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EX-5.2 - EX-5.2 - FriendFinder Networks Inc.d28931_ex5-2.htm
EX-5.3 - EX-5.3 - FriendFinder Networks Inc.d28931_ex5-3.htm
EX-5.1 - EX-5.1 - FriendFinder Networks Inc.d28931_ex5-1.htm

As filed with the Securities and Exchange Commission on December 16 , 2011

Registration No. 333-177360

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


AMENDMENT NO. 2 TO

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


FriendFinder Networks Inc.

Interactive Network, Inc.

*and the Subsidiary Guarantors listed on Schedule A hereto

(Exact Name of registrant as specified in its charter)

Nevada
           
7370
   
13-3750988
Nevada
           
7370
   
42-1745941
(State or other jurisdiction of
incorporation or organization)
           
(Primary Standard Industrial
Classification Code Number)
   
(I.R.S. Employer
Identification Number)
 


6800 Broken Sound Parkway, Suite 200
Boca Raton, Florida 33487
(561) 912-7000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)


 
Marc H. Bell
Chief Executive Officer
and President
FriendFinder Networks Inc.
6800 Broken Sound Parkway, Suite 200
Boca Raton, Florida 33487
Telephone: (561) 912-7000

(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
           
Please send a copy of all communications to:
Bradley D. Houser Esq.
Akerman Senterfitt
One Southeast Third Ave., 25th Floor
Miami, Florida 33131-1714
Telephone: (305) 374-5600
Fax: (305) 374-5095
 


Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
           
[  ]
   
Accelerated filer
   
[  ]
Non-accelerated filer
           
[X]
   
Smaller reporting company
   
[  ]
(Do not check if a smaller reporting company)
 





CALCULATION OF REGISTRATION FEE

Title of each class of securities
to be registered
        Amount to be
registered
    Proposed maximum
offering price per unit
    Proposed maximum
aggregate offering price
    Amount of
registration fee
14% Senior Secured Notes due 2013
              $ 235,331,887 (1)            100 %(5)         $ 235,331,887 (5)         $ 26,969.03   
Guarantees of the 14% Senior Secured Notes due 2013
                                                        (11)  
14% Cash Pay Secured Notes due 2013
              $ 10,630,667 (2)            100 %(6)         $ 10,630,667 (6)         $ 1,218.27   
Guarantees of the 14% Cash Pay Secured Notes due 2013
                                                        (11)  
11.5% Convertible Non-Cash Pay Secured Notes due 2014
              $ 250,849,125 (3)            100 %(7)         $ 250,849,125 (7)         $ 28,747.31   
Guarantees of the 11.5% Convertible Non-Cash Pay Secured Notes due 2014
                                                        (11)  
11.5% Convertible Non-Cash Pay Secured Notes due 2014 Paid-in-Kind
              $ 93,620,766 (4)            100 %         $ 93,620,766 (4)         $ 10,728.94   
Common Stock, par value $0.001 per share, underlying the 11.5% Convertible Non-Cash Pay Notes
                 8,310,763 (8)                                      (8)  
Common Stock, par value $0.001 per share
                 22,696,703 (9)         $ 0.61 (10)         $ 13,844,989 (10)         $ 1,586.64   
Aggregate number of shares being registered in this offering
                 31,007,466                                          
Total amount of registration fee
                                                     $ 69,250.19 (12)  
 


(1)
  Represents the aggregate principal amount of the 14% Senior Secured Notes due 2013 oustanding being registered.

(2)
  Represents the aggregate principal amount of the 14% Cash Pay Secured Notes due 2013 outstanding being registered.

(3)
  Represents the aggregate principal amount of the 11.5% Convertible Non-Cash Pay Secured Notes due 2014 outstanding, or $250,849,125, being registered.

(4)
  Represents the aggregate principal amount of the 11.5% Convertible Non-Cash Pay Secured Notes due 2014 (the “Non-Cash Pay Notes”) that may be paid-in-kind in respect of future interest payments.

(5)
  Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).

(6)
  Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(o) under the Securities Act.

(7)
  Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(o) under the Securities Act.

(8)
  Based on the number of shares of common stock of FriendFinder Networks Inc. as may be issued upon conversion of all of the 11.5% Convertible Non-Cash Pay Secured Notes due 2014 registered hereby at a conversion price equal to the price per share of common stock offered upon the consummation of FriendFinder Networks Inc.’s initial public offering on May 16, 2011, or $10.00 per share; the shares are not subject to an additional fee pursuant to Rule 457(i) of the Securities Act.

(9)
  Consists of shares held outright.

(10)
  Estimated solely for the purpose of calculating the registration fee which was computed in accordance with Rule 457(c) under the Securities Act of 1933, as amended. The calculations of the proposed maximum offering price per share and the proposed maximum aggregate offering price are based on the average of the high and low sale prices of FriendFinder Networks Inc.’s common stock on December 15 , 2011, as quoted on the NASDAQ Global Market.

(11)
  Pursuant to Rule 457(n) of the Securities Act, no registration fee is required for the Guarantees.

(12)
  Pursuant to Rule 457(p) of the Securities Act, we offset $58,705.58 which was previously paid in connection with a Registration Statement on Form S-4 filed on August 1, 2011, as amended, and withdrawn on October 17, 2011. We paid a total registration fee of $72,923.63 with the Registration Statement on Form S-1 filed on October 18, 2011.


The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.





Schedule A — Table of Subsidiary Guarantors

Exact Name of Subsidiary Guarantor
        State or Other
Jurisdiction of
Incorporation or
Formation
    I.R.S. Employer
Identification
Number
Argus Payments Inc.
           
Delaware
   
45-2494661
Big Island Technology Group, Inc.
           
California
   
20-8009795
Blue Hen Group Inc.
           
