntary actions by third-parties to block, impose restrictions on, or charge for, the delivery of emails through
their email systems could materially and adversely impact our businesses. From time to time, Internet service providers block bulk email transmissions or otherwise experience technical difficulties
that result in our inability to successfully deliver emails to our members. Any disruption or restriction on the distribution of emails or increase in the associated costs could adversely impact our
ability to continue our email campaigns, which could materially and adversely affect our revenues and profitability.

Our international operations and plans for international expansion may not be successful.

We have invested significantly in expanding our social networking services into several international markets, primarily Sweden,
Germany, France and Austria, and international pay accounts now constitute a significant portion of our pay account growth. One of our strategies is to continue the expansion of our social networking
services into additional international markets. We intend to continue to invest in our international operations, including through the expansion of our services into new markets. However, the
investment of additional resources may be restricted as a result of the terms of the indebtedness which we anticipate incurring in connection with the proposed acquisition of FTD Group, Inc.
(the "Acquisition") and may not produce desired levels of revenue or profitability, and we may not be successful in expanding into new markets. Managing a global organization can be difficult, time
consuming and expensive. We have limited experience operating in foreign jurisdictions which may increase the risk that any international expansion efforts we undertake will not be successful. In
addition, conducting international operations involves additional risks and uncertainties, including:



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The
occurrence of any one of these risks could negatively affect our international operations, our number of pay accounts and our financial results.

RISKS RELATING TO OUR COMMUNICATIONS SEGMENT

Our business will suffer if we are unable to compete successfully.

Our principal Communications services, our Internet access services, compete with many emerging and seasoned competitors, including the
following:



Our
primary Communications service offering is dial-up Internet access. Our historical success in competing for Internet access subscribers has been based primarily on
offering dial-up Internet access services at prices lower than the prices of our principal competitors. However, in the last few years the market has changed dramatically due to a variety
of factors including increased availability of broadband services, decreases in broadband pricing and widespread consumer adoption of applications that require a broadband connection.
Dial-up Internet access services do not compete favorably with broadband services with respect to connection speed, and dial-up Internet access services no longer have a
significant, if any, price advantage over certain broadband services. As a result, dial-up Internet access services have an increasingly difficult time competing with broadband services
and the number of dial-up accounts in the United States continues to decline. In addition to competition from broadband providers, competition among dial-up Internet access
service providers is intense and neither our pricing nor our features provide us with a significant competitive advantage, if any, over certain of our dial-up competitors. We expect that
competition, particularly with respect to price, both for broadband as well as dial-up Internet access services, will continue, and that our dial-up Internet access subscriber
base will continue to decrease, potentially at an increasing rate.

In
the fourth quarter of 2006, we began offering digital subscriber line ("DSL") services by purchasing and reselling DSL services acquired through third-party providers.
The providers from whom we purchase such services are either our direct competitors or acquire their services from our

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competitors.
We currently have agreements with only a limited number of providers and their services cover only a portion of the U.S. There is no assurance that we will be successful in entering into
the agreements necessary to offer DSL services on a significant scale, that we will be able to maintain such agreements or that the pricing under such agreements will enable us to profitably resell
the services. Most of the largest providers of broadband services, such as cable and telecommunications companies, control their own networks and offer a wider variety of services than we offer,
including phone, data and video services. Their ability to bundle services and to offer broadband services at prices below the price that we can profitably offer comparable services puts us at a
competitive disadvantage. Decreases in retail broadband pricing as a result of competition would adversely impact our ability to offer such services profitably or at a competitive price. We only have
a limited number of subscribers to our DSL services and there can be no assurance that our DSL services will be commercially successful.

In
order to compete effectively we may have to make significant revisions to our services, pricing and marketing strategies, and business model. For example, we may have to lower our
introductory rates, offer additional free periods of service, offer additional features at little or no additional cost to the consumer, and/or reduce the standard pricing of our services. Measures
such as these could decrease our revenues and our average revenue per Internet access pay account. We may also have to allocate more marketing resources toward our Internet access services than we
anticipate. All of the foregoing could adversely affect the profitability of our Internet access services which could materially and adversely impact our financial position, results of operations and
cash flows.

Revenues and profitability of our Communications segment are expected to decrease.

Substantially all of our Communications revenues and profits come from our dial-up Internet access services. As a result of
expected continued decreases in our dial-up Internet access pay accounts and, potentially, the average monthly revenue per pay account, we expect that our Communications billable services
revenues and the profitability of this segment will continue to decline over time. The rate of decline in billable services revenues has accelerated in some periods and may continue to accelerate. We
also expect that our Communications advertising revenues will continue to decline. Continued declines, particularly if such declines accelerate, in Communications revenues may materially and adversely
impact the profitability of this segment and the Company as a whole.

If we are unable to retain users, our business and financial results will suffer.

A number of our Communications pay account subscriptions each month are not renewed or cancelled, which we refer to as churn. We have
experienced, and will likely continue to experience, a higher percentage of churn with respect to our accelerated dial-up Internet access services than is indicated by our overall
Communications churn rate. Our churn, which may be higher in future periods, makes it more difficult to minimize decreases in the number of pay accounts for our Communications services, which
adversely impacts our revenues. Each month, a significant number of free dial-up Internet access accounts become inactive and it is likely that we will continue to experience declines in
the number of active free accounts.

Our Internet access business is dependent on our ability to effectively manage our telecommunications and network capacities.

