##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2008

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number: 001-32750

SPARK NETWORKS, INC.

(Exact name of registrant as specified in its charter)



|                                                                    |  |                                     
|------------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                            |  | 20-8901733                          
|(State or other jurisdiction of incorporation or organization)      |  | (I.R.S. Employer Identification No.)
|                                                                   
|8383 Wilshire Boulevard, Suite 800, Beverly Hills, California 90211
|(Address of principal executive offices) (Zip Code)                

(323) 658-3000

(Registrants telephone number, including area code)





(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   þ        
No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



|                          |  |                     |  |                         |  |                            
|------------------------- |  | ------------------- |  | ----------------------- |  | ---------------------------
|Large accelerated filer  ̈ |  | Accelerated filer  ̈ |  | Non-accelerated filer  ̈ |  | Smaller-Reporting Company þ

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

The registrant had 22,455,544 outstanding ordinary
shares, par value $0.001 per share, as of August 14, 2008.









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##### Table of Contents

SPARK NETWORKS, INC.

Table of Contents to Quarterly Report on Form 10-Q



|                              |  |                                                                                                           |  |   
|----------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                                          
|                              |  |                                                                                                          
|Item 1.                       |  | Financial Statements                                                                                      |  | 3 
|                              |  | Consolidated Balance Sheets at June 30, 2008 (unaudited) and December 31, 2007                            |  | 3 
|                              |  | Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2008 and
2007 |  | 4 
|                              |  | Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007           |  | 5 
|                              |  | Unaudited Notes to Consolidated Financial Statements                                                      |  | 6 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                     |  | 13
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  | 21
|Item 4.                       |  | Controls and Procedures                                                                                   |  | 21
|                              | 
|PART II. OTHER INFORMATION    |  | 22                                                                                                       
|                              |  |                                                                                                          
|Item 1.                       |  | Legal Proceedings                                                                                         |  | 22
|Item 1A.                      |  | Risk Factors                                                                                              |  | 22
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                               |  | 22
|Item 3.                       |  | Defaults Upon Senior Securities                                                                           |  | 22
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                       |  | 22
|Item 5.                       |  | Other Information                                                                                         |  | 23
|Item 6.                       |  | Exhibits                                                                                                  |  | 23
|                              |  | Signatures                                                                                                |  | 23
|                              |  | Exhibit 31.1                                                                                              |  |   
|                              |  | Exhibit 31.2                                                                                              |  |   
|                              |  | Exhibit 32.1                                                                                              |  |   



2



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|ITEM1. | FINANCIAL STATEMENTS
|------ | --------------------

SPARK NETWORKS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                                      |  | June 30,2008 |         |   | December 31,2007 |  
|                                                                                                                                                                                                                      |  | (unaudited)  |         |   |                  |  
|Assets                                                                                                                                                                                                                |  |              |         |   |                  |   |         |  
|Current assets:                                                                                                                                                                                                       |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                             |  | $            | 10,797  |   |                  | $ | 8,796   |  
|Marketable securities                                                                                                                                                                                                 |  |              |        |   |                  |   | 200     |  
|Restricted cash                                                                                                                                                                                                       |  |              | 992     |   |                  |   | 1,706   |  
|Accounts receivable                                                                                                                                                                                                   |  |              | 1,333   |   |                  |   | 1,433   |  
|Deferred tax asset  current portion                                                                                                                                                                                  |  |              | 11      |   |                  |   | 2,094   |  
|Prepaid expenses and other                                                                                                                                                                                            |  |              | 1,448   |   |                  |   | 1,289   |  
|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                                  |  |              | 14,581  |   |                  |   | 15,518  |  
|Property and equipment, net                                                                                                                                                                                           |  |              | 1,367   |   |                  |   | 1,383   |  
|Goodwill, net                                                                                                                                                                                                         |  |              | 20,031  |   |                  |   | 18,358  |  
|Intangible assets, net                                                                                                                                                                                                |  |              | 4,630   |   |                  |   | 5,177   |  
|Deferred tax asset  long term portion                                                                                                                                                                                |  |              | 2,941   |   |                  |   | 3,106   |  
|Deposits and other assets                                                                                                                                                                                             |  |              | 420     |   |                  |   | 66      |  
|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                                          |  | $            | 43,970  |   |                  | $ | 43,608  |  
|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                                                                      |  | $            | 446     |   |                  | $ | 1,585   |  
|Accrued liabilities                                                                                                                                                                                                   |  |              | 4,570   |   |                  |   | 5,529   |  
|Deferred revenue                                                                                                                                                                                                      |  |              | 4,744   |   |                  |   | 4,140   |  
|Notes payable and other short-term debt                                                                                                                                                                               |  |              | 5,000   |   |                  |   | 21      |  
|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                             |  |              | 14,760  |   |                  |   | 11,275  |  
|Deferred tax liabilities                                                                                                                                                                                              |  |              | 770     |   |                  |   | 595     |  
|Tax liability  long term                                                                                                                                                                                             |  |              | 830     |   |                  |   | 830     |  
|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                                     |  |              | 16,360  |   |                  |   | 12,700  |  
|Shares subject to rescission (Note 5)                                                                                                                                                                                 |  |              |        |   |                  |   | 7,480   |  
|Commitments and contingencies (Note 8)                                                                                                                                                                                |  |              |        |   |                  |   |        |  
|Stockholders equity:                                                                                                                                                                                                 |  |              |         |   |                  |   |         |  
|Authorized capital stock consists of 100,000,000 shares of common stock, $0.001 par value; issued and outstanding 24,055,544 and 26,132,789 at
June 30, 2008 and December 31, 2007, respectively at stated values of: |  |              | 24      |   |                  |   | 26      |  
|Additional paid-in-capital                                                                                                                                                                                            |  |              | 52,918  |   |                  |   | 52,262  |  
|Accumulated other comprehensive income                                                                                                                                                                                |  |              | 993     |   |                  |   | 672     |  
|Accumulated deficit                                                                                                                                                                                                   |  |              | (26,325 | ) |                  |   | (29,532 | )
|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                                                            |  |              | 27,610  |   |                  |   | 23,428  |  
|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                            |  | $            | 43,970  |   |                  | $ | 43,608  |  
|                                                                                                                                                                                                                      |  |              |         |   |                  |   |         |  

See accompanying notes.



3



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SPARK NETWORKS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)



|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                  |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                                                                  |  | 2008                        |        |   | 2007                      |   |        | 2008 |  |   | 2007   |  
|Net revenues                                                                                      |  | $                           | 14,987 |   |                           | $ | 16,616 |      |  | $ | 30,009 |   |  | $ | 33,436 |  
|Direct marketing expenses                                                                         |  |                             | 4,023  |   |                           |   | 5,444  |      |  |   | 8,095  |   |  |   | 12,201 |  
|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Contribution margin                                                                               |  |                             | 10,964 |   |                           |   | 11,172 |      |  |   | 21,914 |   |  |   | 21,235 |  
|Operating expenses:                                                                               |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Sales and marketing (including share-based compensation of $196, $197, $389, and $393)            |  |                             | 1,128  |   |                           |   | 865    |      |  |   | 2,181  |   |  |   | 1,698  |  
|Customer service (including share-based compensation of $17, $27, $38, and $53)                   |  |                             | 581    |   |                           |   | 861    |      |  |   | 1,212  |   |  |   | 1,703  |  
|Technical operations (including share-based compensation of $171, $171, $342, and $309)           |  |                             | 1,021  |   |                           |   | 1,180  |      |  |   | 2,084  |   |  |   | 2,366  |  
|Development (including share-based compensation of $159, $145, $318, and $287)                    |  |                             | 1,110  |   |                           |   | 975    |      |  |   | 2,331  |   |  |   | 2,121  |  
|General and administrative (including share-based compensation of $524, $583, $1,048, and $1,553) |  |                             | 3,979  |   |                           |   | 5,223  |      |  |   | 8,155  |   |  |   | 10,701 |  
|Amortization of intangible assets                                                                 |  |                             | 222    |   |                           |   | 354    |      |  |   | 551    |   |  |   | 698    |  
|Impairment of goodwill                                                                            |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   | 1,894  |  
|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                                                          |  |                             | 8,041  |   |                           |   | 9,458  |      |  |   | 16,514 |   |  |   | 21,181 |  
|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Operating income                                                                                  |  |                             | 2,923  |   |                           |   | 1,714  |      |  |   | 5,400  |   |  |   | 54     |  
|Interest (income) and other expenses, net                                                         |  |                             | (224   | ) |                           |   | (297   | )    |  |   | (558   | ) |  |   | (502   | )
|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income before income taxes                                                                        |  |                             | 3,147  |   |                           |   | 2,011  |      |  |   | 5,958  |   |  |   | 556    |  
|Provision for income taxes                                                                        |  |                             | 1,506  |   |                           |   | 95     |      |  |   | 2,751  |   |  |   | 22     |  
|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                                                        |  | $                           | 1,641  |   |                           | $ | 1,916  |      |  | $ | 3,207  |   |  | $ | 534    |  
|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income per share  basic                                                                      |  | $                           | 0.07   |   |                           | $ | 0.06   |      |  | $ | 0.13   |   |  | $ | 0.02   |  
|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income per share  diluted                                                                    |  | $                           | 0.07   |   |                           | $ | 0.06   |      |  | $ | 0.13   |   |  | $ | 0.02   |  
|                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Weighted average shares outstanding  basic                                                       |  |                             | 24,555 |   |                           |   | 30,677 |      |  |   | 25,279 |   |  |   | 30,772 |  
|Weighted average shares outstanding  diluted                                                     |  |                             | 24,575 |   |                           |   | 30,904 |      |  |   | 25,301 |   |  |   | 30,979 |  

See accompanying notes.