Delaware
   
45-2539667
Confirm ID, Inc.
           
California
   
74-3037020
Danni Ashe, Inc.
           
California
   
95-4665271
Fastcupid, Inc.
           
California
   
20-2997869
Fierce Wombat Games Inc. (f/k/a Big Ego Games Inc.)
           
California
   
27-3532019
Flash Jigo Corp.
           
Delaware
   
27-4660821
FriendFinder California Inc.
           
California
   
77-0522750
FriendFinder Ventures Inc.
           
Nevada
   
27-4663125
FRNK Technology Group
           
California
   
94-3277102
General Media Art Holding, Inc.
           
Delaware
   
13-4042637
General Media Communications, Inc.
           
New York
   
13-3502237
General Media Entertainment, Inc.
           
New York
   
13-3592960
Global Alphabet, Inc.
           
California
   
77-0527649
GMCI Internet Operations, Inc.
           
New York
   
13-4097655
GMI On-Line Ventures, Ltd.
           
Delaware
   
13-4097656
Magnolia Blossom Inc.
           
Delaware
   
45-2538925
Medley.com Incorporated
           
California
   
03-0543594
NAFT News Corporation
           
California
   
27-3634385
Penthouse Digital Media Productions Inc.
           
New York
   
65-1251056
Penthouse Images Acquisitions, Ltd.
           
New York
   
13-3599228
Playtime Gaming Inc.
           
California
   
27-3634371
PerfectMatch Inc. (f/k/a Goldenrod Spear Inc.)
           
Delaware
   
45-2539020
PMGI Holdings Inc.
           
Delaware
   
20-1942663
PPM Technology Group, Inc.
           
California
   
20-8009876
Pure Entertainment Telecommunications, Inc.
           
New York
   
90-0209626
Sharkfish, Inc.
           
California
   
56-2471221
Snapshot Productions, LLC
           
Texas
   
46-0477091
Streamray Inc.
           
Nevada
   
88-0422716
Streamray Studios Inc.
           
California
   
26-4311009
Tan Door Media Inc.
           
California
   
26-4311100
Traffic Cat, Inc.
           
California
   
56-2471223
Transbloom, Inc.
           
California
   
74-3021168
Various, Inc.
           
California
   
77-0477762
Video Bliss, Inc.
           
California
   
95-4566760
West Coast Facilities Inc.
           
California
   
59-3814751
XVHUB Group Inc. (f/k/a Giant Swallowtail Inc.)
           
Delaware
   
45-2539401
 


The information in this prospectus is not complete and may be changed. The selling securityholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION DATED DECEMBER 16 , 2011.

Prospectus

    

 

FRIENDFINDER NETWORKS INC.
INTERACTIVE NETWORK, INC.
$235,331,887 14% of Senior Secured Notes due 2013
$10,630,667 14% of Cash Pay Secured Notes due 2013
$344,469,891 11.5% of Convertible Non-Cash Pay Secured Notes due 2014
31,007,466 Shares of Common Stock

This prospectus will be used by selling securityholders to offer and sell from time to time up to an aggregate of (a) $235,331,887 principal amount of the 14% Senior Secured Notes due 2013 (the “Senior Secured Notes”); (b) $10,630,667 principal amount of the 14% Cash Pay Secured Notes due 2013 (the “Cash Pay Notes”); (c) $344,469,891 principal amount of the 11.5% Convertible Non-Cash Pay Secured Notes due 2014, which includes $93,620,766 of notes that may be paid-in-kind in respect of future interest payments, (the “Non-Cash Pay Notes” and, together with the Senior Notes and the Cash Pay Notes, collectively, the “Registrable Notes”); (d) 31,007,466 shares of common stock, consisting of i) 22,696,703 shares of our common stock held outright by various stockholders of FriendFinder Networks Inc. (the “Outstanding Shares”); and ii) 8,310,763 shares of our common stock issuable upon the conversion of all of the Non-Cash Pay Notes into shares of our common stock (the “Note Shares” and together with the Outstanding Shares, the “Registrable Shares”).

For information concerning the selling securityholders and the manner in which they may offer and sell our notes and shares of our common stock, see the sections entitled, “Selling Securityholders” and “Plan of Distribution” in this prospectus.

The Senior Secured Notes bear interest at a rate of 14.00% per annum. The Cash Pay Notes bear interest at a rate of 14.00% per annum. The Non-Cash Pay Notes bear interest at a rate of 11.50% per annum. Interest is payable quarterly, on March 31, June 30, September 30 and December 31 of each year, commencing December 31, 2010 for the Senior Secured Notes and the Cash Pay Notes, both which mature on September 30, 2013. Interest is payable semi-annually, on June 30 and December 31 of each year, commencing on December 31, 2010 for the Non-Cash Pay Notes, which matures on April 30, 2014.

The Senior Secured Notes, Cash Pay Notes and Non-Cash Pay Notes are each governed by an indenture, dated as of October 27, 2010, by and among Interactive Network, Inc. and FriendFinder Networks Inc. as co-issuers, all of our domestic subsidiaries as guarantors, and U.S. Bank, N.A. as the trustee, which we refer to as the “Senior Secured Notes Indenture,” the “Cash Pay Notes Indenture” and the “Non-Cash Pay Notes Indenture,” respectively (collectively, the “Indentures”). The Senior Secured Notes are guaranteed by all of our domestic subsidiaries on a secured first-priority basis. The Cash Pay Notes and Non-Cash Pay Notes are guaranteed by all of our domestic subsidiaries on a secured second-priority basis.

The Non-Cash Pay Notes are convertible into shares of our common stock at a conversion price equal to the price per share of common stock offered upon the consummation of our initial public offering on May 16, 2011, or $10.00 per share.