Our Internet access business substantially depends on the capacity, affordability, reliability, and security of our telecommunications
networks. Our failure to accurately anticipate our future telecommunications capacity needs within lead-time requirements could result in unnecessary capacity or inadequate service. Only a
small number of telecommunications providers offer the network and data services we currently require, and we purchase most of our telecommunications services from a few providers. Some of our
telecommunications services are provided pursuant to short-term agreements that the providers can terminate or elect not to renew. Vendors may experience significant

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financial
difficulties and be unable to perform satisfactorily or to continue to offer their services. The loss of vendors has resulted, and may result, in increased costs, decreased service quality
and the loss of users. If we are unable to maintain, renew or obtain new agreements with the third-party providers of our telecommunications services, or to secure new or alternative arrangements with
other providers, to provide the scope, quantity, quality, type, and pricing of services to meet our current and future needs, our business, financial position, results of operations, and cash flows
could be materially and adversely affected.

RISKS RELATING TO OUR BUSINESS GENERALLY

We may be unable to maintain or grow our advertising revenues. Reduced advertising revenues may reduce our profits.

Advertising revenues are a critical component of our revenues and profitability. Our revenues from advertising have in the past
fluctuated, and may in the future fluctuate, due to a variety of factors including, without limitation, the effect of key advertising relationships, competition, changes in our business models,
changes in the online advertising market, changes in our advertising inventory, and changes in usage. In particular, we derive significant revenues from search on our Communications services, from
post-transaction sales on our Classmates Online service and from certain other advertising initiatives or partners across our services, and any termination, change or decrease in revenues
from these sources could have a material impact on our advertising revenues. The Internet advertising field continues to evolve with many different advertising networks, Web publishers, and other
providers competing with one another and providing different types of advertising solutions, and our internal sales force competes with some or all of these solutions for advertising dollars. We also
compete with television, radio, print, and other offline sources for advertising dollars. Internet advertising techniques are evolving, and if our technology and advertising serving techniques do not
keep up with the needs of advertisers, we will not be able to compete effectively. There can be no assurance our advertising initiatives will be effective or that we will successfully compete with
third-parties, and our advertising revenues may decline in future periods. Advertising inventory in our Communications segment continues to decline as a result of the decrease in our
dial-up access accounts, and we anticipate decreased advertising revenues in the Communications segment which will adversely impact our profitability.

Our business is subject to fluctuations.

Our results of operations and changes in the number and mix of pay accounts from period to period have varied in the past and may
fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and difficult to predict. A number of factors that may impact us are discussed in greater
detail in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission ("SEC"), and these factors may affect us from period to period and
may affect our long-term performance. As a result, you should not rely on period-to-period comparisons as an indication of future or long-term
performance. In addition, these factors create difficulties with respect to our
ability to forecast our financial performance and business metrics accurately. We believe that these difficulties in forecasting present even greater challenges for financial analysts who publish
their own estimates of our future financial results and business metrics. We cannot assure you that we will achieve the expectations or projections made by our management or by the financial analysts.
In the event we do not achieve such expectations or projections, our financial results and the price of our common stock could be adversely affected.

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Our marketing activities may not be successful.

We spend significant funds to market our services and rely on a variety of channels to obtain new accounts. If our marketing activities
or our channels prove to be ineffective, or if the cost to acquire new accounts increases, our financial results could be materially and adversely impacted.

We may be unsuccessful at acquiring additional businesses, services or technologies. Even if we complete an acquisition (including the Acquisition), it may not improve our
results of operations and may adversely impact our business and financial condition.

One of our strategic objectives is to acquire businesses, services or technologies that will provide us with an opportunity to
diversify the services we offer, leverage our assets and core competencies, expand our geographic reach or that otherwise may be complementary to our existing businesses. We may not succeed in growing
or maintaining our revenues unless we are able to successfully complete acquisitions. The merger and acquisition market for companies offering Internet services is extremely competitive, particularly
for companies who have demonstrated a profitable business model with long-term growth potential. Companies with these characteristics trade publicly or are privately valued at multiples of
earnings, revenues, operating income, and other metrics significantly higher than the multiples at which we are currently valued. In April 2008, we signed a definitive merger agreement to acquire FTD.
Acquisitions, including the Acquisition, may require us to obtain debt or equity financing, which may not be available to us on reasonable terms, or at all. In addition, negotiating these transactions
can be time-consuming, difficult and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. These and other factors may make
it difficult for us to acquire additional businesses, services or technologies at affordable prices, or at all, and there is no assurance that we will be successful in completing additional
acquisitions.

We
have evaluated (both in light of the Acquisition and on a stand-alone basis), and expect to continue to evaluate, a wide variety of potential strategic transactions that we believe
may complement our current or future business activities. We routinely engage in discussions regarding potential acquisitions and any of these transactions could be material to our financial
condition, results of operations and cash flows. However, we cannot assure you that the anticipated benefits of an acquisition (including the Acquisition) will materialize or that any integration
attempts will be successful. Acquiring a business, service or technology involves many risks, including:



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Any
of these risks could harm our business and financial results.

Risks
specific to the proposed acquisition of FTD include our failure to satisfy any of the conditions to complete the Acquisition; our failure to obtain financing to complete the
Acquisition; our failure to achieve anticipated benefits of the Acquisition; the impact of, and restrictions associated with, the debt incurred in connection with the Acquisition; acquisition costs
being greater than anticipated; unanticipated delays in consummating the Acquisition as a result of regulatory issues or other factors; and risks associated with the combined business of our Company
and FTD, as well as the risk factors discussed from time to time in our and FTD's press releases, public statements and/or filings with the SEC. For a further discussion of some of these risks, see
"Risks Relating to the Proposed FTD Group, Inc. Acquisition" below.

In
addition, an acquisition of a foreign business involves risks in addition to those set forth above, including risks associated with potentially unfamiliar economic, political and
regulatory environments and integration difficulties due to language, cultural and geographic differences.

We may not successfully develop or acquire and market new services and features in a timely or cost-effective manner; consumers or advertisers may not accept our
new services and features.