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SPARK NETWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



|                                                                              |  |                           |        |   |      |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------ | -
|                                                                              |  | Six Months Ended June 30, |       
|                                                                              |  | 2008                      |        |   | 2007 |  
|Cash flows from operating activities:                                         |  |                           |        |   |      |   |        |  
|Net income                                                                    |  | $                         | 3,207  |   |      | $ | 534    |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                           |        |   |      |   |        |  
|Depreciation and amortization                                                 |  |                           | 965    |   |      |   | 1,750  |  
|Foreign exchange gain on intercompany loan                                    |  |                           | (622   | ) |      |   |       |  
|Impairment of goodwill                                                        |  |                           |       |   |      |   | 1,894  |  
|Other                                                                         |  |                           | 41     |   |      |   | 19     |  
|Share-based compensation                                                      |  |                           | 2,135  |   |      |   | 2,595  |  
|Deferred taxes                                                                |  |                           | 2,423  |   |      |   | 18     |  
|Changes in operating assets and liabilities:                                  |  |                           |        |   |      |   |        |  
|Accounts receivable                                                           |  |                           | 82     |   |      |   | 135    |  
|Restricted cash                                                               |  |                           | 672    |   |      |   | 74     |  
|Prepaid expenses and other assets                                             |  |                           | (238   | ) |      |   | (290   | )
|Accounts payable and accrued liabilities                                      |  |                           | (2,102 | ) |      |   | (396   | )
|Deferred revenue                                                              |  |                           | 604    |   |      |   | 212    |  
|                                                                              |  |                           |        |   |      |   |        |  
|Net cash provided by operating activities                                     |  |                           | 7,167  |   |      |   | 6,545  |  
|                                                                              |  |                           |        |   |      |   |        |  
|Cash flows from investing activities:                                         |  |                           |        |   |      |   |        |  
|Sale of marketable securities                                                 |  |                           | 200    |   |      |   |       |  
|Purchases of property and equipment                                           |  |                           | (190   | ) |      |   | (223   | )
|Purchases of businesses and intangible assets                                 |  |                           |       |   |      |   | (4     | )
|Cash paid in acquisition of business, net of cash acquired                    |  |                           | (770   | ) |      |   | (2,261 | )
|Sale of property and equipment                                                |  |                           |       |   |      |   | 24     |  
|                                                                              |  |                           |        |   |      |   |        |  
|Net cash used in investing activities                                         |  |                           | (760   | ) |      |   | (2,464 | )
|                                                                              |  |                           |        |   |      |   |        |  
|Cash flows from financing activities:                                         |  |                           |        |   |      |   |        |  
|Proceeds from issuance of ordinary shares                                     |  |                           | 10     |   |      |   | 168    |  
|Purchase of shares for retirement                                             |  |                           | (8,970 | ) |      |   | (3,264 | )
|Payments of capital lease obligations                                         |  |                           |       |   |      |   | (102   | )
|Principal payments of notes payable for acquisition                           |  |                           |       |   |      |   | (203   | )
|Payment on deferred financing costs                                           |  |                           | (446   | ) |      |   |       |  
|Excess tax benefits from stock-based compensation                             |  |                           |       |   |      |   | (1     | )
|Payment for notes payable                                                     |  |                           |       |   |      |   | (114   | )
|Proceeds from other short-term debt                                           |  |                           | 5,000  |   |      |   |       |  
|                                                                              |  |                           |        |   |      |   |        |  
|Net cash used in financing activities                                         |  |                           | (4,406 | ) |      |   | (3,516 | )
|                                                                              |  |                           |        |   |      |   |        |  
|Net increase in cash                                                          |  |                           | 2,001  |   |      |   | 565    |  
|Cash and cash equivalents at beginning of period                              |  |                           | 8,796  |   |      |   | 20,412 |  
|                                                                              |  |                           |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                    |  | $                         | 10,797 |   |      | $ | 20,977 |  
|                                                                              |  |                           |        |   |      |   |        |  
|Supplemental disclosure of cash flow information:                             |  |                           |        |   |      |   |        |  
|Cash paid for interest                                                        |  | $                         | 9      |   |      | $ |       |  
|Cash paid for income taxes                                                    |  | $                         | 441    |   |      | $ | 1,157  |  

See accompanying notes.



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SPARK NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



|1. | The Company and Summary of Significant Accounting Policies
|-- | ----------------------------------------------------------

The Company

Prior to July 9, 2007, Spark Networks plc (now, known as Spark Networks Limited) was a public limited company
incorporated under the laws of England and Wales (Limited). As of the completion of our Scheme of Arrangement on July 9, 2007, the shares of Spark Networks, Inc., a Delaware corporation and Limiteds parent entity (the
Company), have been traded on the American Stock Exchange and the Company has become Limiteds successor reporting entity. The Company and its consolidated subsidiaries provide online personals services in the United States and
internationally, whereby adults are able to post information about themselves (profiles) on the Companys websites and search and contact other individuals who have posted profiles.

Membership to the Companys online services, which includes the posting of a personal profile and photos, and access to its database of profiles, is free. The
Company charges a subscription fee for value-added services of varying subscription lengths (typically, one, three, six and twelve months) to members, allowing them to initiate communication with other members and subscribers utilizing the
Companys onsite communication tools, including anonymous email, Instant Messenger, chat rooms and message boards. For most of the Companys services, two-way communications through the Companys email platform can only take place
between paying subscribers.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current
period presentation.

The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal
recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the
full year or for any future periods.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in
the United States (GAAP) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an
on-going basis, the Company evaluates its estimates, including those related to uncollectible receivables, the useful lives of long-lived assets including property and equipment, investment fair values, goodwill and other intangible assets,
investments in equity interests, income taxes, and contingencies. In addition, the Company uses assumptions when employing the Black-Scholes option valuation model to calculate the fair value of granted stock-based awards. The Company bases its
estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other
sources. Actual results may differ from these estimates.

These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2007. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2007 was derived from the Companys audited financial statements for the
year ended December 31, 2007, but does not include all disclosures required by GAAP. However, the Company believes the disclosures are adequate to make the information presented not misleading.



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Fair Value Measurement

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements, or SFAS 157, which establishes a framework for measuring fair value and requires enhanced
disclosures about fair value measurements. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
SFAS 157 also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:



|        |  |                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  | quoted prices in active markets for identical assets or liabilities;                                                            
|        | 
|Level 2 |  | quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
|        | 
|Level 3 |  | unobservable inputs, such as discounted cash flow models or valuations.                                                         

The adoption of SFAS 157 had no material impact on the Companys financial results. In accordance with FASB
Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157,the Company delayed the adoption of SFAS 157, Fair Value Measurements, for nonfinancial assets and nonfinancial liabilities. This FSP deferred the effective
date of SFAS 157 for nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of such adoption for non-financial assets and liabilities.

Comprehensive Income

Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income consists of its reported net income, the net unrealized gains or losses on
marketable securities and foreign currency translation. Comprehensive income for each of the periods presented is comprised as follows (in thousands):



|                                                                    |  |                             |       |      |                           |       |      |  |   |       |   |  |   |     |  
|------------------------------------------------------------------- |  | --------------------------- | ----- | ---- | ------------------------- | ----- | ---- |  | - | ----- | - |  | - | --- | -
|                                                                    |  | Three Months Ended June 30, |       |      | Six Months Ended June 30, |      
|                                                                    |  | 2008                        |       | 2007 |                           |       | 2008 |  |   | 2007  |  
|Net income                                                          |  | $                           | 1,641 |      | $                         | 1,916 |      |  | $ | 3,207 |   |  | $ | 534 |  
|Changes in unrealized gains/losses in available for sale securities |  |                             |      |      |                           |      |      |  |   | (3    | ) |  |   | 1   |  
|Foreign currency translation adjustment                             |  |                             | 149   |      |                           | (170  | )    |  |   | 324   |   |  |   | (44 | )
|                                                                    |  |                             |       |      |                           |       |      |  |   |       |   |  |   |     |  
|Total comprehensive income                                          |  | $                           | 1,790 |      | $                         | 1,746 |      |  | $ | 3,528 |   |  | $ | 491 |  
|                                                                    |  |                             |       |      |                           |       |      |  |   |       |   |  |   |     |  



|2. | Net Income Per Share
|-- | --------------------

The Company calculates net income per share
in accordance with SFAS No. 128 Earnings per Share, which requires the presentation of both basic and diluted net income per share. Basic net income per share is computed by dividing net income available to common stockholders by
the weighted average number of common shares outstanding. Diluted net income per share includes the effect of potential shares outstanding, including dilutive share options and warrants, using the treasury stock method as prescribed by SFAS 123(R).