We are not selling any securities under this prospectus and we will not receive any proceeds from the sale by the selling securityholders of their securities. No consideration will be paid in connection with the conversion of the Non-Cash Pay Notes to Note Shares. The selling securityholders may sell all or a portion of the Registrable Notes and Registrable Shares from time to time in market transactions, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the prevailing market price or at negotiated prices. For more information regarding the sales of the Registrable Notes and Registrable Shares by the selling securityholders pursuant to this prospectus, please read “Plan of Distribution.”



Currently, there is no trading market for the Registrable Notes.

Our common stock trades on the NASDAQ Global Market (“NASDAQ”). On December 1 5 , 2011, the last reported sales price of our common stock on the NASDAQ was $ 0. 59 per share.

Investing in the securities offered by this prospectus involves risks. See “Risk Factors,” beginning on page 12.


Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

You should rely only on the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless of the time of delivery of this prospectus or the sale of any common stock. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.


The date of this prospectus is [  ], 2011.



TABLE OF CONTENTS

        Page
SUMMARY
                 1    
THE OFFERING
                 6    
RATIO OF EARNINGS TO FIXED CHARGES
                 11    
RISK FACTORS
                 12    
USE OF PROCEEDS
                 37    
DILUTION
                 37    
SELLING SECURITYHOLDERS
                 38    
BUSINESS
                 4 8   
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
                 68   
SELECTED CONSOLIDATED FINANCIAL DATA
                 69   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 72   
FORWARD-LOOKING STATEMENTS
                 11 1   
DIRECTORS AND EXECUTIVE OFFICERS
                 114   
EXECUTIVE COMPENSATION
                 121   
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
                 138   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                 148   
PLAN OF DISTRIBUTION
                 150   
DESCRIPTION OF NOTES
                 152   
DESCRIPTION OF CAPITAL STOCK
                 163   
DESCRIPTION OF OTHER INDEBTEDNESS
                 169   
INTERESTS OF NAMED EXPERTS AND COUNSEL
                 170   
LEGAL MATTERS
                 170   
EXPERTS
                 170   
WHERE YOU CAN FIND MORE INFORMATION
                 170   
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                 F-1    
 

i




SUMMARY

The following summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and consolidated financial statements included elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. You should carefully read this entire prospectus, including the section entitled “Risk Factors” and our consolidated financial statements and notes to those statements. As used in this prospectus, unless the context otherwise requires, all references to “we,” “us,” “our,” “our company” or “the company” refer to FriendFinder Networks Inc. and, where appropriate, our consolidated direct and indirect subsidiaries, except where it is clear that the terms mean only FriendFinder Networks Inc. The term “INI” refers to our subsidiary and co-issuer of the Registrable Notes, Interactive Network, Inc. References to our “common stock” refer only to our voting common stock and except as otherwise noted, such references do not include our Series B common stock or our preferred common stock.

Except where we state otherwise, the information presented in this prospectus reflects (i) the amendment and restatement of our bylaws, effective upon the consummation of our initial public offering on May 16, 2011, and (ii) the amendment and restatement of our articles of incorporation, which became effective on January 25, 2010.

About Our Company

FriendFinder Networks Inc. is a leading internet and technology company providing services in the rapidly expanding markets of social networking and web-based video sharing. Our business consists of creating and operating technology platforms which run several of the most heavily visited websites in the world. Through our extensive network of more than 44,000 websites, since our inception, we have built a base of more than 484 million registrants and more than 320 million members in more than 200 countries. We are able to create and maintain, in a cost-effective manner, websites intended to appeal to users of diverse cultures and interest groups. In December 2010, we had more than 196 million unique visitors to our network of websites, according to comScore. We offer our members a wide variety of online services so that they can interact with each other and access the content available on our websites. Our most heavily visited websites include AdultFriendFinder.com, Amigos.com, AsiaFriendFinder.com, Cams.com, FriendFinder.com, BigChurch.com and SeniorFriendFinder.com. For the nine months ended September 30, 2011, we had net revenue, income from operations and net losses of $249.6 million, $52.4 million and $(20.9) million, respectively. For the year ended December 31, 2010, we had net revenue, income from operations and net losses of $346.0 million, $71.1 million and ($43.2) million, respectively.

Our revenues to date have been primarily derived from online subscription and paid-usage for our products and services. These products and services are delivered primarily through two highly scalable revenue-generating technology platforms:

•  
  Social Networking. Approximately 69% of our total net revenues for the nine months ended September 30, 2011 and 70% of our total net revenues for the year ended December 31, 2010 were generated through our targeted social networking technology platform. Our social networking technology platform provides users who register or purchase subscriptions to one or more of our websites with the ability to communicate and to establish new connections with other users via our personal chat rooms, instant messaging and e-mail applications and to create, post and view content of interest. We have been able to rapidly create and seamlessly maintain multiple websites tailored to specific categories or genres and designed to cater to targeted audiences with mutual interests. We believe that our ability to create and operate a diverse network of specific interest websites with unique, user-generated content in a cost-effective manner is a significant competitive differentiator that allows us to implement a subscription-fee based revenue model while many other popular social networking websites rely primarily upon free-access, advertising-based revenue models.

•  
  Live Interactive Video. Approximately 24% of our total net revenues for the nine months ended September 30, 2011 and 22% of our total net revenues for the year ended December 31, 2010 were generated through our live interactive video technology platform. Our live interactive video technology platform is a live video broadcast platform that enables models to broadcast from independent studios throughout the world and interact with our users via instant messaging and video. We believe our live interactive video platform provides a unique offering including bi-directional and omni-directional video and interactive features that allow models to communicate with and attract users through a variety of mediums including

1





  blogs, newsletters and video. In addition, we believe the reliability of our live interactive video technology platform, which had approximately 99.1% uptime during 2010, is a key factor allowing us to maintain a large base of users.

