SPARK NETWORKS INC

Following the acquisition of Smooch Labs (“Smooch”), the Company entered into agreements with Smooch employees whereby the Company agreed, subject to the approval of the Company’s Board of Directors, to grant each employee a certain number of RSUs based upon the achievement of certain performance-based goals. For fiscal year 2017, the amount of RSUs available to each such employee is $25,000 divided by the trailing volume weighted average trading price of the Company’s shares for the 20 trading days preceding the beginning of fiscal year 2017. Any RSUs granted upon achievement of the performance conditions shall be fully vested on grant. Compensation expense for restricted stock units is recognized over the requisite service period of five quarters and will be adjusted in subsequent reporting periods if the estimated level of achievement of the performance goals changes. For the three and six months ended June 30, 2017, compensation expense for RSUs was $40,000, which is based on management’s estimated level of achievement of the performance goals. Achievement of this estimated level of performance would result in the grant of 100,000 RSUs. Considerable judgment is required in assessing the estimated level of achievement of the performance goals. Accordingly, use of different assumptions or estimates could result in different compensation expense. As of June 30, 2017, there was $60,000 of unrecognized compensation cost related to RSUs which will be fully recognized by March 31, 2018.

Parties with which the Company, Affinitas or their respective subsidiaries do business may experience uncertainty associated with the business combination among the parties (the “Business Combination”) and related transactions, including with respect to current or future business relationships with the Company, Affinitas, their respective subsidiaries or New Spark. The business relationships of the Company, Affinitas or their respective subsidiaries may be subject to disruption as suppliers and other persons with whom the Company, Affinitas or their respective subsidiaries have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with the Company, Affinitas or their respective subsidiaries, as applicable. In addition, certain pre-Business Combination customers or vendors of the Company and Affinitas may decide to terminate their relationship once the companies are combined for a number of reasons, including the potential that they cannot maintain their relationship with both the combined company and its competitors.  Failure to maintain any relationships upon which the Company or Affinitas rely could adversely affect the combined company’s business, financial results and prospects.

Any delay in completing the Business Combination may reduce or eliminate the benefits expected to be achieved as a result of the Business Combination.

The consummation of the Business Combination is subject to a number of conditions set forth in the Merger Agreement, some of which are beyond the control of both Affinitas and the Company, and any of which may prevent, delay or otherwise materially adversely affect the consummation of the Business Combination. The consummation of the Business Combination is conditioned upon, among other conditions, the receipt of the requisite approval of the Company’s stockholders, the absence of any law, or any order, injunction, judgment, decree or other action by a governmental entity which would prohibit or make illegal the consummation of the Business Combination in accordance with the terms of the Merger Agreement. It cannot be predicted whether or when these conditions will be satisfied. For example, even if the Company’s stockholders approve the Merger, any delay in the consummation of matters relating to the transfer and exchange of Affinitas shares, which require Affinitas and certain third parties to take specific actions and steps under German law, would delay the completion of the Business Combination. Any delay in completing the Business Combination could prevent or delay the combined company from realizing some or all of the anticipated cost savings, synergies, growth opportunities and other benefits expected to be achieved, if the Business Combination is successfully completed within the expected time frame.

There can be no assurance that the Business Combination will occur, as the Business Combination is subject to certain conditions. The failure to consummate the Business Combination could cause the price of the Company’s common stock to fall after termination of the Merger Agreement to the extent that the current market price of the Company’s shares reflects an assumption that the Business Combination will be completed. If the Merger Agreement is terminated, the Company’s business may have been adversely affected by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Costs relating to the Merger, such as legal, accounting and financial advisory fees, must be paid even if the Merger is not completed. Further, a failed transaction may result in negative publicity and/or a negative impression of the Company in the investment community and may affect the Company’s relationship with vendors, creditors and other partners in the business community. Employees may similarly be affected by any such negative publicity and/or negative impression of the Company, and the Company may experience an increase in employee departures.  If the Merger Agreement is terminated and the Board of Directors of the Company seeks another merger or business combination, the Company’s stockholders cannot be certain that the Company will be able to find a party willing to pay the equivalent or greater consideration than that which Affinitas has agreed to pay with respect to the Merger.

The Company is limited in its ability to require the closure of the Merger by the terms of the Merger Agreement. In addition, under circumstances defined in the Merger Agreement, if the Merger Agreement is terminated, the Company may be required to pay a one-time fee equal to the greater of $1,500,000 or the fees and expenses of Affinitas related to the Business Combination. No assurance can be provided that the conditions to the completion of the Merger will be satisfied, and certain conditions to completion of the Merger are outside of the Company’s control. For example, even if the Company’s stockholders approve the Merger, Affinitas and certain third parties must take specific actions and steps under German law to effect the transfer and exchange of Affinitas shares, which are conditions to completion of the Merger. If the Merger is not completed by January 31, 2018, either the Company or Affinitas may choose to terminate the Merger Agreement.