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|                                                 |  |                             |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------------ |  | --------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                 |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                                 |  | 2008                        |        | 2007                      |   | 2008   |  | 2007
|Income Per Common Share  Basic                  |  |                             |        |                           |   |        |  |      |        |  |   |       
|Net income applicable to common shares           |  | $                           | 1,641  |                           | $ | 1,916  |  | $    | 3,207  |  | $ | 534   
|Weighted average shares outstanding-basic        |  |                             | 24,555 |                           |   | 30,677 |  |      | 25,279 |  |   | 30,772
|                                                 |  |                             |        |                           |   |        |  |      |        |  |   |       
|Basic Earnings Per Share                         |  | $                           | 0.07   |                           | $ | 0.06   |  | $    | 0.13   |  | $ | 0.02  
|                                                 |  |                             |        |                           |   |        |  |      |        |  |   |       
|Income Per Common Share  Diluted                |  |                             |        |                           |   |        |  |      |        |  |   |       
|Net income applicable to common shares           |  | $                           | 1,641  |                           | $ | 1,916  |  | $    | 3,207  |  | $ | 534   
|Weighted average shares outstanding-basic        |  |                             | 24,555 |                           |   | 30,677 |  |      | 25,279 |  |   | 30,772
|Dilutive options using the treasury stock method |  |                             | 20     |                           |   | 227    |  |      | 22     |  |   | 207   
|                                                 |  |                             |        |                           |   |        |  |      |        |  |   |       
|Weighted average shares outstanding-diluted      |  |                             | 24,575 |                           |   | 30,904 |  |      | 25,301 |  |   | 30,979
|                                                 |  |                             |        |                           |   |        |  |      |        |  |   |       
|Diluted earnings per share                       |  | $                           | 0.07   |                           | $ | 0.06   |  | $    | 0.13   |  | $ | 0.02  
|                                                 |  |                             |        |                           |   |        |  |      |        |  |   |       



|3. | Acquisitions of Businesses and Intangibles
|-- | ------------------------------------------

Kizmeet

On October 22, 2007, the Company entered into an agreement to purchase the stock of Kizmeet.com, a free, ad-supported, missed connections web-site.
Since the majority of the purchase was related to the domain name, the Company recorded the entire purchase price of $360,000, ($300,000 cash and $60,000 hold-back to be paid on the first anniversary of the closing) as a domain name subject to
annual impairment testing under SFAS 142. Kizmeet complements our current advertising offering and extends our reach with a service that caters to a different audience than our traditional online personals communities.

HurryDate Asset Acquisition

On February 1, 2007, the
Company purchased the assets of HurryDate, a leading online personals and singles events company, for total consideration of $2.3 million, of which $2.0 million was paid at close in cash. In addition, subject to certain conditions in the purchase
agreement, the Company would also pay additional consideration based on an earn-out calculation contingent upon the operating income of the HurryDate business for the period covering April 1, 2007 to March 31, 2008. In the second quarter
of 2007, the Company paid the remaining $250,000 of the initial cash consideration. On October 17, 2007, the Company entered into a letter agreement with the sellers and agreed that the first and second earn-out payments would each be $770,000
and the third earn-out payment would be $660,000. These amounts assume that the sellers are entitled to a full earn-out payment pursuant to the purchase agreement. The first of these amounts was paid during second quarter 2008 and recorded as an
increase to goodwill for this acquisition. The purchase of HurryDate expands the Companys offline presence and solidifies its position as the only leading online personals provider to effectively marry the online and offline dating
worlds. Of the $2.2 million of acquired intangible assets, $490,000 was assigned to member databases and is amortized over three years, $50,000 was assigned to subscriber databases which is amortized over five months, $800,000 was assigned to
developed software which is amortized over five years, $360,000 was assigned to domain names which are not subject to amortization, and the remainder was recorded as goodwill.



|4. | Revolving Credit Facility
|-- | -------------------------

In February 2008, the Company and
Limited, as borrower, entered into an agreement (the Agreement) with Bank of America for a $30.0 million revolving credit facility. The initial term of the Agreement is for three years, and provides the Company with the opportunity to
extend the initial term, subject to the lenders consent. The per annum interest rate for this facility is based upon a



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financial leverage ratio of less than 1.00, 1.00 to 1.49 and 1.50 and greater. The corresponding interest rates on LIBOR based borrowings are LIBOR plus
1.50%, 1.75% and 2.00%, respectively. In the event the Company elects to borrow under a base rate loan, the corresponding interest rates are the prime rate plus 0.50%, 0.75% and 1.00%, respectively. The Company pays a 0.125% per annum
commitment fee on all funds not utilized under this facility, measured on a daily basis. There is no prepayment penalty or premium associated with the early termination of this facility. The Agreement includes customary affirmative and negative
covenants.

At June 30, 2008, there was a $5.0 million balance outstanding under the Agreement bearing an average interest rate of 4.195% with $25
million of borrowing capacity remaining under this revolving credit facility. In connection with the Agreement, the Company recorded deferred financing costs of approximately $446,000, which were included in other current assets and deposits and
other assets. The deferred financing costs will be amortized to interest expense over the term of the Agreement.



|5. | Stockholders Equity
|-- | --------------------

Share Repurchase Program

The Companys Board of Directors approved a share repurchase program pursuant to which the Company was able to repurchase, from time to time, its
common stock on the American Stock Exchange. Under the plan, which was adopted on March 10, 2008 and amended on March 14, 2008, the Company was permitted to repurchase up to an aggregate of 1,500,000 shares of common stock. From
March 10, 2008 through March 31, 2008, the Company repurchased and retired 801,229 shares of its common stock at a weighted average price of $4.09. The Company completed its plan on May 5, 2008, having purchased the full 1,500,000
shares of common stock permitted under the plan, and purchased an additional 600,000 shares from a private party. The average price for the 1,298,771 shares repurchased in the second quarter was $4.35.

The repurchases of shares pursuant to the open market plan were conducted in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, which prescribes
price, volume and procedural requirements for an issuer purchasing its shares.

Employee Share Option Plans

As of July 9, 2007, pursuant to the completion of the Scheme of Arrangement, the Company adopted the Spark Networks, Inc. 2007 Omnibus Incentive Plan (the 2007
Plan). Prior to the Companys incorporation and Scheme of Arrangement, Limited had two share Option Plans, the MatchNet plc 2000 Executive Share Option Plan (the 2000 Plan) and Spark Networks plc 2004 Share Option Plan (the
2004 Plan and, collectively, with the 2000 Plan, plc Plans). Effective July 9, 2007, no further options are granted under the plc Plans, however, pursuant to the provisions of the plc Plans, all outstanding options
previously granted under the plc Plans continue in full force and effect.

Awards under the 2007 Plan may include incentive stock options, nonqualified
stock options, stock appreciation rights (SARs), restricted shares of common stock, restricted stock units, performance share or unit awards, other stock-based awards and cash-based incentive awards.

The Compensation Committee of the Companys Board of Directors may grant an award to a participant. The terms and conditions of the award, including the quantity,
price, vesting periods, and other conditions on exercise will be determined by the Compensation Committee.

The exercise price for stock options will be
determined by the Compensation Committee in its discretion, but may not be less than 100% of the closing sale price of one share of the Companys common stock on the American Stock Exchange (or any other applicable exchange on which the stock
is listed) on the date when the stock option is granted. Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of stock of the Company on the date of grant, the
exercise price may not be less than 110% of the closing sale price of one share of common stock on the date the stock option is granted.



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As of June 30, 2008, total unrecognized compensation cost related to non-vested stock options was $5.1 million. This
cost is expected to be recognized over a weighted-average period of four years. The following table describes option activity for the six months ended June 30, 2008:



|                                 |  |                 |   |  |                                |     
|-------------------------------- |  | --------------- | - |  | ------------------------------ | ----
|                                 |  | Number ofShares |   |  | WeightedAveragePrice Per Share
|                                 |  | (in thousands)  |   |  |                               
|Outstanding at December 31, 2007 |  | 4,317           |   |  | $                              | 5.98
|Granted                          |  | 29              |   |  |                                | 5.36
|Exercised                        |  | (124            | ) |  |                                | 4.76
|Cancelled                        |  | (184            | ) |  |                                | 8.71
|                                 |  |                 |   |  |                                |     
|Outstanding at March 31, 2008    |  | 4,038           |   |  | $                              | 6.10
|Granted                          |  | 120             |   |  |                                | 4.45
|Exercised                        |  | (5              | ) |  |                                | 1.00
|Cancelled                        |  | (138            | ) |  |                                | 6.87
|                                 |  |                 |   |  |                                |     
|Outstanding at June 30, 2008     |  | 4,015           |   |  | $                              | 6.07

Options issued prior to February 2007 are priced in foreign currency. Weighted average price per share
calculations are impacted by foreign exchange fluctuations for these options.

Shares Subject to Rescission

Under the 2000 Plan, the Company granted options to purchase ordinary shares to certain of our employees, directors and consultants. The issuances of securities upon
exercise of options granted under our 2000 Plan may not have been exempt from registration and qualification under federal and California state securities laws. In prior financial statements, the Company disclosed the potential California and
federal securities law violations in connection with options. The Company has reported in its financial statements for previous periods a put liability related to shares that are subject to rescission. The Company has reviewed the applicable statute
of limitations related to the securities issuances and believes that the civil liability related to those securities issuances has become minimal. As such, the Company has reclassified the put liability related to the shares subject to rescission
into permanent stockholders equity, beginning with the three month period ended March 31, 2008.