In addition to our revenue-generating technology platforms, we have invested significant time and resources into developing our back-end marketing, analytics and billing technologies, which are a key contributor to the success of our business. We have developed proprietary systems to allow our marketing affiliates to maximize their revenue for our mutual benefit. These systems include proprietary white-labeling solutions, in which we provide back-end technology solutions to permit affiliates and marketing partners to deliver our products and services while maintaining the affiliate’s and marketing partner’s own branding and style, self-optimizing ad spots, and a robust banner optimization engine that automatically chooses the best possible site and banner to promote in a given ad spot. Our marketing technology has also enabled the creation and continued growth of our network of more than 280,000 affiliates, which we believe is one of the largest of its kind in the world and a significant barrier to entry to potential and existing competitors. Similarly, our proprietary analytics technology provides us with an advantage relative to less sophisticated competitors by enabling us to estimate future revenue based on short-term response to our advertising campaigns, as well as providing for analysis of key data and metrics in order to optimize our marketing spend and maximize the revenues our websites generate. Our robust billing platform allows our customers to pay using many of the widely-adopted methods of e-commerce, both domestically as well as internationally.

We categorize our users into five categories: visitors, registrants, members, subscribers and paid users.

•  
  Visitors. Visitors are users who visit our websites but do not necessarily register. We believe we achieve large numbers of unique visitors because of our focus on continuously enhancing the user experience and expanding the breadth of our services. We had more than 196 million unique worldwide visitors in the month of December 2010, representing a growth of more than 300% from our approximately 46.9 million unique worldwide visitors in January 2009, according to comScore.

•  
  Registrants. Registrants are visitors who complete a free registration form on one of our websites by giving basic identification information and submitting their e-mail address. For the nine months ended September 30, 2011, we averaged more than 6.4 million new registrations on our websites each month. For the year ended December 31, 2010, we averaged more than 6.4 million new registrations on our websites each month. Some of our registrants are also members, as described below.

•  
  Members. Members are registrants who log into one of our websites and make use of our free products and services. For the nine months ended September 30, 2011, we averaged more than 4.0 million new members on our websites each month. For the year ended December 31, 2010, we averaged more than 3.9 million new members on our websites each month.

•  
  Subscribers. Subscribers are members who purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions for one or more of our websites. Subscribers have full access to our websites and may access special features. For the nine months ended September 30, 2011, we had a monthly average of approximately 950 thousand and for the year ended December 31, 2010, we had a monthly average of approximately 1 million paying subscribers.

•  
  Paid Users. Paid users are members who purchase products or services on a pay-by-usage basis. For the nine months ended September 30, 2011, we averaged approximately 2.9 million purchased minutes by paid users each month. For the year ended December 31, 2010, we averaged approximately 3.0 million purchased minutes by paid users each month.

We focus on the following key business metrics to evaluate the effectiveness of our operating strategies.

•  
  Average Revenue per Subscriber. We calculate average revenue per subscriber, or ARPU, by dividing net revenue for the period by the average number of subscribers in the period and by the number of months in the period. As such, our ARPU is a monthly calculation. For the nine months ended September 30, 2011, our average monthly revenue per subscriber was $20.22. For the year ended December 31, 2010, our average monthly revenue per subscriber was $20.49.

•  
  Churn. Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period. Our average monthly churn rate, which measures the rate

2





  of loss of subscribers, for the nine months ended September 30, 2011 was 16.3% per month. Our average monthly churn rate for the year ended December 31, 2010 was 16.1% per month.

•  
  Cost Per Gross Addition. Cost per gross addition, or CPGA, is calculated by adding affiliate commission expense plus ad buy expenses and dividing by new subscribers during the measurement period. Our CPGA for the nine months ended September 30, 2011 was $42.76. Our CPGA for the year ended December 31, 2010 was $47.25.

•  
  Average Lifetime Net Revenue Per Subscriber. Average Lifetime Net Revenue Per Subscriber is calculated by multiplying the average lifetime (in months) of a subscriber by ARPU for the measurement period and then subtracting the CPGA for the measurement period. Our Average Lifetime Net Revenue Per Subscriber for the nine months ended September 30, 2011 was $81.06. Our Average Lifetime Net Revenue Per Subscriber for the year ended December 31, 2010 was $80.17. While we monitor many statistics in the overall management of our business, we believe that Average Lifetime Net Revenue Per Subscriber and the number of subscribers are particularly helpful metrics for gaining a meaningful understanding of our business as they provide an indication of total revenue and profit generated from our base of subscribers inclusive of affiliate commissions and advertising costs required to generate new subscriptions.

In addition to our social networks and live interactive video platforms, we also offer professionally-generated content through our premium content technology platform and our non-internet entertainment business. Through websites such as Penthouse.com and HotBox.com, our subscribers and paid users have access to our collection of more than 15,000 hours of professional video, which includes our library of more than 800 standard and high-definition full-length feature films and one million professionally produced images. We began shooting all of our content in 3D in September 2010. Additionally, subscribers have access to editorial content, chat rooms and other interactive features. In addition to our online products and services, we also have a non-technology legacy entertainment business, in which we produce and distribute original pictorial and video content via traditional distribution channels including licensing and retail DVD channels, and license the globally-recognized Penthouse brand to a variety of consumer product companies and entertainment venues and public branded men’s lifestyle magazines.

Our Competitive Strengths

We believe that we have the following competitive strengths that we can leverage to implement our strategy:

•  
  Proprietary and Scalable Technology Platform. Our robust, proprietary and highly scalable technology platform supports our social networking, live interactive video and premium content websites. We are able to use our customized back-end interface to quickly and affordably generate new websites, launch new features and target new audiences at a relatively low incremental cost. We believe that our ability to create new websites and provide new features is crucial to cost-effectively maintaining our relationships with existing users and attracting new users.