We may not be able to compete effectively if we are not able to timely and cost-effectively adapt to changes in technology
and industry standards or develop or acquire and successfully commercialize new and enhanced services and features. New services or features may be dependent on our obtaining needed technology or
services from third-parties, which we may not be able to obtain in a timely manner upon terms acceptable to us, or at all. We have expended, and may in the future expend, significant resources
enhancing our existing services and features and developing, acquiring and implementing new services or features. Product development involves a number of uncertainties, including unanticipated delays
and expenses. New or enhanced services and features may have technological problems or may not be accepted by consumers or advertisers. For example, our VoIP and photo sharing services did not meet
with commercial success. We cannot assure you that we will be successful in developing, acquiring or implementing new or enhanced services or features, or that new or enhanced services or features
will be commercially successful.

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Our business is highly dependent on our billing and customer support systems, and on third-parties for technical support and customer support; our business may suffer if
these systems do not function and we cannot perform and provide these services.

Customer billing and service are highly complex processes, and our systems must efficiently interface with other third-parties' systems
such as the systems of credit card processing companies and other companies to whom we outsource these functions. Our ability to accurately and efficiently bill and service our users is dependent on
the successful operation of these systems. We have experienced customer billing and service problems from time to time and may experience additional problems in the future. We currently outsource a
majority of our live technical and billing support functions. We rely on one customer support vendor, and its call centers are located in the Philippines and India. As a result, we maintain only a
small number of internal customer support personnel. We are not equipped to provide the necessary range of customer support functions in the event that our vendor becomes unable or unwilling to offer
these services to us. Problems with our third-party software applications, our internally developed software applications, our credit card processors, our outsourced customer support vendor, other
customer billing and support vendors, and any other failures or errors in our customer billing and support systems, could materially and adversely affect our business, financial position, results of
operations, and cash flows.

If our software or hardware contains errors or fails, if we fail to operate our services effectively or if we encounter difficulties integrating our systems and
technologies, our business could be seriously harmed.

Our services, and the hardware and software systems underlying our services, are complex. Our systems may contain undetected errors or
failures and are susceptible to human error. We have in the past encountered, and may in the future encounter, software and
hardware errors, system design errors, errors in the operation of our systems, and technical and customer support issues associated with our services and software releases. This has resulted in, and
may in the future result in, a number of adverse consequences, which have included or may include:



A
number of our material technologies and systems are based on different platforms. To the extent we attempt to integrate these technologies and systems, we may experience a number of
difficulties, errors, failures, and unanticipated costs. In addition, our business relies on third-party software for various applications including, without limitation, our internal operations, our
billing and customer support, our accelerated dial-up Internet access services, and our advertising products and services. Any significant failure of this software could materially and
adversely affect our business, financial position, results of operations, and cash flows. Our services also rely on their compatibility with other third-party systems, particularly operating systems.
Incompatibility with future changes to third-party software upon which our systems rely could materially affect our ability to deliver our services. We cannot assure you that we will not experience
significant technical problems with our services in the future.

A security breach or inappropriate access to, or use of, our networks, computer systems or services could expose us to liability, claims or a loss of revenue.

The success of our business depends on the security of our networks and, in part, on the security of the network infrastructures of our
third-party vendors. Unauthorized or inappropriate access to, or use of, our networks, computer systems or services could potentially jeopardize the security of

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confidential
information, including credit card information, of our users and of third-parties. Third-parties have in the past used our networks, services and brand names to perpetrate crimes, such as
identity theft or credit card theft, and may do so in the future. Users or third-parties may assert claims of liability against us as a result of any failure by us to prevent security breaches,
unauthorized disclosure of user information or other such activities. Although we use security measures that we believe to be effective by industry standards, we cannot assure you that the measures we
take will be successfully implemented or will be effective in preventing these types of activities. We also cannot assure you that the security measures of our third-party network providers, providers
of customer and billing support services or other vendors will be adequate. In addition to potential legal liability, these activities may adversely impact our reputation or our revenues and may
interfere with our ability to provide our services, all of which could adversely impact our business.

Harmful software programs such as viruses could disrupt our business.

Our business is dependent on the continued acceptance of the Internet as an effective medium. Damaging software programs, such as
computer viruses, worms and Trojan horses, have from time to time been disseminated through the Internet and have caused significant disruption to Internet users. Certain of these programs have
disabled the ability of computers to access the Internet, requiring users to obtain technical support in order to gain access to the Internet. Other programs have had the potential to damage or delete
computer programs. The development and widespread dissemination of harmful programs has the potential to seriously disrupt Internet usage. If Internet usage is significantly disrupted for an extended
period of time, or if the prevalence of these programs results in decreased residential Internet usage, our business could be materially and adversely impacted. In addition, actions taken by us or our
telecommunications providers to attempt to minimize the spread of harmful programs could adversely impact our users' ability to utilize our services.

Our failure to protect our proprietary rights could harm our business.

Our trademarks, patents, copyrights, domain names and trade secrets are important to the success of our business. We principally rely
upon patent, trademark, copyright, trade secret and contract laws to protect our proprietary technology, all of which provide only limited protection. The protection of our proprietary rights may
require the expenditure of significant financial and internal resources. We cannot assure you that we have taken adequate steps to prevent misappropriation of our proprietary rights. Our failure to
adequately protect our proprietary rights could adversely affect our brands and could harm our business.

Legal actions, particularly those associated with proprietary rights, could subject us to substantial liability and expense and require us to change our business practices.

We are currently, and have been in the past, party to various legal actions. These actions include, without limitation, claims by
private parties in connection with consumer protection and other laws, claims that we infringe third-party patents, claims in connection with employment practices, securities laws claims, breach of
contract claims, and other business-related claims. The nature of our business could subject us to additional claims for similar matters, as well as a wide variety of other claims including, without
limitation, claims for defamation, negligence, trademark infringement, copyright infringement, and privacy matters. Various governmental agencies may also assert claims, institute legal actions,
inquiries or investigations, or impose obligations relating to our business practices, such as our marketing, billing, customer retention, renewal, cancellation, refund, or disclosure practices.