Stockholder Rights Plan

As of July 9, 2007, the Company adopted a stockholder rights plan in connection with the completion of the Scheme of Arrangement. The rights
accompany each share of common stock of the Company and are evidenced by ownership of common stock. The rights are not exercisable except upon the occurrence of certain takeover-related events. Once triggered, the rights would entitle the
stockholders, other than a person qualifying as an Acquiring Person pursuant to the rights plan, to purchase additional Common Shares at a 50% discount to their fair market value. The rights issued under the Rights Plan may be redeemed
by the board of directors at a nominal redemption price of $0.001 per right, and the Board of Directors may amend the rights in any respect until the rights are triggered.



|6. | Quarterly Information
|-- | ---------------------

In the third quarter of 2007, the Company
reclassified certain expenses to conform to the current year presentation. The reclassification was done to more accurately reflect the Companys expenses in accordance with current managements view of the Company. In addition to the
reclassification, in its annual 2007 10-K filing, the Company adjusted its operating expenses as originally reported in the second quarter 2007 Form 10-Q to reflect changes in share-based compensation as discussed in detail in the 2007 Form 10-K.



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The following information reflects reclassifications in the third quarter and the share-based compensation adjustments
recorded in the fourth quarter:



|                                              |  |                                  |        |                                |   |       |          |  |             |        |  |                         |        |   |          |   |      |   |  |   |       
|--------------------------------------------- |  | -------------------------------- | ------ | ------------------------------ | - | ----- | -------- |  | ----------- | ------ |  | ----------------------- | ------ | - | -------- | - | ---- | - |  | - | ------
|                                              |  | Three Months Ended June 30, 2007 |        | Six Months Ended June 30, 2007
|                                              |  | As Reported                      |        | Share-BasedCompensation        |   |       | Restated |  | As Reported |        |  | Share-BasedCompensation |        |   | Restated
|Net revenues                                  |  | $                                | 16,616 |                                | $ |      |          |  | $           | 16,616 |  | $                       | 33,436 |   |          | $ |     |   |  | $ | 33,436
|Direct marketing expenses                     |  |                                  | 5,444  |                                |   |      |          |  |             | 5,444  |  |                         | 12,201 |   |          |   |     |   |  |   | 12,201
|                                              |  |                                  |        |                                |   |       |          |  |             |        |  |                         |        |   |          |   |      |   |  |   |       
|Contribution                                  |  |                                  | 11,172 |                                |   |      |          |  |             | 11,172 |  |                         | 21,235 |   |          |   |     |   |  |   | 21,235
|Total operating expenses                      |  |                                  | 9,299  |                                |   | 159   |          |  |             | 9,458  |  |                         | 21,608 |   |          |   | (427 | ) |  |   | 21,181
|                                              |  |                                  |        |                                |   |       |          |  |             |        |  |                         |        |   |          |   |      |   |  |   |       
|Operating income (loss)                       |  |                                  | 1,873  |                                |   | (159  | )        |  |             | 1,714  |  |                         | (373   | ) |          |   | 427  |   |  |   | 54    
|                                              |  |                                  |        |                                |   |       |          |  |             |        |  |                         |        |   |          |   |      |   |  |   |       
|Net income (loss)                             |  | $                                | 2,075  |                                | $ | (159  | )        |  | $           | 1,916  |  | $                       | 107    |   |          | $ | 427  |   |  | $ | 534   
|                                              |  |                                  |        |                                |   |       |          |  |             |        |  |                         |        |   |          |   |      |   |  |   |       
|Net income (loss) per share  basic           |  | $                                | 0.07   |                                | $ | (0.01 | )        |  | $           | 0.06   |  | $                       | 0.00   |   |          | $ | 0.02 |   |  | $ | 0.02  
|Net income (loss) per share  diluted         |  | $                                | 0.07   |                                | $ | (0.01 | )        |  | $           | 0.06   |  | $                       | 0.00   |   |          | $ | 0.02 |   |  | $ | 0.02  
|Weighted average shares outstanding  basic   |  |                                  | 30,677 |                                |   |       |          |  |             | 30,677 |  |                         | 30,772 |   |          |   |      |   |  |   | 30,772
|Weighted average shares outstanding  diluted |  |                                  | 30,904 |                                |   |       |          |  |             | 30,904 |  |                         | 30,979 |   |          |   |      |   |  |   | 30,979



|7. | Segment Information
|-- | -------------------

During the third quarter of 2007, the Company changed its financial reporting to include data on four newly-defined operating segments: Jewish Networks, which consists of JDate.com, JDate.co.il, JDate.co.uk, JDate.fr, Cupid.co.il and their
respective co-branded and private label websites; General Market Networks, which consists of AmericanSingles.com, Date.co.uk, Date.ca and their respective co-branded and private label websites; Other Affinity Networks, which consists of the
Companys Provo, Utah-based properties which are primarily made up of sites targeted towards various religious, ethnic, geographic and special interest groups; and Offline & Other Businesses, which consists of revenue generated from
offline activities, HurryDate events and subscriptions to HurryDate.com, and other websites and businesses. The change, in compliance with Financial Accounting Standard No. 131, Disclosures about Segments of an Enterprise and Related
Information, is a result of the change to the Companys overall revenue mix and how management views the business. The Company believes the new segments will provide investors with a more accurate picture of the performance of the
business. Prior period segment disclosures were revised to conform to the revised segment presentation.



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|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|------------------------------ |  | --------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                               |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|(in thousands)                 |  | 2008                        |        | 2007                      |   | 2008   |  | 2007
|Revenues                       |  |                             |        |                           |   |        |  |      |        |  |   |       
|Jewish Networks                |  | $                           | 8,643  |                           | $ | 8,239  |  | $    | 17,310 |  | $ | 16,576
|General Market Networks        |  |                             | 2,174  |                           |   | 4,284  |  |      | 4,750  |  |   | 9,316 
|Other Affinity Networks        |  |                             | 3,405  |                           |   | 3,207  |  |      | 6,758  |  |   | 6,436 
|Offline & Other Businesses     |  |                             | 765    |                           |   | 886    |  |      | 1,191  |  |   | 1,108 
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total                          |  | $                           | 14,987 |                           | $ | 16,616 |  | $    | 30,009 |  | $ | 33,436
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Direct Marketing               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Jewish Networks                |  | $                           | 624    |                           | $ | 940    |  | $    | 1,329  |  | $ | 1,929 
|General Market Networks        |  |                             | 962    |                           |   | 2,040  |  |      | 2,298  |  |   | 5,678 
|Other Affinity Networks        |  |                             | 1,968  |                           |   | 1,918  |  |      | 3,810  |  |   | 3,913 
|Offline & Other Businesses     |  |                             | 469    |                           |   | 546    |  |      | 658    |  |   | 681   
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total                          |  | $                           | 4,023  |                           | $ | 5,444  |  | $    | 8,095  |  | $ | 12,201
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Contribution                   |  |                             |        |                           |   |        |  |      |        |  |   |       
|Jewish Networks                |  | $                           | 8,019  |                           | $ | 7,299  |  | $    | 15,981 |  | $ | 14,647
|General Market Networks        |  |                             | 1,212  |                           |   | 2,244  |  |      | 2,452  |  |   | 3,638 
|Other Affinity Networks        |  |                             | 1,437  |                           |   | 1,289  |  |      | 2,948  |  |   | 2,523 
|Offline & Other Businesses     |  |                             | 296    |                           |   | 340    |  |      | 533    |  |   | 427   
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total                          |  | $                           | 10,964 |                           | $ | 11,172 |  | $    | 21,914 |  | $ | 21,235
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Unallocated operating expenses |  |                             | 8,041  |                           |   | 9,458  |  |      | 16,514 |  |   | 21,181
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Operating income               |  | $                           | 2,923  |                           | $ | 1,714  |  | $    | 5,400  |  | $ | 54    
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       

Due to the Companys integrated business structure, operating expenses, other than direct marketing expenses,
are not allocated to the individual reporting segments. As such, the Company does not measure operating profit or loss by segment for internal reporting purposes. Assets and liabilities are not allocated to the different business segments for
internal reporting purposes. Depreciation and amortization are included in unallocated operating expenses.



|8. | Commitments and Contingencies
|-- | -----------------------------

Legal Proceedings

Jason Adelman, etc., et al., v. Matchnet plc, etc., et al

On November 14, 2003, Jason Adelman filed a nationwide class action complaint against us in the Los Angeles County Superior Court based on an alleged violation of California Civil Code section 1694 et seq., which regulates businesses
that provide dating services. The complaint included allegations that we are a dating service as defined by the applicable statutes and, as an alleged dating service, we are required to provide language in our contracts that allows (i) members
to rescind their contracts within three days, (ii) reimbursement of a portion of the contract price if the member dies during the term of the contract and/or (iii) members to cancel their contracts in the event of disability or relocation.
Causes of action include breach of applicable state law, fraudulent and deceptive business practices, breach of contract and unjust enrichment.