•  
  Paid Subscriber-Based Model. We operate social networking websites that allow our members to make connections with other members with whom they share common interests. Our paid subscriber-based model of social networking websites is distinctly different from the business models of other free social networking websites whose users access the websites to remain connected to their pre-existing friends and interest groups.

•  
  Large and Diverse User Base. We operate some of the most heavily visited social networking websites in the world, currently adding on average more than 6.4 million new registrants and more than 4.0 million new members each month. Our websites are designed to appeal to individuals with a diversity of interests and backgrounds. We believe potential members are attracted to the opportunity to interact with other individuals by having access to our large, diverse user base.

•  
  Large and Difficult to Replicate Affiliate Network and Significant Marketing Spend. Our marketing affiliates are companies that market our services on their websites, allowing us to market our brand beyond our established user base. As of September 30, 2011 and December 31, 2010, we had more than 280,000 participants in our marketing affiliate program from which we derive a substantial portion of our new

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  members and approximately 46% of our net revenues for the nine months ended September 30, 2011 and 45% of our net revenues for the year ended December 31, 2010. We believe that the difficulty in building an affiliate network of this large size, together with our combined affiliate and advertising spend for the nine months ended September 30, 2011 and the year ended December 31, 2010 of $64.5 million and $103.5 million, respectively, presents a significant barrier to entry for potential competitors.

Our Strategy

Our goal is to enhance revenue opportunities while improving our profitability. We plan to achieve these goals using the following strategies:

•  
  Convert Visitors, Registrants and Members into Subscribers or Paid Users. We continually seek to convert visitors, registrants and members into subscribers or paid users. We do this by constantly evaluating, adding and enhancing features on our websites to improve our users’ experience.

•  
  Create Additional Websites and Diversify Offerings. We are constantly seeking to identify groups of sufficient size who share a common interest in order to create a website intended to appeal to their interests. Our extensive user database serves as an existing source of potential members and subscribers for new websites we create.

•  
  Expand into and Monetize Current Foreign Markets. In 2010, nearly 71% of our members were outside the United States, but non-U.S. users accounted for less than half of our total net revenues. We seek to expand in selected geographic markets, including Southeast Europe, South America and Asia.

•  
  Pursue Targeted Acquisitions. We intend to expand our business by acquiring and integrating additional social networking websites, technology platforms, owners, creators and distributors of content and payment processing and advertising businesses. Our management team possesses significant mergers and acquisitions and integration expertise and regularly screens the marketplace for strategic acquisition opportunities.

•  
  Generate Online Advertising Revenue. To date, online advertising revenue has represented less than 0.1% of our net revenue, averaging approximately $8,000 per month in the nine months ended September 30, 2011 and $9,000 per month for the year ended December 31, 2010. With continued worldwide growth in this advertising segment, we see this as a significant growth opportunity. We believe that our broad and diverse user base represents a valuable asset that will provide opportunities for us to offer targeted online advertising to specific demographic groups. We intend to focus our advertising efforts on our general audience social networking websites and maintain our subscription-based model for our adult social networking websites.

Our New Financing

On October 27, 2010, we issued new debt to repay our then existing debt, which we refer to as the New Financing. We, along with our wholly-owned subsidiary Interactive Network, Inc., or INI, co-issued $305.0 million principal amount of the Senior Secured Notes, $13.8 million of the Cash Pay Notes, and $232.5 million of the Non-Cash Pay Notes.

Our Initial Public Offering

On May 16, 2011, we issued 5,000,000 shares of common stock at a price of $10.00 per share and completed our initial public offering (the “IPO”). We raised gross proceeds of $50.0 million, less underwriting fees and commissions of 7.25% of the gross proceeds, or $3.6 million, and incurred other offering expenses of $2.9 million to be paid from the proceeds of the offering, resulting in $43.5 million of net proceeds. In addition, we had incurred and paid as of December 31, 2010, $13.3 million of offering costs, which were included in deferred offering costs in the accompanying balance sheet at December 31, 2010 and written off by a charge to capital in excess of par value in the quarter ended June 30, 2011.

On May 19, 2011, we redeemed $37.8 million of our Senior Secured Notes and $1.7 million of our Cash Pay Notes for a total of $39.5 million principal amount of New Financing redeemed from the net proceeds of our IPO

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and incurred a loss on extinguishment of debt estimated to be approximately $7.3 million. As of September 30, 2011, the outstanding principal amounts of the Senior Secured Notes, Cash Pay Notes and Non-Cash Pay Notes were $235.3 million, $10.6 million and $250.9 million, respectively.

Recent Developments

In July 2011, we acquired, through one of our subsidiaries, PerfectMatch.com, an online relationship service helping adults seeking successful, lasting connections. We paid approximately $2.5 million in cash and stock to acquire the assets of the website. PerfectMatch.com uses the Duet® Total Compatibility System, a system which analyzes the “whole person” to find friends, taking into account each member’s personality, values and ideals, life and love-style preferences to identify and find the person right for them. The acquisition of this website and related assets adds to our portfolio of general audience social networking websites.

