MIME-Version: 1.0 X-Document-Type: Workbook Content-Type: multipart/related; boundary="----=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9" This document is a Single File Web Page, also known as a Web Archive file. If you are seeing this message, your browser or editor doesn't support Web Archive files. Please download a browser that supports Web Archive, such as Microsoft Internet Explorer. ------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Workbook.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

This page should be opened with Microsoft Excel XP or newer.

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet01.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Document And Entity Information	6 Months Ended
Jun. 30, 2011	Aug. 11, 2010
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun 30, 2011
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2011
Entity Registrant Name	SPARK NETWORKS INC
Entity Central Index Key	0001314475
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		20,594,670
Trading Symbol	lov

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet02.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 13,196	$ 13,901
Restricted cash	903	996
Accounts receivable	799	847
Deferred tax asset - current	45	43
Prepaid expenses and other	1,389	911
Total current assets	16,332	16,698
Property and equipment, net	2,685	2,520
Goodwill	9,417	9,156
Intangible assets, net	2,858	3,017
Deferred tax asset - non-current	4,882	4,882
Deposits and other assets	336	295
Total assets	36,510	36,568
Liabilities and Stockholders' Equity
Accounts payable	740	1,371
Accrued liabilities	2,942	3,635
Deferred revenue	5,135	4,331
Total current liabilities	8,817	9,337
Deferred tax liability	919	825
Other liabilities - non-current	1,036	1,036
Total liabilities	10,772	11,198
Commitments and contingencies (Note 6)
Stockholders' equity:
Authorized capital stock consists of 100,000,000 shares of common stock, $0.001 par value; issued and outstanding 20,594,643 and 20,587,336 at June 30, 2011 and December 31, 2010, respectively, at stated values of:	22	21
Additional paid-in-capital	52,577	52,020
Accumulated other comprehensive income	848	773
Accumulated deficit	(27,709)	(27,444)
Total stockholders' equity	25,738	25,370
Total liabilities and stockholders' equity	$ 36,510	$ 36,568

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet03.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Consolidated Balance Sheets
Common stock, shares authorized	100,000,000	100,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares issued	20,594,643	20,587,336
Common stock, shares outstanding	20,594,643	20,587,336

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet04.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Consolidated Statements Of Operations (USD $) In Thousands, except Share data	3 Months Ended	6 Months Ended
Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Consolidated Statements Of Operations
Revenue	$ 11,995	$ 10,289	$ 22,955	$ 20,826
Cost and expenses:
Cost of revenue (exclusive of depreciation shown separately below)	7,347	3,384	13,162	6,541
Sales and marketing	837	851	1,737	1,934
Customer service	449	382	910	778
Technical operations	336	315	750	678
Development	679	778	1,424	1,559
General and administrative	2,199	2,538	4,562	5,325
Depreciation	346	222	636	457
Amortization of intangible assets	93	104	191	226
Impairment of goodwill, long-lived assets and other assets	0	0	0	121
Total cost and expenses	12,286	8,574	23,372	17,619
Operating (loss) income	(291)	1,715	(417)	3,207
Interest expense (income) and other, net	(45)	241	(102)	200
(Loss) income before income taxes	(246)	1,474	(315)	3,007
(Benefit) provision for income taxes	(165)	551	(50)	1,155
Net (loss) income	$ (81)	$ 923	$ (265)	$ 1,852
Net (loss) income per share - basic and diluted	$ 0	$ 0.04	$ (0.01)	$ 0.09
Weighted average shares outstanding - basic	20,589	20,587	20,588	20,584
Weighted average shares outstanding - diluted	20,589	20,598	20,588	20,587

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet05.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Consolidated Statements Of Operations (Parenthetical) (USD $) In Thousands	3 Months Ended	6 Months Ended
Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Stock-based compensation			$ 540	$ 982
Cost Of Revenue [Member]
Stock-based compensation	2	3	4	4
Sales And Marketing [Member]
Stock-based compensation	14	42	48	159
Customer Service [Member]
Stock-based compensation	0	0	0	2
Technical Operations [Member]
Stock-based compensation	27	31	58	105
Development [Member]
Stock-based compensation	10	15	22	27
General And Administrative [Member]
Stock-based compensation	$ 226	$ 181	$ 408	$ 685