On
August 8, 2006, the Court granted the Companys application to bifurcate the Adelmantrial of the issue of actual injury or damages and set the trial for August 17, 2006 (the Bifurcated Damages Trial). The Court
determined at the Bifurcated Damages Trial that Adelman did not suffer any actual injury or damages, Adelmans claims were dismissed, and a judgment was entered to award attorneys fees and costs to the Company. On January 31, 2007,
the Court awarded the Company $50,000 in legal fees. Adelman filed an appeal seeking to vacate the judgment. In addition, the Company filed an appeal of the attorneys fees award in order to seek an award of all of the attorneys fees
incurred in this matter. Although we agree that the Court properly granted our Attorneys Fees Motion, we believe that the Court should have awarded us attorneys fees in the full amount we requested, approximately $390,000, and not the
amount actually awarded, $50,000. Adelman has cross-appealed in an attempt to vacate the attorneys fees award entirely. The Appellate Court heard oral argument on February 19, 2008. On March 20, 2008, the Appellate Court issued an
Order Vacating Submission in response to a letter dated March 17, 2008 from the Court of Appeals in which the Court has asked to be briefed on certain additional issues. Briefs were filed by both parties on April 23, 2008. On May 20,
2008, the Court entered its decision in which it affirmed the previous judgment and order awarding attorneys fees in the amount of $50,000. On June 26, 2008, Adelman filed a Petition for Hearing with the California Supreme Court. On July 16,
2008, we filed a Notice of Settlement with the California Supreme Court. Settlement documents have been drafted, however they have not yet been executed by the parties.



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Data Match Enterprises of Texas, LLC v. Spark Networks, Inc., et al.

Data Match Enterprises of Texas has asserted that the Company has infringed U.S. Patent No. 5,623,660, entitled System For Regulating Access to Data Base for
Purposes of Data Base Management. The litigation was commenced against other defendants on October 4, 2007. The Company was added as a defendant by an Amended Complaint dated May 1, 2008. The Company filed an Answer on August 4,
2008.

The Company strongly disputes the merits of the claims asserted in both of these matters and shall vigorously defend against them.

The Company has additional existing legal claims and may encounter future legal claims in the normal course of business. In the Companys opinion, the resolutions
of the existing legal claims are not expected to have a material impact on its financial position or results of operations. The Company believes it has accrued appropriate amounts where necessary in connection with the above litigation.



|9. | Impairment of Goodwill
|-- | ----------------------

In the first quarter of 2007, the Company
undertook certain marketing initiatives designed to reverse the decline in revenues for its AmericanSingles website. While partially successful, the initiatives at that time did not increase new subscriber additions to the point that subscriber
levels stabilized, and management determined that spending required for the marketing initiatives was not sustainable and thus they were terminated. An analysis of the expected cash flows from the website after the first quarter 2007 initiatives
were terminated resulted in expectations of future profitability for the site that were insufficient to sustain the carrying value of goodwill on the Companys balance sheet. Accordingly, the Company recorded a $1.9 million impairment expense
related to the elimination of the book carrying value of goodwill under SFAS 142Goodwill and Other Intangible Assetsrelated to AmericanSingles in the first quarter of 2007.



|10. | Subsequent Events
|--- | -----------------

Shares Repurchased

On July 18, 2008, in a privately negotiated transaction, the Company purchased 1.6 million shares of its common stock at an average price of $3.81 per share or
approximately $6.1 million.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes that are included in this
Quarterly Report and the audited consolidated financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year
ended December 31, 2007.

Some of the statements contained in this Managements Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this Quarterly Report are forward-looking statements that involve substantial risks and uncertainties. All statements other than historical facts contained in this report, including statements regarding
our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as believes,
expects, anticipates, intends, estimates, may, will, continue, should, plan, predict, potential and other similar
expressions. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and
financial needs. Our actual results could differ materially from those anticipated in these forward-looking statements, which are subject to a number of risks, uncertainties and assumptions and other factors described in the Risk Factors
section and elsewhere in this report and in the Risk Factors section of our 2007 Annual Report.



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General

As of the
completion of the Scheme of Arrangement on July 9, 2007, the shares of Spark Networks, Inc. have been traded on the American Stock Exchange. Prior to our Scheme of Arrangement, we were a public limited company incorporated under the laws of
England and Wales and our ordinary shares in the form of Global Depositary Shares traded on the Frankfurt Stock Exchange and in the form of American Depository Shares on the American Stock Exchange. We are a leading provider of online personals
services in the United States and internationally. Our websites enable adults to meet online and participate in communities, become friends, date, form long-term relationships or marry.

Segment Reporting

During the third quarter of 2007, the
Company changed its financial reporting to include data on four newly-defined operating segments: Jewish Networks, which consists of JDate.com, JDate.co.il, Cupid.co.il and their respective co-branded and private label websites; General Market
Networks, which consists of AmericanSingles.com, Date.co.uk, Date.ca and their respective co-branded and private label websites; Other Affinity Networks, which consists of the Companys Provo, Utah-based properties which are primarily made up
of sites targeted towards various religious, ethnic, geographic and special interest groups; and Offline & Other Businesses, which consists of revenue generated from offline activities, HurryDate events and subscriptions to HurryDate.com,
and other websites and businesses. The change, in compliance with Financial Accounting Standard No. 131, Disclosures about Segments of an Enterprise and Related Information, is a result of the change to the Companys overall
revenue mix and how management views the business. We believe the new segments will provide investors with a more accurate picture of the performance of the business. Prior period segment disclosures were revised to conform to the revised segment
presentation.



|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|------------------------------ |  | --------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                               |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|(in thousands)                 |  | 2008                        |        | 2007                      |   | 2008   |  | 2007
|Revenues                       |  |                             |        |                           |   |        |  |      |        |  |   |       
|Jewish Networks                |  | $                           | 8,643  |                           | $ | 8,239  |  | $    | 17,310 |  | $ | 16,576
|General Market Networks        |  |                             | 2,174  |                           |   | 4,284  |  |      | 4,750  |  |   | 9,316 
|Other Affinity Networks        |  |                             | 3,405  |                           |   | 3,207  |  |      | 6,758  |  |   | 6,436 
|Offline & Other Businesses     |  |                             | 765    |                           |   | 886    |  |      | 1,191  |  |   | 1,108 
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total                          |  | $                           | 14,987 |                           | $ | 16,616 |  | $    | 30,009 |  | $ | 33,436
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Direct Marketing               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Jewish Networks                |  | $                           | 624    |                           | $ | 940    |  | $    | 1,329  |  | $ | 1,929 
|General Market Networks        |  |                             | 962    |                           |   | 2,040  |  |      | 2,298  |  |   | 5,678 
|Other Affinity Networks        |  |                             | 1,968  |                           |   | 1,918  |  |      | 3,810  |  |   | 3,913 
|Offline & Other Businesses     |  |                             | 469    |                           |   | 546    |  |      | 658    |  |   | 681   
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total                          |  | $                           | 4,023  |                           | $ | 5,444  |  | $    | 8,095  |  | $ | 12,201
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Contribution                   |  |                             |        |                           |   |        |  |      |        |  |   |       
|Jewish Networks                |  | $                           | 8,019  |                           | $ | 7,299  |  | $    | 15,981 |  | $ | 14,647
|General Market Networks        |  |                             | 1,212  |                           |   | 2,244  |  |      | 2,452  |  |   | 3,638 
|Other Affinity Networks        |  |                             | 1,437  |                           |   | 1,289  |  |      | 2,948  |  |   | 2,523 
|Offline & Other Businesses     |  |                             | 296    |                           |   | 340    |  |      | 533    |  |   | 427   
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total                          |  | $                           | 10,964 |                           | $ | 11,172 |  | $    | 21,914 |  | $ | 21,235
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Unallocated operating expenses |  |                             | 8,041  |                           |   | 9,458  |  |      | 16,514 |  |   | 21,181
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Operating income               |  | $                           | 2,923  |                           | $ | 1,714  |  | $    | 5,400  |  | $ | 54    
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       



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##### Table of Contents

Key Metric - Average Paying Subscribers

We regularly review average paying subscribers as a key metric to evaluate the effectiveness of our operating strategies and monitor the financial performance of our business. Subscribers are defined as individuals
for whom we collect a monthly fee for access to communication and website features beyond those provided to our non-paying members. Average paying subscribers for each month are calculated as the sum of the paying subscribers at the beginning and
end of the month, divided by two. Average paying subscribers for periods longer than one month are calculated as the sum of the average paying subscribers for each month, divided by the number of months in such period.

Unaudited selected statistical information regarding Average Paying Subscribers for our operating segments is shown in the table below. Prior period amounts have been
reclassified to conform to current period presentation.



|                           |  |                            |  |                          |  |         |  |        
|-------------------------- |  | -------------------------- |  | ------------------------ |  | ------- |  | -------
|                           |  | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|                           |  | 2008                       |  | 2007                     |  | 2008    |  | 2007   
|Average Paying Subscribers |  |                            |  |                          |  |         |  |        
|Jewish Networks            |  | 91,598                     |  | 93,408                   |  | 92,159  |  | 94,687 
|General Market Networks    |  | 33,573                     |  | 61,529                   |  | 35,504  |  | 66,985 
|Other Affinity Networks    |  | 63,309                     |  | 62,450                   |  | 61,721  |  | 60,781 
|Offline & Other Businesses |  | 1,975                      |  | 1,809                    |  | 2,170   |  | 1,211  
|                           |  |                            |  |                          |  |         |  |        
|Total                      |  | 190,455                    |  | 219,196                  |  | 191,554 |  | 223,664
|                           |  |                            |  |                          |  |         |  |        

Average paying subscribers for the Jewish Networks segment decreased 1.9% and 2.7% to 91,598 and 92,159 for the
three and six months ended June 30, 2008 compared to 93,408 and 94,687 in the same periods last year. Average paying subscribers for the General Market Networks segment decreased 45.4% and 47.0% to 33,573 and 35,504 for the three and six
months ended June 30, 2008 compared to 61,529 and 66,985 in the same periods last year. Average paying subscribers for the Other Affinity Networks segment increased 1.4% and 1.5% to 63,309 and 61,721 for the three and six months ended
June 30, 2008 compared to 62,450 and 60,781 in the same periods last year.