Defending
against lawsuits, inquiries and investigations involves significant expense and diversion of management's attention and resources from other matters. We may not prevail in
existing claims or claims that may be made in the future. The failure to successfully defend against certain types of claims, including claims based on infringement of proprietary rights, could
require us to change our

65

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business
practices or obtain licenses from third-parties, which licenses may not be available on acceptable terms, if at all. Lawsuits, inquiries and investigations also involve the risk of
significant settlements or judgments against us. Both the cost of defending claims, as well as the effect of settlements and judgments, could cause our results of operations to fluctuate significantly
from period to period and could materially and adversely affect our business, financial position, results of operations, and cash flows.

We may not realize the benefits associated with our assets and may be required to record a significant charge to earnings if we are required to expense certain costs or
impair our assets.

We have capitalized goodwill and other intangible assets in connection with our acquisitions. We evaluate the recoverability of our
identifiable intangible assets and other long-lived assets for impairment when events occur or circumstances change that would indicate that the carrying amount of an asset may not be
recoverable. In addition, we perform an impairment test of our goodwill annually during the fourth quarter of our fiscal year or when events occur or circumstances change that would more likely than
not indicate that goodwill might be permanently impaired. If our acquisitions are not commercially successful, we would likely be required to record impairment charges which would negatively impact
our financial condition and results of operations. For example, in the fourth quarter of 2006, we impaired certain long-lived assets associated with our VoIP services and certain goodwill
and intangible assets associated with the acquisition of our photo sharing services. We have experienced impairment charges in the past, and we cannot assure you that we will not experience such
charges in the future. In addition, from time to time, we record assets on our balance sheet that, due to changes in value or in our strategy, may have to be expensed in future periods. In connection
with the proposed acquisition of FTD, we have incurred and capitalized approximately $6.5 million of acquisition costs through June 30, 2008, and continue to incur and capitalize such
costs, which we will have to expense in a future period if the Acquisition does not occur. Write-downs or impairments of assets, whether tangible or intangible, could adversely and materially impact
our financial condition and results of operations.

Our ability to operate our business could be seriously harmed if we lose members of our senior management team or other key employees.

Our business is largely dependent on the efforts and abilities of our senior management, particularly Mark R. Goldston, our chairman,
president and chief executive officer, and other key personnel. Any of our officers or employees can terminate his or her employment relationship at any time. The loss of any of these key employees or
our inability to attract or retain other qualified employees could seriously harm our business and prospects. We do not carry key-person life insurance on any of our employees.

Changes in laws and regulation changes and new laws and regulations may adversely affect our results of operations.

We are subject to a variety of international, federal, state, and local laws and regulations, including those relating to issues such
as user privacy and data protection, defamation,
pricing, advertising, taxation, sweepstakes, promotions, billing, content regulation, bulk email or "spam," anti-spyware initiatives, security breaches, and consumer protection. Compliance
with the various laws and regulations, which in many instances are unclear or unsettled, is complex. Any changes in such laws and regulations, the enactment of any additional laws or regulations, or
increased enforcement activity of such laws and regulations, could significantly impact our costs or the manner in which we conduct business, all of which could adversely impact our results of
operations and cause our business to suffer.

The
FTC and certain state agencies have investigated Internet companies, including us, in connection with consumer protection and privacy matters. The federal government has also enacted

66

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consumer
protection laws, including laws protecting the privacy of consumers' nonpublic personal information. Our failure to comply with existing laws, including those of foreign countries in which we
operate, the adoption of new laws or regulations or changes in enforcement policies and procedures could increase the costs of operating our business. To the extent that our services and business
practices change as a result of changes in regulations or claims or actions by governmental agencies, such as the FTC, or claims or actions by private parties, our business, financial position,
results of operations and cash flows could be materially adversely affected.

Currently,
ISPs are considered "information service" providers and regulations that apply to telephone companies and other telecommunications common carriers do not apply to our Internet
access services. However, our Internet access services could become subject to Federal Communications Commission and state regulation as Internet access services and telecommunications services
converge. If the regulatory status of ISPs changes, our business may be adversely affected. The Internet Tax Freedom Act, which placed a moratorium on new state and local taxes on Internet commerce,
is in effect through November 2014. However, future laws imposing taxes or other regulations on the provision of goods and services over the Internet could make it substantially more expensive to
operate our business.

Our business could be shut down or severely impacted by a catastrophic event.

Our computer equipment and the telecommunications infrastructure of our third-party network providers are vulnerable to damage from
fires, earthquakes, floods, power loss, telecommunications failures, terrorism, and similar events. We have experienced situations where power loss and telecommunications failures have adversely
impacted our services, although to date such failures have not been material to our operations. Despite our implementation of network security measures, our servers are also vulnerable to computer
viruses, worms, physical and electronic break-ins, sabotage, and similar disruptions from unauthorized tampering of our computer systems. In addition, a significant portion of CMC's
critical computer equipment, including
data centers, is located in areas of the states of California and Washington that are particularly susceptible to earthquakes, and a significant portion of our Classmates Online subsidiary's computer
equipment and data centers are also located in a flood plain. While we maintain redundant capabilities for our data centers, a disaster could result in a significant and extended disruption of our
operations and services. Any prolonged disruption of our services due to these or other events would severely impact or shut down our business. We do not carry earthquake or flood insurance, and the
property, business interruption and other insurance we do carry may not be sufficient to cover, if at all, losses that may occur as a result of any events which cause interruptions in our services.

Our business could be severely impacted due to political instability or other factors in India or the Philippines.