In September 2011, we acquired, through one of our subsidiaries, BDM Global Ventures Ltd., the company which owns the operations of JigoCity. The acquisition was completed pursuant to an Agreement and Plan of Merger entered into on September 7, 2011 among us, JGC Holdings Limited, our wholly-owned subsidiary, BDM Global Ventures Limited, which we refer to as BDM, Global Investment Ventures LLC and Anthony R. Bobulinski, which we refer to as the Merger Agreement. Under the terms of the Merger Agreement, the shareholders of BDM, in exchange for their outstanding shares and options in BDM and its subsidiaries, received merger consideration consisting of 1,555,555, shares of our common stock, 500,000 of which will be held in escrow until no later than December 31, 2012, and warrants exercisable into 6,436,851 shares of our common stock with exercise prices ranging from $5-$18 per share with an expiration date of December 31, 2021. Pursuant to an equity put agreement we entered into, the shareholders of BDM have the option to sell all of the shares of our common stock and warrants issued as merger consideration back to us in exchange for the return of 70% of the equity in BDM if the volume-weighted average price of our common stock fails to equal or exceed $12.00 per share during any 10 trading day period principally between the closing date and the later of June 30, 2014 and the date upon which our current indentures are fully discharged, or if an “indenture modification” is made, as defined in the equity put agreement, the later of June 30, 2014 and the date the indenture modification takes place (the later date hereinafter referred to as the “Vesting Date”). The equity put agreement provides that the put right shall become exercisable at the sole discretion of the shareholders’ appointed representative during the period commencing on the Vesting Date and expiring sixty (60) days thereafter. Additionally, if the shareholders of BDM exercise the put right, we have the right to pay them in our common stock and/or cash, having a combined value as of the later of the above dates equal to the product of (i) 2,209,414 shares of common stock (subject to dilutive adjustment) and (ii) the difference between the highest 10 day volume-weighted average price attained by our common stock during such period and $12.00, in which case the put right terminates. Pursuant to a registration rights agreement, we also granted demand registration rights under certain circumstances, with respect to the shares of our common stock and warrants issued as merger consideration. JigoCity is a global social commerce organization committed to providing members with high quality daily deals that are relevant to their individual lifestyles. The acquisition of JigoCity adds to our portfolio a social commerce company and what we believe will be an additional avenue to monetize our foreign markets.

Our Corporate Information

Our executive offices are located at 6800 Broken Sound Parkway, Suite 200, Boca Raton, Florida 33487 and our telephone number is (561) 912-7000. Our website address is www.ffn.com. The information contained in, or accessible through, our website is not part of this prospectus.

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THE OFFERING

The following summary of the Registrable Notes and Registrable Shares is provided solely for your convenience. This summary is not intended to be complete. You should read the full text and more specific details contained elsewhere in this prospectus, including a more detailed summary of the terms of the Registrable Notes under the section in this prospectus entitled “Description of Notes” and a more detailed summary of the Registrable Shares under the section in this prospectus entitled “Description of Capital Stock.” The terms of the Registrable Notes are qualified by reference to the Indentures.

14% Senior Secured Notes Due 2013 (the “Senior Secured Notes”)

Issuers
           
FriendFinder Networks Inc. and Interactive Network, Inc., as co-issuers.
Notes Offered by the Selling Securityholders
           
Up to $ 235,331,887 aggregate principal amount of 14% Senior Secured Notes due 2013 (the “Senior Secured Notes”).
Maturity Date
           
September 30, 2013.
Interest Payment Dates
           
Quarterly, on March 31, June 30, September 30 and December 31 of each year, commencing December 31, 2010.
Subsidiary Guarantees
           
Each of our domestic subsidiaries set forth on Schedule A to this prospectus have guaranteed the Senior Secured Notes. The Senior Secured Notes may be guaranteed by additional subsidiaries in the future under certain circumstances.
Ranking
           
The Senior Secured Notes and the guarantees are our and the guarantors’ senior first-priority secured obligations and are:
•  secured on a first-priority basis, by liens on all of our and the guarantors’ assets, including without limitation, receivables, inventory, furniture, fixtures, equipment, trademarks, copyrights and other intangibles, real property and the capital stock of subsidiaries, including a 100% pledge of the co-issuers’ stock, subject to customary exceptions;
• senior in right of payment to the Non-Cash Pay Notes, but not the Cash Pay Notes with certain exceptions; and
• pari passu in right of payment to the Cash Pay Notes, with certain exceptions.
Optional Redemption
           
The Senior Secured Notes are redeemable prior to maturity at our option in whole but not in part, at 110% of principal, plus accrued and unpaid interest.
Change of Control
           
Upon a change of control (as defined in the section entitled “Description of Notes”), we must offer to repurchase the Senior Secured Notes at 110% of the principal amount, plus accrued and unpaid interest to the purchase date.
Certain Covenants
           
The Senior Secured Notes Indenture contains certain covenants, including limitations and restrictions on our and our domestic subsidiaries’ ability to:
•  incur additional indebtedness;
• make dividend payments or other restricted payments;
• create liens;
• change the nature of its business
• modify the provisions of any indebtedness, organizational documents and certain other agreements;

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•  enter into transactions with affiliates; and
• engage in fundamental changes, dispositions or acquisitions with respect to all or any part of our business, property or assets.
As of the date of this prospectus, all of our domestic subsidiaries are set forth on Schedule A to this prospectus. Our foreign subsidiaries will not be subject to any of the restrictive covenants in the Senior Secured Notes Indenture. The restrictive covenants set forth in the Senior Secured Notes Indenture are subject to important exceptions and qualifications. See the section entitled “Description of Notes” for more information.
Conversion Rights
           
None.
Risk Factors
           
Potential investors in the Senior Secured Notes should carefully consider the matters set forth under the caption Risk Factors prior to making an investment decision with respect to the Senior Secured Notes.
Use of Proceeds
           
We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of Senior Secured Notes by the selling securityholders.
 