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet06.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Consolidated Statements Of Cash Flows (USD $) In Thousands	6 Months Ended
Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net (loss) income	$ (265)	$ 1,852
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization	827	683
Foreign exchange (gain) loss on intercompany loan	(169)	118
Impairment of goodwill and other intangibles	0	121
Stock-based compensation	540	982
Deferred taxes	92	35
Other	2	(61)
Changes in operating assets and liabilities:
Accounts receivable	48	(68)
Restricted cash	93	(49)
Prepaid expenses and other assets	(544)	70
Accounts payable and accrued liabilities	(1,380)	(679)
Deferred revenue	804	(475)
Net cash provided by operating activities	48	2,529
Cash flows from investing activities:
Purchases of property and equipment	(744)	(616)
Purchases of intangible assets	(31)	(25)
Sale of property and other asset	0	1,560
Net cash (used in) provided by investing activities	(775)	919
Cash flows from financing activities:
Proceeds from issuance of common stock	22	17
Net cash provided by financing activities	22	17
Net change in cash	(705)	3,465
Cash and cash equivalents at beginning of period	13,901	6,223
Cash and cash equivalents at end of period	13,196	9,688
Supplemental disclosure of cash flow information:
Cash paid for interest	0	0
Cash paid for income taxes	$ 93	$ 255

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet07.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

The Company And Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

The Company And Summary Of Significant Accounting Policies

The Company And Summary Of Significant Accounting Policies

1.	The Company and Summary of Significant Accounting Policies

The Company

The common stock of Spark Networks, Inc., a Delaware corporation (the "Company"), is traded on the NYSE Amex.

On December 31, 2010, Spark Networks Limited ("SNUK") distributed its shareholdings in each of HurryDate, LLC; MingleMatch, Inc.; Kizmeet, Inc.; SN Holdco, LLC; SN Events, Inc.; Reseaux Spark Canada Ltd. and Spark SocialNet, Inc. by transferring its shares in those companies to Spark Networks, Inc. Spark Networks, Inc. subsequently transferred all of its shares in the same companies to LOV USA, LLC, a newly formed and wholly owned subsidiary of Spark Networks, Inc. SNUK continues to hold all of the shares of Spark Networks (Israel) Limited, VAP AG and JDate Limited. In addition, SNUK now holds all of the shares of Spark Networks USA, LLC, a newly formed subsidiary into which SNUK has transferred all of its United States based assets.

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 Web sites 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 typically charges a subscription fee for 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.

The Company has evaluated all subsequent events through the date the financial statements were issued.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and all of its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated interim financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair presentation 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, goodwill and other intangible assets, 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.

The consolidated financial statements on this Form 10-Q 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, 2010. 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 consolidated balance sheet as of December 31, 2010 was derived from the Company's audited financial statements for the year ended December 31, 2010.

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 and the net unrealized gains or losses on foreign currency translation adjustments. Comprehensive income for each of the periods presented is comprised as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
(in thousands)	2011			2010			2011		2010
Net (loss) income	$	(81	)		$	923		$	(265	)	$	1,852
Foreign currency translation adjustment, net of taxes		36				(83	)		75			(45	)

Total comprehensive income, net of taxes	$	(45	)		$	840		$	(190	)	$	1,807

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet08.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Net Income Per Share

6 Months Ended

Jun. 30, 2011

Net Income per Share

Net Income Per Share

2.	Net Income per Share

The Company calculates and presents the net income per share 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 shares of common stock outstanding. Diluted net income per share includes the effect of potential shares of stock outstanding, including dilutive stock options and warrants, using the treasury stock method.