We have a significant number of employees located in our India office. In addition, a significant portion of our customer support is
handled by a third-party vendor with customer support agents located in call centers in India and the Philippines. Our internal product development, customer support and quality assurance operations
as well as our third-party vendor's customer support operations would be severely disrupted if telecommunications issues, political instability, labor strife or other factors adversely impacted these
operations or the ability to communicate with these operations. Any disruption that continued for an extended period of time would likely have a material adverse effect on our ability to service our
customers and develop our products and services. If we or our customer support vendor were to cease operations in India or the Philippines and transfer these operations to another geographic area,
such change could result in increased overhead and customer service costs which could materially and adversely impact our results of operations.

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There are risks associated with our strategy of an initial public offering of Classmates Media Corporation.

In 2007, we commenced the process for an IPO of our wholly-owned subsidiary, CMC, which filed a Form S-1
registration statement relating to the IPO. The registration statement was withdrawn in December of 2007. While it remains our strategy to complete a CMC IPO, we do not believe it would be completed
before 2009 and there can be no assurance that it will ever be completed.

If
the CMC IPO is completed, CMC would be a new public company and cash flows associated with CMC would likely remain with CMC and would no longer be available for our use. Additionally,
Mark R. Goldston, our chairman, president and chief executive officer, has an employment agreement to serve as the chairman and chief executive officer of CMC. Although we also have an
employment agreement with Mr. Goldston, he will not be dedicated to our business on a full-time basis and the loss of his full-time services could harm our business. We
cannot assure you that a CMC IPO, if completed, will produce any increase in value for our stockholders or will not adversely impact United Online.

We cannot predict our future capital needs and we may not be able to secure additional financing.

We may need to raise additional funds in the future to fund our operations, for acquisitions of businesses, services or technologies or
for other purposes. Additional financing may not be available in a timely manner, on terms favorable to us, or at all. We anticipate incurring substantial indebtedness in connection with the
Acquisition. The terms of such indebtedness in addition to the degree to which we are leveraged will adversely affect our ability to obtain additional financing. If adequate funds are not available or
not available when required and in sufficient amounts or on acceptable terms, our business and future prospects may suffer.

We may stop paying, or reduce, quarterly cash dividends on our common stock.

Commencing with the second quarter of 2005, we have declared and paid a quarterly cash dividend of $0.20 per share of common stock. The
payment of future dividends is discretionary and is subject to determination by our Board of Directors each quarter following its review of our financial condition, results of operations and cash
flows and such other factors as are deemed relevant by our Board of Directors. Our future cash flows may significantly decline due to, among other things, declines in our dial-up Internet
access business and other factors. Our cash balances will also decline if we use our cash to acquire businesses, services or technologies, including our proposed acquisition of FTD; repurchase our
common stock; or for other purposes. To fund the Acquisition, we intend to use a substantial portion of our cash balances and to incur significant indebtedness. The terms of such financing impose
certain restrictions on our ability to pay dividends following the closing of the Acquisition and, as a result of the financing limitations, the cash flows of FTD will, in general, not be available to
us (except for FTD and its subsidiaries). In addition, it remains our strategy to complete an IPO of CMC and, if such offering were consummated, we would no longer receive the cash flow from CMC that
we historically received. These and other changes in our business needs, including working capital and funding for acquisitions, or a change in tax laws relating to dividends, among other factors,
could cause our Board of Directors to decide to cease the payment of, or reduce, the dividend in the future. Following the closing of the Acquisition, we expect to decrease our regular quarterly cash
dividend from $0.20 per share of common stock to $0.10 per
share of common stock. We cannot assure you that we will not decrease or discontinue quarterly cash dividends, and if we do, our stock price could be negatively impacted.

We have anti-takeover provisions that may make it difficult for a third-party to acquire us.

Provisions of our certificate of incorporation, our bylaws and Delaware law could make it difficult for a third-party to acquire us,
even if doing so might be beneficial to our stockholders because of a

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premium
price offered by a potential acquirer. In addition, our Board of Directors adopted a stockholder rights plan, which is an anti-takeover measure that will cause substantial dilution
to a third-party who attempts to acquire our Company on terms not approved by our Board of Directors.

Our stock price has been highly volatile and may continue to be volatile.

The market price of our common stock has fluctuated significantly and it may continue to be volatile with extreme trading volume
fluctuations. In addition, The Nasdaq Global Select Market, where most publicly-held Internet companies are traded, has experienced substantial price and trading volume fluctuations. The
broad market and industry factors that influence or affect such fluctuations may harm the market price of our common stock, regardless of our actual operating performance. As a result of these or
other reasons, we could suffer significant declines in the market price of our common stock.

RISKS RELATING TO THE PROPOSED FTD GROUP, INC. ACQUISITION

The Acquisition may not be completed within the expected timeframe or at all, which may adversely affect our financial results and operations and the market price of our
common stock.

The Acquisition is subject to a number of conditions, some of which may prevent, delay or otherwise materially adversely affect its
completion. We cannot predict whether or when these conditions will be satisfied. Failure to complete, the Acquisition would, and any delay in completing the Acquisition could, prevent us from
realizing the anticipated benefits of the Acquisition. In addition, if the Acquisition is not completed, or is delayed, we may experience negative reactions from the financial markets and our
collaborative partners, customers and employees. Each of these factors may adversely affect the trading price of our common stock and our financial results and operations.

We will incur substantial costs in connection with the Acquisition that may adversely affect our financial results, operations and financial condition and the market price
of our common stock.

We have incurred, and expect to continue to incur, substantial costs associated with the Acquisition. These costs are primarily
associated with the fees of attorneys, accountants and our financial advisors, as well as financing for the Acquisition, and if the Acquisition is completed, debt repayment and employee benefits,
though additional unanticipated costs may also be incurred. In addition, we have diverted significant management resources in an effort to complete the Acquisition and we are subject to restrictions
contained in the merger agreement with FTD on the conduct of our business. In addition, if the Acquisition is not completed, we will have incurred significant costs relating to the diversion of
management resources, for which we will have received little or no benefit. Moreover, substantial unanticipated costs may be incurred in connection with the integration of the business of FTD with our
business. If the Acquisition is not completed, the above risks and liabilities may adversely affect our business, financial results, financial condition, cash flows and stock price.