Results of Operations

The following table presents our historical operating results as a percentage of net revenues:



|                                          |  |                            |   |  |                          |   |  |       |   |  |       |  
|----------------------------------------- |  | -------------------------- | - |  | ------------------------ | - |  | ----- | - |  | ----- | -
|                                          |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                          |  | 2008                       |   |  | 2007                     |   |  | 2008  |   |  | 2007  |  
|Net revenues                              |  | 100.0                      | % |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | %
|Direct marketing                          |  | 26.8                       |   |  | 32.8                     |   |  | 27.0  |   |  | 36.5  |  
|                                          |  |                            |   |  |                          |   |  |       |   |  |       |  
|Contribution margin                       |  | 73.2                       |   |  | 67.2                     |   |  | 73.0  |   |  | 63.5  |  
|                                          |  |                            |   |  |                          |   |  |       |   |  |       |  
|Operating expenses:                       |  |                            |   |  |                          |   |  |       |   |  |       |  
|Sales and marketing                       |  | 7.5                        |   |  | 5.2                      |   |  | 7.3   |   |  | 5.1   |  
|Customer service                          |  | 3.9                        |   |  | 5.2                      |   |  | 4.0   |   |  | 5.1   |  
|Technical operations                      |  | 6.8                        |   |  | 7.1                      |   |  | 6.9   |   |  | 7.1   |  
|Development                               |  | 7.4                        |   |  | 5.9                      |   |  | 7.8   |   |  | 6.3   |  
|General and administrative                |  | 26.6                       |   |  | 31.4                     |   |  | 27.2  |   |  | 31.9  |  
|Amortization of intangible assets         |  | 1.5                        |   |  | 2.1                      |   |  | 1.8   |   |  | 2.1   |  
|Impairment of goodwill                    |  |                           |   |  |                         |   |  |      |   |  | 5.7   |  
|                                          |  |                            |   |  |                          |   |  |       |   |  |       |  
|Total operating expenses                  |  | 53.7                       |   |  | 56.9                     |   |  | 55.0  |   |  | 63.3  |  
|                                          |  |                            |   |  |                          |   |  |       |   |  |       |  
|Operating income                          |  | 19.5                       |   |  | 10.3                     |   |  | 18.0  |   |  | 0.2   |  
|Interest (income) and other expenses, net |  | (1.5                       | ) |  | (1.8                     | ) |  | (1.9  | ) |  | (1.5  | )
|                                          |  |                            |   |  |                          |   |  |       |   |  |       |  
|Income before income taxes                |  | 21.0                       |   |  | 12.1                     |   |  | 19.9  |   |  | 1.7   |  
|Provision for income taxes                |  | 10.1                       |   |  | 0.6                      |   |  | 9.2   |   |  | 0.1   |  
|                                          |  |                            |   |  |                          |   |  |       |   |  |       |  
|Net income                                |  | 10.9                       | % |  | 11.5                     | % |  | 10.7  | % |  | 1.6   | %
|                                          |  |                            |   |  |                          |   |  |       |   |  |       |  



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Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Net Revenues

Substantially all of our net revenues are derived
from subscription fees. The remainder of our net revenues, accounting for approximately 7% and 6% of total net revenues for the three months ended June 30, 2008 and 2007, respectively, are attributable to certain offline events and third party
advertising on some of our websites. Revenues are presented net of credits and credit card charge-backs. Our subscriptions are offered in durations of varying length (typically, one, three, six and twelve months). Plans with durations longer than
one month are available at discounted monthly rates. Following their initial terms, most subscriptions renew automatically for subsequent one-month periods until subscribers terminate them.

Net revenues decreased 9.8% to $15.0 million in the second quarter of 2008 compared to $16.6 million in the second quarter of 2007. The majority of this decline can be
attributed to the managed decline in the Companys General Market Networks segment. Net revenues for the Jewish Networks segment increased 4.9% to $8.6 million in the second quarter of 2008 compared to $8.2 million in the second quarter of
2007. The increase in net revenues for the Jewish Networks segment is primarily due to the full quarter realization of a rate increase in the one-month subscription price of JDate.com compared to a partial quarter of rate increase realization in the
second quarter of 2007. Net revenues for the General Market Networks segment decreased 49.3% to $2.2 million in the quarter ended June 30, 2008, compared to $4.3 million in the quarter ended June 30, 2007. The decrease in net revenues for
our General Market Networks segment is primarily due to the decrease in average paying subscribers, reflecting managements decision to acquire subscribers at acceptable profit levels. Net revenues for our Other Affinity Networks segment
increased 6.2% to $3.4 million in the second quarter of 2008 compared to $3.2 million in the second quarter of 2007. The increase in net revenues for our Other Affinity Networks segment is primarily attributable to an increase in average paying
subscribers as well as an increase in the average price per unit. Net revenues of our Offline & Other Businesses segment decreased 13.7% to $765,000 in the second quarter of 2008 compared to $886,000 in the second quarter of 2007. The
decrease in net revenues for our Offline & Other Businesses segment is largely attributable to a different combination of travel and event offerings in the second quarter of 2008 as compared to the second quarter of 2007.

Direct Marketing Expenses

Direct marketing expenses decreased
26.1% to $4.0 million in the second quarter of 2008 compared to $5.4 million in the second quarter of 2007. The majority of this decline can be attributed to a reduction in marketing programs associated with the General Market Networks and Jewish
Networks segments. Direct marketing expenses for the Jewish Networks segment decreased 33.6% to $624,000 in the second quarter of 2008 compared to $940,000 in 2007. The decrease reflects the elimination of certain inefficient online and offline
marketing programs. Direct marketing expenses for the General Market Networks segment decreased 52.8% to $962,000 in the second quarter of 2008 compared to $2.0 million in the second quarter of 2007. The decrease reflects managements decision
to pursue more cost-effective subscriber acquisition campaigns. Direct marketing expenses for the Other Affinity Networks segment increased 2.6% to $2.0 million for the second quarter of 2008 compared to $1.9 million in the second quarter of 2007.
Direct marketing expenses for the Offline & Other Businesses segment decreased 14.1 % to $469,000 for the second quarter of 2008 compared to $546,000 for the same period in 2007. The decrease reflects a lower cost for the large-scale
travel offering in the second quarter of 2008 compared to the similar trip in 2007.



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##### Table of Contents

Operating Expenses

Operating expenses consist primarily of sales and marketing, customer service, technical operations, development and general and administrative expenses. Operating expenses for the second quarter of 2008 were $8.0 million, a decrease of 15%
compared to $9.5 million for the second quarter of 2007. The decrease is primarily attributable to a $1.2 million decrease in general and administrative expenses.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries for our sales and marketing personnel and other associated support services. Sales and marketing expenses increased 30.4% to $1.1 million in the second
quarter of 2008 compared to $865,000 in the second quarter of 2007. The increase can be primarily attributed to higher compensation and benefit expense associated with the addition of new employees. Stated as a percentage of net revenues, sales and
marketing expenses increased to 7.5% in the second quarter of 2008 compared to 5.2% for the same period in 2007.

Customer Service.Customer service
expenses consist primarily of costs associated with our customer service centers. Customer service expenses decreased 32.5% to $581,000 in the second quarter of 2008 compared to $861,000 in the second quarter of 2007. The decrease is primarily due
to a reduction in temporary labor and consulting fees of approximately $190,000 and approximately $76,000 of savings in payroll expense. The lower temporary labor, consulting fees and payroll expense reflect greater operating efficiencies at the
Companys Beverly Hills, CA and Provo, UT locations. Stated as a percentage of net revenues, customer service expenses decreased to 3.9% in the quarter ended June 30, 2008 compared to 5.2% in the same period in 2007.

Technical Operations.Technical operations expenses consist primarily of the people and systems necessary to support our network,
Internet connectivity and other data and communication requirements. Technical operations expenses decreased 13.5% to $1.0 million in the second quarter of 2008 compared to $1.2 million in the second quarter of 2007. The decrease is primarily due to
lower depreciation expense of approximately $245,000, offset by an increase in salary and benefits expense of approximately $75,000. Stated as a percentage of net revenues, technical operations expenses decreased to 6.8% in the second quarter of
2008 compared to 7.1% in the same period in 2007.