	Three Months Ended June 30,			Six Months Ended June 30,
	2011			2010			2011		2010
(in thousands except per share data)
Income per Share of Common Stock– Basic
Net (loss) income applicable to common stock	$	(81	)		$	923		$	(265	)	$	1,852

Weighted average shares outstanding-basic		20,589				20,587			20,588			20,584

Basic Net (Loss) Income per Share	$	(0.00	)		$	0.04		$	(0.01	)	$	0.09


Income per Share of Common Stock – Diluted
Net (loss) income applicable to common stock	$	(81	)		$	923		$	(265	)	$	1,852

Weighted average shares outstanding-basic		20,589				20,587			20,588			20,584
Dilutive options using the treasury stock method		—				11			—			3

Weighted average shares outstanding – diluted		20,589				20,598			20,588			20,587

Diluted Net (Loss) Income per Share	$	(0.00	)		$	0.04		$	(0.01	)	$	0.09

The effect of stock options on diluted weighted average shares outstanding has been excluded from the calculation of (loss) per share for the three and six months ended June 30, 2011 because it would have been anti-dilutive. Options to purchase approximately 3.1 million shares for the three and six months ending June 30, 2010, respectively, were not included in the computation of diluted net income per share because the options were anti-dilutive.

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet09.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Revolving Credit Facility

6 Months Ended

Jun. 30, 2011

Revolving Credit Facility

Revolving Credit Facility

3.	Revolving Credit Facility

As of June 30, 2011, the Company and its wholly-owned subsidiary, Spark Networks USA, LLC, had a $15.0 million revolving credit facility with Bank of America which was entered into on February 14, 2008 with subsequent amendments (the "Credit Agreement"). The Credit Agreement matures on February 14, 2014. The per annum interest rate under the Credit Agreement is LIBOR, or Eurodollar rate under certain circumstances, plus 1.75%, 2.00% and 2.50% based upon a financial leverage ratio of less than 1.00, 1.00 to 1.49 and 1.50 and greater, respectively. In the event the Company elects to borrow under a base rate loan, the corresponding interest rates are increased to the prime rate plus, 0.75%, 1.00% and 1.50%, respectively. The Company pays a 0.250% to 0.375% per annum commitment fee on all funds not utilized under the facility, measured on a daily basis. The Company is required to maintain a consolidated leverage ratio of no greater than 2.00 to 1.00, and a fixed charge coverage ratio of no less than 1.50 to 1.00. The Company is permitted to repurchase or redeem equity interests or issue dividends of up to $15 million during the first 365 days following February 7, 2011, the date of a subsequent amendment to the Credit Agreement.

On May 11, 2011, the parties executed a Third Amendment to the Credit Agreement (the "Amendment"). The Amendment requires the Company to maintain a consolidated adjusted EBITDA for each fiscal quarter ending on March 31, 2011 through September 30, 2011 of $400,000; for the quarter ending on December 31, 2011 of $750,000; for each quarter ending on March 31, 2012 through June 30, 2012 of $1,000,000; for each quarter ending on September 30, 2012 through December 31, 2012 of $1,500,000; and for each quarter ending on or after March 31, 2013 of $2,000,000. In addition, the Amendment requires the Company to maintain a trailing twelve month contribution level of $20,000,000 from its Jewish Networks segment for each fiscal quarter ending on or after March 31, 2011.

The Company was compliant with the Amended Agreement's customary affirmative and negative covenants, as of June 30, 2011.

At June 30, 2011, there was no outstanding amount under the Amended Agreement. In connection with the Initial Agreement and the Amended Agreement, the Company paid deferred financing costs of approximately $446,000 and $80,000, respectively. Costs associated with both the Initial and the Amended Agreements were included in prepaid expenses and other, and deposits and other assets. The deferred financing costs are amortized to interest expense in the Consolidated Statements of Operations over the full term of the Amended Agreement. Amortization expense for the deferred financing costs for the three and six months ended June 30, 2011 were $29,000 and $41,000, respectively. The deferred financing costs for the three and six months ended June 30, 2010 were $35,000 and $70,000, respectively.