We are subject to business uncertainties and contractual restrictions while the Acquisition is pending.

Uncertainty about the Acquisition and diversion of management attention could harm the Company, whether or not the Acquisition is
completed. In addition, as a result of the Acquisition, current and prospective employees could experience uncertainty about their future with the Company. The success of the Acquisition will depend
in part on the retention of personnel critical to the business and operation of the Company and the uncertainties discussed above may impair the Company's ability to retain, recruit or motivate key
personnel. The closing of the Acquisition will also require a significant amount of time and attention from management. In addition, the pendency of the Acquisition could exacerbate the diversion of
management resources from other transactions or activities that the Company may undertake. The diversion of management attention away from ongoing operations could adversely affect ongoing operations
and business relationships. The merger agreement

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with
FTD also restricts the Company from making certain acquisitions and taking other specified actions until the Acquisition occurs. These restrictions may prevent the Company from pursuing
attractive business opportunities that may arise prior to the closing of the Acquisition.

The substantial leverage of the Company following the Acquisition could adversely affect its ability to raise additional capital to fund operations, limit its flexibility in
operating its business and its ability to react to changes in the economy or its industry and prevent it from satisfying its debt obligations.

Following the Acquisition, the Company will have a substantial amount of indebtedness. The Company's substantial indebtedness could
have important consequences on its business and financial condition. For example:



Under
the terms of the financing for the Acquisition, the Company will be permitted to incur additional indebtedness subject to certain conditions, and the risks described above may be
increased if the Company incurs additional indebtedness.

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A substantial number of the Company's shares of common stock will become eligible for future resale in the public market after the Acquisition which will have a negative
impact on the earnings per share of the Company and could result in dilution and an adverse effect on the market price of those shares.

If the Acquisition is consummated, shares of the Company's common stock issued as merger consideration will be immediately saleable.
Specifically, the Company and FTD expect that approximately 12.3 million shares of the Company's common stock will be issued to FTD stockholders (based on the number of outstanding shares of
FTD common stock on July 21, 2008, and issuable pursuant to the exercise of all outstanding options to purchase shares of FTD common stock on July 21, 2008). Consequently, after the
closing of the Acquisition, a substantial number of additional shares of the Company's common stock will be eligible for resale in the public market. We expect that the Acquisition will initially
result in lower earnings per share than would have been earned by the Company in the absence of the Acquisition. Based on the expected number of shares of the Company's common stock to be issued to
FTD stockholders in the Acquisition, FTD stockholders will own approximately 15% of the then outstanding shares of the Company's common stock immediately after the Acquisition. There can be no
assurance that our stockholders will realize a benefit from the Acquisition commensurate with the ownership dilution they will experience in connection with the Acquisition. Following the Acquisition,
our stockholders will own interests in a Company operating an expanded business with more assets and a different mix of, and aggregate total of, liabilities. Current stockholders of the Company may
not wish to continue to invest in the additional operations of the Company, or for other reasons may wish to dispose of some or all of their interests in the Company.
Sales of substantial numbers of shares of the Company's common stock in the public market following the Acquisition could adversely affect the market price of our common stock.

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)-(b) Not applicable

(c)       Common Stock Repurchases

In May 2001, our Board of Directors authorized a common stock repurchase program (the "program") that allows us to repurchase shares of
our common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. From time to time, our Board of Directors has increased the amount
authorized for repurchase under this program and has extended the program. In April 2004, our Board of Directors authorized us to purchase up to an additional $100 million of our common stock
under the program, bringing the total amount authorized under the program to $200 million. In January 2008, our Board again further extended the program through December 31, 2008. At
June 30, 2008, we had repurchased $139.2 million
of our common stock under the program, leaving $60.8 million of authorization remaining under the program.

Shares
withheld upon vesting of restricted stock units and issuance of stock awards to pay applicable employee withholding taxes are considered common stock repurchases, but are not
counted as purchases against the program. Upon vesting of restricted stock units or issuance of stock awards, we currently do not collect the applicable employee withholding taxes from employees.
Instead, we automatically withhold, from the restricted stock units that vest and the stock awards that are issued, the portion of those shares with a fair market value equal to the amount of the
employee withholding taxes due. We then pay the applicable withholding taxes in cash.

Common
stock repurchases through June 30, 2008 were as follows (in thousands, except per share amounts):

Period

Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased as
Part of a Publicly
Announced Program

Maximum Approximate
Dollar Value that
May Yet be Purchased
Under the Program2001-2005


10,932

$
12.72


10,932

$
60,782February 15, 2006


129

$
12.77




$
60,782May 15, 2006


26

$
11.87




$
60,782August 15, 2006


38

$
10.92




$
60,782November 15, 2006


22

$
13.88




$
60,782February 15, 2007


194

$
13.72




$
60,782May 15, 2007


71

$
15.89




$
60,782August 15, 2007


69

$
12.82




$
60,782November 15, 2007


56

$
16.66




$
60,782January 27, 2008


142

$
10.71




$
60,782February 15, 2008


404

$
11.49




$
60,782May 15, 2008


81

$
11.81




$
60,782Total


12,164

$
12.71


10,932


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of our stockholders was held on June 12, 2008. Two nominees to the Board of Directors, Mark R. Goldston and
Carol A. Scott, were elected to serve for terms expiring at the third annual meeting following their election or until their successors are duly elected and qualified. The appointment of
PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending December 31, 2008 was also ratified at the meeting.