14% Cash Pay Secured Notes Due 2013 (the “Cash Pay Notes”)

Issuers
           
FriendFinder Networks Inc. and Interactive Network, Inc., as co-issuers.
Notes Offered by the Selling Securityholders
           
Up to $10,630,667 aggregate principal amount of 14% Cash Pay Secured Notes Due 2013 (the “Cash Pay Notes”).
Maturity Date
           
September 30, 2013.
Interest Payment Dates
           
Quarterly, on March 31, June 30, September 30 and December 31 of each year, commencing December 31, 2010.
Subsidiary Guarantees
           
Each of our domestic subsidiaries set forth on Schedule A to this prospectus have guaranteed the Cash Pay Notes. The Cash Pay Notes may be guaranteed by additional subsidiaries in the future under certain circumstances.
Ranking
           
The Cash Pay Notes and the guarantees are our and the guarantors’ subordinated second-priority secured obligations and are:
•  secured on a second-priority basis, by liens on all of our and the guarantors’ assets, including without limitation, receivables, inventory, furniture, fixtures, equipment, trademarks, copyrights and other intangibles, real property and the capital stock of subsidiaries, including a 100% pledge of the co-issuers’ stock, subject to customary exceptions; and
• pari passu in right of payment to the Senior Secured Notes, with certain exceptions.
Optional Redemption
           
The New Cash-Pay Notes are redeemable prior to maturity at our option in whole but not in part, at 110% of principal, plus accrued and unpaid interest. See the section entitled “Description of Notes” for more information.

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Change of Control
           
Upon a change of control (as defined in the section entitled “Description of Notes”), we must offer to repurchase the Cash Pay Notes at 110% of the principal amount, plus accrued and unpaid interest to the purchase date.
Certain Covenants
           
The Cash Pay Notes Indenture contains certain covenants, including limitations and restrictions on our and our domestic subsidiaries’ ability to:
•  incur additional indebtedness;
• make dividend payments or other restricted payments;
• create liens;
• change the nature of its business;
• modify the provisions of any indebtedness, organizational documents and certain other agreements;
• enter into transactions with affiliates; and
• engage in fundamental changes, dispositions or acquisitions with respect to all or any part of our business, property or assets.
As of the date of this prospectus, all of our domestic subsidiaries are set forth on Schedule A to this prospectus. Our foreign subsidiaries will not be subject to any of the restrictive covenants in the Cash Pay Notes Indenture. The restrictive covenants set forth in the Cash Pay Notes Indenture are subject to important exceptions and qualifications. See the section entitled “Description of Notes” for more information.
Conversion Rights
           
None.
Risk Factors
           
Potential investors in the Cash Pay Notes should carefully consider the matters set forth under the caption Risk Factors prior to making an investment decision with respect to the Cash Pay Notes.
Use of Proceeds
           
We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of Cash Pay Notes by the selling securityholders.
 

11.5% Convertible Non-Cash Pay Secured Notes Due 2014 (the “Non-Cash Pay Notes”)

Issuers
           
FriendFinder Networks Inc. and Interactive Network, Inc., as co-issuers.
Notes Offered by the Selling Securityholders
           
Up to $344,469,891 aggregate principal amount of 11.5% Convertible Non-Cash Pay Secured Notes Due 2014 (the “Non-Cash Pay Notes”), which includes $93,620,766 of Non-Cash Pay Notes that may be paid-in-kind in respect of future interest payments.
Maturity Date
           
April 30, 2014.
Interest Payment Dates
           
Payable semi-annually, on June 30 and December 31 of each year, commencing on December 31, 2010. While the Senior Secured Notes are in place, interest must be paid-in-kind with additional Non-Cash Pay Notes and after the Senior Secured Notes have been repaid in full, the Issuers may pay interest in cash or with additional Non-Cash Pay Notes.

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Subsidiary Guarantees
           
Each of our domestic subsidiaries set forth on Schedule A to this prospectus have guaranteed the Non-Cash Pay Notes. The Non-Cash Pay Notes may be guaranteed by additional subsidiaries in the future under certain circumstances.
Ranking
           
The Non-Cash Pay Notes and the guarantees are our and the guarantors’ subordinated second-priority secured obligations and are:
•  secured on a second-priority basis, by liens on all of our and the guarantors’ assets, including without limitation, receivables, inventory, furniture, fixtures, equipment, trademarks, copyrights and other intangibles, real property and the capital stock of subsidiaries, including a 100% pledge of the co-issuers’ stock, subject to customary exceptions; and
• subordinate in right of payment to the Senior Secured Notes and the Cash Pay Notes, with certain exceptions.
Optional Redemption
           
The Non-Cash Pay Notes are redeemable prior to maturity at our option in whole but not in part, at 100% of principal, plus accrued and unpaid interest, subject to the rights of the holders of the Senior Secured Notes under the intercreditor agreement (the “Intercreditor Agreement”) by and between the holders of the Old Notes, which provides that no redemption of the Non-Cash Pay Notes may occur until the Senior Secured Notes are repaid in full. See section entitled “Description of Notes” for more information.
Change of Control
           
Upon a change of control (as defined in the section entitled “Description of Notes”), we must offer to repurchase the Non-Cash Pay Notes at 110% of the principal amount, plus accrued and unpaid interest to the purchase date.
Certain Covenants
           
The Non-Cash Pay Notes Indenture contains certain covenants, including limitations and restrictions on our and our domestic subsidiaries’ ability to:
•  incur additional indebtedness;
• make dividend payments or other restricted payments;
• create liens;
• change the nature of its business, modify the provisions of any indebtedness, organizational documents and certain other agreements;
• enter into transactions with affiliates; and
• engage in fundamental changes, dispositions or acquisitions with respect to all or any part of our business, property or assets.
As of the date of this prospectus, all of our domestic subsidiaries are set forth on Schedule A to this prospectus. Our foreign subsidiaries will not be subject to any of the restrictive covenants in the Non-Cash Pay Notes Indenture. The restrictive covenants set forth in the Non-Cash Pay Notes Indenture are subject to important exceptions and qualifications. See the section entitled “Description of Notes” for more information.