Development.Development expenses consist primarily of costs incurred in the
development, enhancement and maintenance of our websites and services. Development expenses increased 13.8% to $1.1 million in the second quarter of 2008 compared to $1.0 million in the same period in 2007. The increase can be primarily attributed
to an increase in consulting fees of approximately $25,000 and an increase in site analytic fees of approximately $53,000. Stated as a percentage of net revenues, development expenses increased to 7.4% in the second quarter of 2008 compared to 5.9%
in the same period in 2007.

General and Administrative.General and administrative expenses consist primarily of corporate personnel-related costs,
professional fees, credit card processing fees, and occupancy and other overhead costs. General and administrative expenses decreased 23.8% to $4.0 million in the second quarter of 2008 compared to $5.2 million in the second quarter of 2007. The
decrease in general and administrative expense can be primarily attributed to the absence of Scheme of Arrangement costs of approximately $687,000, a $125,000 decrease in payroll expense, and $112,000 reduction in credit card fees. Stated as a
percentage of net revenues, general and administrative expenses decreased to 26.6% in the second quarter of 2008 compared to 31.4% in the same period in 2007.

Amortization of Intangible Assets.Amortization expenses consist primarily of amortization of intangible assets related to previous acquisitions, primarily MingleMatch, LDSSingles and HurryDate. Amortization expense decreased 37.3%
to $222,000 in the second quarter of 2008 compared to $354,000 in the second quarter of 2007 as certain intangible assets were fully amortized.

Interest Income/Expense and Other, Net.Interest income/expense and other consist primarily of interest income associated with temporary investments in interest bearing accounts and foreign exchange gains and losses related to the
intercompany loan with our wholly-owned Israeli subsidiary. Net interest income decreased to $224,000 for the quarter ended June 30, 2008 from $297,000 for



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the same period in 2007. The decrease is primarily due to interest expense on our current borrowing and lower interest income which are offset by a $262,000
foreign currency translation gain associated with the intercompany loan. The lower interest income primarily reflects a lower cash balance in the second quarter of 2008 compared to the second quarter of 2007 due to the Companys use of cash to
fund its stock repurchases.

Net Income and Earnings Per Share

Net income for the second quarter of 2008 was $1.6 million, or $0.07 per share, compared to net income of $1.9 million, or $0.06 per share for the second quarter of 2007. The decrease to net income reflects lower operating expenses and a
benefit from a currency translation adjustment, offset by a higher income tax provision and lower contribution in the second quarter of 2008. Earnings per share increased due to a reduction in fully diluted weighted average shares outstanding.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Net Revenues

Substantially all of our net revenues are derived
from subscription fees. The remainder of our net revenues, accounting for 5% and 4% of total net revenues for the six month period ended June 30, 2008 and the six month period ended June 30, 2007, respectively, are attributable to
certain offline events and revenue from third party advertising on some of our websites. Revenues are presented net of credits and credit card chargebacks. Our subscriptions are typically offered in durations of one, three, five, six and
twelve months. Plans with durations longer than one month are available at discounted rates. Following their initial terms, most subscriptions renew automatically for subsequent one-month periods until subscribers terminate them.

Net revenues decreased 10.2% to $30.0 million in the first six months of 2008 compared to $33.4 million in the first six months of 2007. The majority of
this decline can be attributed to the managed decline in the Companys General Market Networks segment. Net revenues for the Jewish Networks segment increased 4.4% to $17.3 million in the first six months of 2008 compared to $16.6 million in
the first six months of 2007. The increase in net revenues for the Jewish Networks segment is primarily due to a full six-month realization of a rate increase in the one-month subscription price of JDate.com compared to a partial period of rate
increase realization in the first six months of 2007. Net revenues for the General Market Networks segment decreased 49.0% to $4.8 million in the six months ended June 30, 2008, compared to $9.3 million in the first six months of 2007. The
decrease in net revenues for our General Market Networks segment is due to the decrease in average paying subscribers, reflecting managements decision to improve contribution margin for this segment. Net revenues for our Other Affinity
Networks segment increased 5.0% to $6.8 million in the first six months of 2008 compared to $6.4 million in the first six months of 2007. The increase in net revenues for our Other Affinity Networks segment is primarily attributed to an increase in
average paying subscribers, higher average revenue per unit and higher advertising revenue. Net revenues for the Offline & Other Businesses segment increased 7.5% to $1.2 million in the first six months of 2008 compared to $1.1 million in
the first six months of 2007. The increase in net revenues for our Offline & Other Businesses segment is largely attributable to a full quarter of HurryDate results in the first quarter of 2008 as well as an additional travel event in the
first quarter of 2008. We acquired the HurryDate business in February 2007.

Direct Marketing Expenses

Direct marketing expenses decreased 33.7% to $8.1 million in the first six months of 2008 compared to $12.2 million in the first six months of 2007. The majority of this
decline can be attributed to a reduction in inefficient marketing programs associated with the General Market Networks and Jewish segments. Direct marketing expenses for the Jewish Networks segment decreased 31.1% to $1.3 million in the first six
months of 2008 compared to $1.9 million in the first six months of 2007. The decrease in marketing reflects the elimination of certain inefficient online and offline marketing programs. Direct marketing expenses for the General Market Networks
segment decreased 59.5% to $2.3 million in the first six months of 2008 compared to $5.7 million in the same period in 2007. The decrease reflects managements decision to pursue more cost effective subscriber acquisition marketing campaigns.
Direct marketing expenses for the Other Affinity Networks segment decreased 2.6% to $3.8 million for the first six months of 2008 compared to $3.9 million in the first six months of 2007. Direct marketing expenses for the Offline & Other
Businesses segment decreased 3.4% to $658,000 for the first six months of 2008 compared to $681,000 in 2007. The decrease reflects a lower cost for the travel offering in the second quarter of 2008 compared to the second quarter of 2007.



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Operating Expenses

Operating expenses consist primarily of sales and marketing, customer service, technical operations, development and general and administrative expenses. Operating expenses for the first six months of 2008 were $16.5 million, a decrease of
22.0% compared to $21.2 million for the first six months of 2007. The decrease is primarily attributable to a $2.5 million reduction in general and administrative expense, a $1.9 million impairment charge associated with the write down of the book
carrying value of goodwill for AmericanSingles in the first quarter of 2007, and a $147,000 decrease in amortization of intangible assets expense.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries for our sales and marketing personnel and other associated support services. Sales and marketing expenses increased 28.4% to $2.2 million in the first
six months of 2008 compared to $1.7 million in the first six months of 2007. The increase can be primarily attributed to higher salaries and benefits expense associated with the addition of new employees. Stated as a percentage of net revenues,
sales and marketing expenses increased to 7.3% in the first six months of 2008 compared to 5.1% for the same period in 2007.

Customer Service.Customer service expenses consist primarily of costs associated with our customer service centers. Customer service expenses decreased 28.8% to $1.2 million in the first six months of 2008 compared to $1.7 million in the first six months of
2007. The decrease is most attributable to a $367,000 reduction in temporary labor and consulting fees. The lower temporary labor and consulting fees reflect greater operating efficiencies at the Companys Beverly Hills, CA and Provo, UT
locations. Stated as a percentage of net revenues, customer service expenses decreased to 4.0% in the six months ended June 30, 2008 compared to 5.1% in the same period in 2007.

Technical Operations.Technical operations expenses consist primarily of the people and systems necessary to support our network, Internet connectivity and other data and
communication requirements. Technical operations expenses decreased 11.9% to $2.1 million in the first six months of 2008 compared to $2.4 million in the first six months of 2007. The decrease is primarily due to a $458,000 decrease in depreciation
expense, offset by a $187,000 increase in salaries and benefits expense. Stated as a percentage of net revenues, technical operations expenses decreased to 6.9% in the first six months of 2008 compared to 7.1% in the same period in 2007.

Development.Development expenses consist primarily of costs incurred in the development, enhancement and maintenance of our websites and
services. Development expenses increased 9.9% to $2.3 million in the first six months of 2008 compared to $2.1 million in the first six months of 2007. The increase can be primarily attributed to a $100,000 increase in consulting and placement fees.
Stated as a percentage of net revenues, development expenses increased to 7.8% in the first six months of 2008 compared to 6.3% in the same period in 2007.

General and Administrative.General and administrative expenses consist primarily of corporate personnel-related costs, professional fees, credit card processing fees, and occupancy and other overhead costs. General and
administrative expenses decreased 23.8% to $8.2 million in the first six months of 2008 compared to $10.7 million in the first six months of 2007. The decrease in general and administrative expense can be primarily attributed to the absence of $1.1
million in Scheme of Arrangement costs, a $430,000 decrease in salaries and benefits expense, a $346,000 decrease in credit card fees, a $157,000 decrease in property and casualty insurance expense, a $126,000 decrease in depreciation expense.
Stated as a percentage of net revenues, general and administrative expenses decreased to 27.2% in the first six months of 2008 compared to 31.9% in the first six months of 2007.

Amortization of Intangible Assets.Amortization expenses consist primarily of amortization of intangible assets related to previous acquisitions, primarily MingleMatch, LDSSingles and HurryDate. Amortization
expense decreased 21.1% to $551,000 in the first six months of 2008 compared to $698,000 in the first six months of 2007.