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The
results of voting for the election of Mr. Goldston were as follows: 56,681,202 votes for and 3,927,771 votes withheld. The results of voting for the election of
Ms. Scott were as follows: 57,962,585 votes for and 2,646,388 votes withheld. The remaining members of the Board of Directors who continued in office after the meeting are James T. Armstrong,
Robert Berglass, Kenneth L. Coleman, and Dennis Holt. The terms of Mr. Armstrong and Mr. Holt will expire at our next annual stockholders meeting and the terms of Mr. Berglass and
Mr. Coleman will expire at the following annual stockholders meeting.

The
results of voting for the ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors were as follows: 59,028,078 votes for, 1,557,273 votes
against and 23,622 abstentions.

ITEM 6.    EXHIBITS

Incorporated by Reference toFiled
with this
Form 10-QNo.

Exhibit Description

Form

File No.

Date Filed2.1

Stock Purchase Agreement, dated as of April 9, 2006, by and between United Online, Inc. and UAL Corporation




8-K


000-33367


4/13/20062.2

Agreement and Plan of Merger, dated April 30, 2008, among United Online, Inc., UNOLA Corp. and FTD Group, Inc.




S-4/A


333-151998


7/22/20082.3

Amendment No. 1 to Agreement and Plan of Merger, dated July 16, 2008, among United Online, Inc., UNOLA Corp.
and FTD Group, Inc.




S-4/A


333-151998


7/22/20083.1

Amended and Restated Certificate of Incorporation




10-K


000-33367


3/1/20073.2

Amended and Restated Bylaws




10-K


000-33367


3/1/20073.3

Certificate of Designation for Series A Junior Participating Preferred Stock (included in Exhibit 4.1 below)




10-K


000-33367


3/1/20074.1

Rights Agreement, dated as of November 15, 2001, between the Company and U.S. Stock Transfer Corporation,
which includes the form of Certificate of Designation for the Series A junior participating preferred stock as Exhibit A,
and the form of Rights Certificate as Exhibit B




10-K


000-33367


3/1/20074.2

Amendment No. 1 to Rights Agreement, dated as of April 29, 2003, between the Registrant and U.S. Stock
Transfer Corporation




10-Q


000-33367


5/1/20034.3

Form of Indenture Governing 13% Senior Secured Notes




S-4/A


333-151998


7/22/20084.4

Form of 13% Senior Secured Notes due 2013




S-4/A


333-151998


7/22/200810.1

2001 Amended and Restated Employee Stock Purchase Plan




10-Q


000-33367


5/3/2004


73

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Incorporated by Reference toFiled
with this
Form 10-QNo.

Exhibit Description

Form

File No.

Date Filed10.2

2001 Stock Incentive Plan




10-Q


000-33367


8/9/200710.3

Form of Option Agreement for 2001 Stock Incentive Plan




10-Q


000-33367


10/27/200410.4

Form of Restricted Stock Unit Issuance Agreement for 2001 StockIncentive Plan and 2001 Supplemental
Stock Incentive Plan




10-Q


000-33367


8/8/200510.5

2001 Supplemental Stock Incentive Plan




10-Q


000-33367


8/9/200710.6

Form of Option Agreement for 2001 Supplemental Stock Incentive Plan




10-Q


000-33367


10/27/200410.7

Classmates Online, Inc. Amended and Restated 1999 Stock Plan




S-8


333-121217


2/11/200510.8

Classmates Online, Inc. 2004 Stock Plan




10-Q


000-33367


5/10/200510.9

Form of Option Agreement for Classmates Online, Inc. 2004 Stock Plan




10-Q


000-33367


5/10/200510.10

Employment Agreement between the Registrant and Mark R. Goldston




10-Q


000-33367


5/3/200710.11

First Amendment to Employment Agreement between the Registrant and Mark R. Goldston




10-Q


000-33367


10/30/200710.12

Employment Agreement between Classmates Media Corporation and Mark R. Goldston




10-Q


000-33367


10/30/200710.13

Employment Agreement between the Registrant and Jeremy E. Helfand




10-Q


000-33367


10/30/200710.14

Amended and Restated Employment Agreement between the Registrant and Paul E. Jordan




10-Q


000-33367


10/30/200710.15

Employment Agreement between Classmates Media Corporation and Steven B. McArthur




10-K


000-33367


2/20/200810.16

Employment Agreement between the Registrant and Frederic A. Randall, Jr.




10-Q


000-33367


10/30/200710.17

Employment Agreement between the Registrant and Scott H. Ray




10-Q


000-33367


10/30/200710.18

Employment Agreement between the Registrant and Gerald J. Popek




10-Q


000-33367


10/30/200710.19

Employment Agreement between the Registrant and Robert J. Taragan




10-Q


000-33367


10/30/200710.20

Employment Agreement between the Registrant and Matthew J. Wisk




10-Q


000-33367


10/30/200710.21

Office Lease between LNR Warner Center, LLC and NetZero, Inc.




10-Q


000-33367


5/3/200410.22

Commitment Letter, dated April 30, 2008, from Wells Fargo Bank, National Association, to United Online, Inc.




8-K


000-33367


5/6/2008


74

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Incorporated by Reference toFiled
with this
Form 10-QNo.

Exhibit Description

Form

File No.

Date Filed10.23

Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan




10-Q


000-33367


5/12/200810.24

Commitment Letter, dated July 2, 2008, from Silicon Valley Bank to United Online, Inc.




8-K


000-33367


7/17/200810.25

Voting and Support Agreement, dated as of April 30, 2008, by and among Green Equity Investors IV L.P., FTD
Co-Investment, LLC and United Online, Inc.