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet10.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Stockholders' Equity

6 Months Ended

Jun. 30, 2011

Stockholders' Equity

Stockholders' Equity

4.	Stockholders' Equity

Re-Pricing of Employees' Options

In 2009, the Company offered to re-price options for certain employees. These employees could surrender their existing options in exchange for a like number of options with a new grant date, a lower exercise price, a lower number of vested options and a modified vesting schedule. The exchange of options was treated as a synthetic re-pricing, which includes a cancellation and replacement of equity instruments. The incremental expense was approximately $1 million and will be recognized over the four year vesting term of newly issued options. The incremental expenses recognized for the three and six months ended June 30, 2011 were $43,000 and $86,000 respectively. The incremental expenses recognized for the three and six months ended June 30, 2010 were $43,000 and $253,000 respectively.

Employee Stock Option Plans

On 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") authorizing and reserving 2.5 million options. In connection with the Company's Scheme of Arrangement, the 2004 Share Option Plan was frozen; however, all outstanding options previously granted thereunder 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 stock or unit awards, other stock-based awards and cash-based incentive awards.

The Compensation Committee may grant to a participant an award. 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 NYSE Amex (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.

As of June 30, 2011, total unrecognized compensation cost related to unvested stock options was $1.5 million. This cost is expected to be recognized over a weighted-average period of two years. The following table describes option activity for the six months ended June 30, 2011:


	Number of Shares			Weighted Average Price Per Share
	(in thousands)
Outstanding at December 31, 2010		3,364			$	3.12
Granted		55				3.20
Exercised		0				0
Forfeited		(12	)			2.92
Expired		0				0

Outstanding at March 31, 2011		3,407			$	3.11
Granted		603				3.18
Exercised		(7	)			2.96
Forfeited		(449	)			3.00
Expired		(6	)			3.00

Outstanding at June 30, 2011		3,548			$	3.13

Stockholder Rights Plan

In July 2007, the Company adopted a stockholder rights plan. 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 stock 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.

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet11.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Segment Information

6 Months Ended

Jun. 30, 2011

Segment Information

Segment Information

5.	Segment Information

The Company has four operating segments: (1) 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 Web sites; (2) 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 including BlackSingles.com and ChristianMingle.com; (3) General Market Networks, which consists of AmericanSingles.com and Date.ca which were both rebranded as Spark.com in December of 2009 and Date.co.uk which was rebranded as Spark.com in February 2010 and their respective co-branded and private label Web sites; and (4) Offline & Other Businesses, which consists of revenue generated from offline activities, HurryDate events and subscriptions to HurryDate.com.


	Three Months Ended June 30,			Six Months Ended June 30,
*(in thousands)*	2011			2010			2011		2010
Revenue
Jewish Networks	$	6,731			$	6,664		$	13,630		$	13,744
Other Affinity Networks		4,661				2,778			8,425			5,752
General Market Networks		154				298			344			668
Offline & Other Businesses		449				549			556			662

Total	$	11,995			$	10,289		$	22,955		$	20,826


Direct Marketing
Jewish Networks	$	865			$	532		$	1,524		$	1,039
Other Affinity Networks		5,254				1,541			9,293			3,255
General Market Networks		17				147			329			286
Offline & Other Businesses		401				391			431			434

Total	$	6,537			$	2,611		$	11,577		$	5,014


Unallocated operating expenses		5,749				5,963			11,795			12,605

Operating (loss) income	$	(291	)		$	1,715		$	(417	)	$	3,207

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.

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet12.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Commitments And Contingencies

6 Months Ended

Jun. 30, 2011

Commitments And Contingencies

Commitments And Contingencies

6.	Commitments and Contingencies

Legal Proceedings

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2010 for a description of litigation and claims.