Interest Income/Expense and
Other, Net.Interest income/expense and other consist primarily of interest income associated with temporary investments in interest bearing accounts and foreign exchange gains and losses related to the intercompany loan with our wholly-owned
Israeli subsidiary. Net interest income increased to $558,000 for the six months ended June 30, 2008 from $502,000 for the same period in 2007. The increase is primarily due to a $622,000 foreign currency translation gain associated with the
intercompany loan offset by $25,000 in interest expense on our current borrowing and lower interest income. The lower interest income reflects a lower cash balance in the first six months of 2008 due to the Companys use of cash to fund its
share repurchase program.



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##### Table of Contents

Net Income and Earnings Per Share

Net income for the first six months of 2008 was $3.2 million, or $0.13 per share, compared to net income of $534,000, or $0.02 per share for the first six months of 2007. The increase to net income is primarily
attributed to a $679,000 increase in contribution, a $2.5 million decrease in G&A expenses, a $147,000 decrease in amortization expense, the absence of a $1.9 million charge for the impairment of goodwill, offset by a $2.7 million increase in
the tax provision. Earnings per share increased due to a combination of higher net income as well as a reduction in fully diluted weighted average shares outstanding as a result of the Companys stock repurchases.

Liquidity and Capital Resources

As of June 30, 2008, we have
cash and cash equivalents of $10.8 million. We have historically financed our operations with internally generated funds.

On February 14, 2008,
the Company, and Spark Networks Limited, as the borrower, entered into a $30.0 million credit agreement with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer and certain subsidiaries of the Company acting
as guarantors. The credit agreement expires, and all borrowings there under mature and are due and payable, unless terminated earlier, on February 14, 2011, which may be extended upon six months notice and at the lenders discretion.
The credit agreement provides for committed loans, swing line loans (which are loans with terms of 10 business days or less), and letters of credit. All loans may be prepaid without any prepayment penalty. The per annum interest rate under the
credit agreement is based upon a financial leverage ratio of less than 1.00, 1.00 to 1.49 and 1.50 and greater. The corresponding interest rates on LIBOR based borrowings are LIBOR plus 1.50%, 1.75% and 2.00%, respectively. In the event the Company
elects to borrow under a base rate loan, the corresponding interest rates are the prime rate plus 0.50%, 0.75% and 1.00%, respectively. The Company pays a 0.125% per annum commitment fee on all funds not utilized under the facility, measured on
a daily basis. The credit agreement contains various customary affirmative and negative covenants, such as the requirement to provide financial statements and notices upon certain events, and the prohibition of the creation of additional liens,
borrowings and guarantees beyond those permitted in the credit agreement. The Company is also required to maintain a consolidated leverage ratio at any time during any period of four fiscal quarters of greater than 2.00 to 1.00 for quarters through
March 31, 2010 and 1.50 to 1.00 for quarters on and after June 30, 2010, and a consolidated adjusted EBITDA for each period of four consecutive fiscal quarters of $12 million through the quarter ending September 30, 2008, $13 million
for the quarters ending December 31, 2008 through September 30, 2009, $14 million for the quarters ending December 31, 2009 through September 30, 2010 and $15 million for the quarters ending on and after December 31, 2010.
Upon an event of default, such as failure to pay under the credit agreement, a default under any other lending arrangement, a change of control or violation of a covenant, then a default rate of 2% per annum is added to the interest rates
described above. As of June 30, 2008, the Company had a $5.0 million balance outstanding on its revolving credit facility.

Net cash provided by
operations was $7.2 million for the six months ended June 30, 2008 compared to $6.5 million for the same period in 2007. The increase is primarily due to the improved profitability of our business.

Net cash used in investing activities was $760,000 for the first six months of 2008 compared to $2.5 million for the same period in 2007. In the first quarter of 2007,
we made an initial payment of approximately $2.3 million for the purchase of HurryDate. In the second quarter of 2008, we paid an additional $770,000 to the former owners of HurryDate pursuant to an earn-out clause in the Purchase Agreement between
the Company and the former owners of HurryDate.

Net cash used in financing activities was $4.4 million for the first six months of 2008 compared to $3.5
million for the first six months of 2007. For the first six months of 2008, the Company purchased its own shares for approximately $9.0 million and received funds from its revolving credit facility totaling $5.0 million. For the first six
months of 2007, the Company purchased its own shares for approximately $3.3 million,



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We believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our
anticipated cash needs for working capital, planned capital expenditures and contractual obligations for at least the next 12 months. We may be required or find it desirable prior to such time to raise additional funds through bank financing or
through the issuance of debt or equity.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually, narrow or limited purposes. We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign
currency forward contracts.



|ITEM 3. | QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | --------------------------------------------------------

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relate primarily to our cash, cash equivalents,
borrowings under our credit facility and marketable securities. We have not used derivative financial instruments to mitigate such risk.

Investments in
both fixed-rate and floating-rate interest-earning instruments carry a degree of interest rate risk. Fixed-rate securities may have their market values adversely impacted due to a rise in interest rates, while floating-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 if forced to sell securities which have
declined in market value due to changes in interest rates. Due to the short-term nature of our investment portfolio, and our ability to liquidate this portfolio in short order, we do not believe that a 10% increase in interest rates would have a
material effect on the fair market value of our investment portfolio.

Foreign Currency Risk

Our exposure to foreign currency risk is due primarily to our international operations. Revenues and certain expenses related to our international websites are
denominated in the functional currencies of the local countries they serve. Primary currencies include Israeli shekels, Canadian dollars, British pound sterling and Euros. Our foreign subsidiary in Israel conducts business in its local currency. We
translate into U.S. dollars the assets and liabilities using period-end rates of exchange and revenues and expenses using average rates of exchange for the year. Any weakening of the U.S. dollar against these foreign currencies will result in
increased revenue, expenses and translation gains and losses in our consolidated financial statements. Similarly, any strengthening of the U.S. dollar against these currencies will result in decreased revenues, expenses and translation gains and
losses. We do not believe that a hypothetical 10% increase in foreign currency exchange rates would have a material effect on our financial statements.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

(a) Evaluation of disclosure
controls and procedures

As of June 30, 2008, our management, with the participation of our Chief Executive Officer (CEO), and Chief Financial
Officer (CFO), performed an evaluation of the effectiveness and the operation of our disclosure controls and procedures as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange
Act. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2008.



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(b) Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) Rule 13a-15 or
15d-15 under the Exchange Act that occurred during the quarter ended June 30, 2008 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

PART II. OTHER INFORMATION.



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

The information required by this item is
contained in the financial statements contained in this report under Note 8 Commitments and ContingenciesLegal Proceedings and is incorporated by reference. Also, refer to our Annual Report on Form 10-K for the year ended
December 31, 2007 and our Quarterly Report on Form 10-Q for the period ending March 31, 2008 for a further description of litigation and claims.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There have been no material changes from the
risk factors disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2007.



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

Purchases of Equity Securities

Our board of directors authorized an open market stock buyback plan on March 10, 2008 for up to a total
of 1.0 million shares of common stock. On March 14, 2008, our board of directors authorized an additional 500,000 shares. On May 5, 2008, we completed the buyback program having purchased the full 1,500,000 shares authorized under the
plan. We purchased an additional 600,000 shares from a private party in the second quarter of 2008 for $2.5 million and another 1.6 million shares for approximately $6.1 million from a different private party in the third quarter of 2008.



|                 |  |                               |  |                            |  |                                                                  
|---------------- |  | ----------------------------- |  | -------------------------- |  | -----------------------------------------------------------------
|                 |  | TotalNumber ofSharesPurchased |  | AveragePrice PaidPer Share |  | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans
|April 1  Apr 30 |  | 119,768                       |  | 4.39                       |  | 119,768                                                          
|May 1  May 31   |  | 1,179,003                     |  | 4.34                       |  | 579,003                                                          
|June 1  June 30 |  |                              |  |                            |  |                                                                 
|                 |  |                               |  |                            |  |                                                                  
|Total            |  | 1,298,771                     |  |                            |  | 698,771                                                          
|                 |  |                               |  |                            |  |                                                                  



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------

None.



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

On June 18,
2008, we held our annual meeting of stockholders. Of 25,225,449 shares eligible to vote, 22,372,589, or 88.7%, votes were returned, formulating a quorum. At the annual stockholders meeting, the following matters were submitted to stockholders for
vote: Proposal IElection of Michael A Kumin, Class II Director and Proposal IIRatification of the appointment of Ernst & Young LLP as our independent auditors for the year ending December 31, 2008.

Proposal IElection of Michael A. Kumin, Class II Director

The
election of Michael A. Kumin as a Class II director to serve a three-year term expiring in 2011 was approved with 20,227,425 shares voted for his election and 2,146,164 votes withheld.

Proposal IIRatification of the appointment of Ernst & Young LLP as our independent auditors for the year ending December 31, 2008.

Proposal II was approved with 21,984,549 shares voted for, 388,040 voted against and none abstained from voting, thereby, ratifying the appointment of Ernst & Young LLP as our independent auditors for the year
ending December 31, 2008.



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|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

None.



|ITEM 6. | EXHIBITS.
|------- | ---------

(a) Exhibits:



|      |  |                                                                                                                                                                               
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|31.1  |  | Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                 
|      | 
|31.2  |  | Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                 
|      | 
|32.1* |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.





|* | This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section,
nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any
filings.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.



SPARK NETWORKS, INC./s/ Brett A. Zaneby: Brett A. ZaneChief Financial OfficerDate: August 14, 2008




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