S-4/A


333-151998


7/22/200810.26

United Online, Inc. 2008 Management Bonus Plan

X





000-33367


8/8/200831.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X





000-33367


8/8/200831.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X





000-33367


8/8/200832.1

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X





000-33367


8/8/200832.2

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X





000-33367


8/8/2008


75

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SIGNATURES

Pursuant to the requirements 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.

|                     |  |                                 |  |                                                                                                         
|-------------------- |  | ------------------------------- |  | --------------------------------------------------------------------------------------------------------
|Date: August 8, 2008 |  | UNITED ONLINE, INC.(Registrant)
|                     |  | By:                             |  | /s/SCOTT H. RAYScott H. Ray Executive Vice President and
Chief Financial Officer                        
|                     |  | By:                             |  | /s/NEIL P. EDWARDSNeil P. Edwards Senior Vice President, Finance, Treasurer and
Chief Accounting Officer

76

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EXHIBIT INDEX

Incorporated by Reference toFiled
with this
Form 10-QNo.

Exhibit Description

Form

File No.

Date Filed2.1

Stock Purchase Agreement, dated as of April 9, 2006, by and between United Online, Inc. and UAL Corporation




8-K


000-33367


4/13/20062.2

Agreement and Plan of Merger, dated April 30, 2008, among United Online, Inc., UNOLA Corp. and FTD Group, Inc.




S-4/A


333-151998


7/22/20082.3

Amendment No. 1 to Agreement and Plan of Merger, dated July 16, 2008, among United Online, Inc., UNOLA Corp.
and FTD Group, Inc.




S-4/A


333-151998


7/22/20083.1

Amended and Restated Certificate of Incorporation




10-K


000-33367


3/1/20073.2

Amended and Restated Bylaws




10-K


000-33367


3/1/20073.3

Certificate of Designation for Series A Junior Participating Preferred Stock (included in Exhibit 4.1 below)




10-K


000-33367


3/1/20074.1

Rights Agreement, dated as of November 15, 2001, between the Company and U.S. Stock Transfer Corporation,
which includes the form of Certificate of Designation for the Series A junior participating preferred stock as Exhibit A,
and the form of Rights Certificate as Exhibit B




10-K


000-33367


3/1/20074.2

Amendment No. 1 to Rights Agreement, dated as of April 29, 2003, between the Registrant and U.S. Stock
Transfer Corporation




10-Q


000-33367


5/1/20034.3

Form of Indenture Governing 13% Senior Secured Notes




S-4/A


333-151998


7/22/20084.4

Form of 13% Senior Secured Notes due 2013




S-4/A


333-151998


7/22/200810.1

2001 Amended and Restated Employee Stock Purchase Plan




10-Q


000-33367


5/3/200410.2

2001 Stock Incentive Plan




10-Q


000-33367


8/9/200710.3

Form of Option Agreement for 2001 Stock Incentive Plan




10-Q


000-33367


10/27/200410.4

Form of Restricted Stock Unit Issuance Agreement for 2001 StockIncentive Plan and 2001 Supplemental
Stock Incentive Plan




10-Q


000-33367


8/8/200510.5

2001 Supplemental Stock Incentive Plan




10-Q


000-33367


8/9/200710.6

Form of Option Agreement for 2001 Supplemental Stock Incentive Plan




10-Q


000-33367


10/27/200410.7

Classmates Online, Inc. Amended and Restated 1999 Stock Plan




S-8


333-121217


2/11/200510.8

Classmates Online, Inc. 2004 Stock Plan




10-Q


000-33367


5/10/2005


---



Incorporated by Reference toFiled
with this
Form 10-QNo.

Exhibit Description

Form

File No.

Date Filed10.9

Form of Option Agreement for Classmates Online, Inc. 2004 Stock Plan




10-Q


000-33367


5/10/200510.10

Employment Agreement between the Registrant and Mark R. Goldston




10-Q


000-33367


5/3/200710.11

First Amendment to Employment Agreement between the Registrant and Mark R. Goldston




10-Q


000-33367


10/30/200710.12

Employment Agreement between Classmates Media Corporation and Mark R. Goldston




10-Q


000-33367


10/30/200710.13

Employment Agreement between the Registrant and Jeremy E. Helfand




10-Q


000-33367


10/30/200710.14

Amended and Restated Employment Agreement between the Registrant and Paul E. Jordan




10-Q


000-33367


10/30/200710.15

Employment Agreement between Classmates Media Corporation and Steven B. McArthur




10-K


000-33367


2/20/200810.16

Employment Agreement between the Registrant and Frederic A. Randall, Jr.




10-Q


000-33367


10/30/200710.17

Employment Agreement between the Registrant and Scott H. Ray




10-Q


000-33367


10/30/200710.18

Employment Agreement between the Registrant and Gerald J. Popek




10-Q


000-33367


10/30/200710.19

Employment Agreement between the Registrant and Robert J. Taragan




10-Q


000-33367


10/30/200710.20

Employment Agreement between the Registrant and Matthew J. Wisk




10-Q


000-33367


10/30/200710.21

Office Lease between LNR Warner Center, LLC and NetZero, Inc.




10-Q


000-33367


5/3/200410.22

Commitment Letter, dated April 30, 2008, from Wells Fargo Bank, National Association, to United Online, Inc.




8-K


000-33367


5/6/200810.23

Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan




10-Q


000-33367


5/12/200810.24

Commitment Letter, dated July 2, 2008, from Silicon Valley Bank to United Online, Inc.




8-K


000-33367


7/17/200810.25

Voting and Support Agreement, dated as of April 30, 2008, by and among Green Equity Investors IV L.P., FTD
Co-Investment, LLC and United Online, Inc.




S-4/A


333-151998


7/22/200810.26

United Online, Inc. 2008 Management Bonus Plan

X





000-33367


8/8/200831.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X





000-33367


8/8/200831.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X





000-33367


8/8/2008


---



Incorporated by Reference toFiled
with this
Form 10-QNo.

Exhibit Description

Form

File No.

Date Filed32.1

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X





000-33367


8/8/200832.2

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X





000-33367


8/8/2008


---



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