Ness Interactive v. Spark Networks Limited

On January 22, 2010, Spark Networks Limited was served with a complaint from Ness Interactive alleging that Spark Networks engaged in unfair competition by bidding on certain online advertising keywords in France. Spark Networks Limited filed its initial response on October 15, 2010 and counterclaimed that Ness engaged in unfair competition. The parties settled the case and it was dismissed by the court on May 6, 2011.

ISYSTEMS v. Spark Networks, Inc. et al.

On July 11, 2008, ISYSTEMS initiated a lawsuit against Spark Networks, Inc. and Spark Networks Limited (collectively, "Spark Networks") and other parties in the United States District Court, Northern District of Texas, Dallas Division. The lawsuit was filed in response to an arbitration award ordering the transfer of the domain name, JDATE.NET, to Spark Networks Limited from ISYSTEMS. Spark Networks was apprised of the lawsuit after ISYSTEMS unsuccessfully attempted to utilize the filing of the lawsuit to prevent the domain transfer to Spark Networks Limited. On December 1, 2008, Spark Networks filed a Motion to Dismiss the Complaint, or, alternatively, for Summary Judgment. On September 10, 2009, the Court granted Spark Networks' motion and dismissed the case with prejudice. On September 22, 2009, ISYSTEMS filed a motion to vacate the order dismissing the action and requesting leave to amend its complaint. On October 26, 2009, the Court granted ISYSTEMS' motion and ISYSTEMS filed its Amended Complaint on November 25, 2009. On January 19, 2010, Spark Networks filed a Motion to Dismiss the Amended Complaint, or Alternatively, for Summary Judgment. The court granted Spark Networks' Motion to Dismiss on June 28, 2010 and entered a judgment in favor of Spark Networks. On July 25, 2010, ISYSTEMS filed a motion to vacate the order granting the motion to dismiss, which was denied by the court on August 11, 2010. On September 10, 2010, ISYSTEMS filed a notice of appeal of the district court's order and judgment to the United States Court of Appeals for the Fifth Circuit. On June 13, 2011, the United States Court of Appeals for the Fifth Circuit issued its opinion affirming the District Court's Judgment. On June 29, 2011, ISYSTEMS filed a Petition for Rehearing with the United States Court of Appeals for the Fifth Circuit which remains pending.

Spark Networks USA, LLC v. Humor Rainbow, Inc. and Zoosk, Inc.

On February 16, 2011, Spark Networks, Inc.'s indirect subsidiary, Spark Networks USA, LLC, filed a complaint against Humor Rainbow, Inc., in the United States District Court for the Central District of California, Southern Division. On March 4, 2011, Spark Networks USA, LLC filed an amended complaint with the Court adding defendants Zoosk, Inc. and Embrace, Inc. The complaint alleges that, among other things, the defendants have infringed and continue to infringe on a patent owned by Spark Networks USA, LLC. On May 6, 2011, Spark Networks USA, LLC filed a Notice Of Dismissal Without Prejudice with the court in regards to the claim against Embrace, Inc. Trial is scheduled for April 17, 2012.

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.

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet13.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Impairment Of Goodwill And Long-lived Assets

6 Months Ended

Jun. 30, 2011

Impairment Of Goodwill And Long-lived Assets

Impairment Of Goodwill And Long-lived Assets

7.	Impairment of Goodwill and Long-lived Assets

There were no impaired assets for the six months ending June 30, 2011. For the six months ending June 30, 2010, the Company impaired approximately $121,000 of capitalized software development costs when it was determined that certain web-based products failed to perform to Company standards.

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/Sheet14.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

8.	Income Taxes

The $50,000 benefit for income taxes for the six months ended June 30, 2011 consists primarily of a $138,000 tax benefit related to the United States operations and an $88,000 deferred tax expense related to an increase in the deferred tax liability associated with our Israeli subsidiary's tax deductible goodwill amortization.

------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9 Content-Location: file:///C:/de639626_c18e_44b4_abe7_6069f1a45ce9/Worksheets/filelist.xml Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii" ------=_NextPart_de639626_c18e_44b4_abe7_6069f1a45ce9--