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Conversion Rights
           
Pursuant to Non-Cash Pay Notes Indenture, you may opt to convert your Non-Cash Pay Notes, or any portion of the principal amount thereof, into shares of our common stock at a conversion price equal to the price per share of common stock offered upon the consummation of our initial public offering on May 16, 2011, or $10.00 per share, up until the close of business on the day prior to the date of payment in full of the Non-Cash Pay Notes. The aggregate shares of our common stock available in such conversion shall be limited to 8,310,763 shares of our common stock, or approximately 21.1% of our fully diluted equity as of the date our initial public offering was consummated, pursuant to the Non-Cash Pay Notes Indenture. For more information on your conversion rights, see the section entitled, “Description of Notes.”
Risk Factors
           
Potential investors in the Non-Cash Pay Notes should carefully consider the matters set forth under the caption Risk Factors prior to making an investment decision with respect to the Non-Cash Pay Notes and/or converting the Non-Cash Pay Notes to shares of our common stock.
Use of Proceeds
           
We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of Non-Cash Pay Notes by the selling securityholders.
 

The Registrable Shares

Issuer
           
FriendFinder Networks Inc.
Common Stock Offered by the Selling Securityholders
           
The selling securityholders are offering up to an aggregate of 31,007,466 shares of common stock, consisting of i) 22,696,703 shares of our common stock held outright by various stockholders of FriendFinder Networks Inc. (the “Outstanding Shares”); and ii) 8,310,763 shares of our common stock issuable upon the conversion of all of the Non-Cash Pay Notes into shares of our common stock (the “Note Shares” and together with the Outstanding Shares, the “Registrable Shares”). For information concerning the selling stockholders and the manner in which they may offer and sell shares of our common stock, see “Selling Stockholders” and “Plan of Distribution” in this prospectus.
Outstanding Shares of Common Stock
           
As of December 14 , 2011, 31,219,644 shares of our common stock were issued and outstanding.
Risk Factors
           
Potential investors in the common stock should carefully consider the matters set forth under the caption Risk Factors prior to making an investment decision with respect to the common stock.
Use of Proceeds
           
We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of shares by the selling stockholders. No consideration will be paid in connection with the conversion of the Non-Cash Pay Notes to Note Shares.
 

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RATIO OF EARNINGS TO FIXED CHARGES

For purposes of calculating the ratio of earnings to fixed charges, earnings consists of income or loss before income taxes plus fixed charges and fixed charges consist of interest expense (including amortized discount and deferred debt costs), interest related to VAT liability not charged to customers and the interest element of rent expense. Earnings are inadequate to cover fixed charges and therefore result in deficiencies amounting to approximately $49.9 million in 2006, $36.3 million in 2007, $64.1 million in 2008, $46.5 million in 2009, $43.6 million in 2010, and $19.7 million and $26.5 million for the nine months ended September 30, 2010 and 2011 respectively. Although we previously had shares of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock outstanding, no preference dividends were paid for the fiscal years ended December 31, 2006, 2007, 2008, 2009 and 2010 nor for the nine months ended September 30, 2010 and 2011. Please refer to Exhibit 12.1 filed with this Registration Statement on Form S-1, of which this prospectus forms a part, which sets forth the computation of the ratio of earnings to fixed charges.

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RISK FACTORS

Our business, financial condition, results of operations, cash flows and prospects, and the prevailing market price and performance of our common stock, may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this registration statement, as well as other written or oral statements made from time to time by us or by our authorized officers on our behalf, constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should note that forward-looking statements in this document speak only as of the date of this registration statement and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that our stockholders and prospective investors should consider include the following:

Risks Related to the Registrable Notes

We may not have the funds, or the ability to raise the funds, necessary to service our indebtedness or repay the Registrable Notes when they become due.

To service our indebtedness, we will require a significant amount of cash. Our ability to maintain our current cash position or generate cash depends on many factors beyond our control. Our ability to make payments on and to refinance our indebtedness, including the Registrable Notes, and to fund operations will depend on existing cash balances and our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive and other factors, such as consumer preferences, that are beyond our control. We may not be able to generate sufficient cash flow from operations and future borrowings may not be available to us in an amount sufficient to service our indebtedness, including the Registrable Notes. We may need to refinance all or a portion of our indebtedness, including the Registrable Notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including the Registrable Notes, on commercially reasonable terms or at all.

There may not be sufficient collateral to pay all or any portion of the Registrable Notes.

No appraisals of any collateral have been prepared. The value of collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable market value. The value of the assets pledged as collateral for the Registrable Notes and the guarantees of the Registrable Notes could be impaired in the future as a result of changing economic conditions, our failure to implement our business strategy, competition or other future trends or uncertainties.

The proceeds of any sale of the collateral following a default by us may not be sufficient to satisfy the amounts due on the Registrable Notes. No appraisal of the fair market value of the collateral has been prepared and we therefore cannot assure you that the value of the noteholders’ interest in the collateral equals or exceeds the principal amount of the Registrable Notes. If the value of the collateral is less than the principal amount of the Registrable Notes, then in the event of bankruptcy, you will have only an unsecured claim against FFN, INI and the subsidiary guarantors to the extent of such shortfall.

The value of the collateral securing the Registrable Notes may not be sufficient to secure post-petition interest.

In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding against us, holders of the Registrable Notes will only be entitled to post-petition interest, fees, costs or charges under U.S. bankruptcy laws to the extent that the value of their security interest in the collateral is greater than the amount of their pre-bankruptcy claim. Holders of the Registrable Notes that have a security interest in collateral with a value equal or less than their pre-bankruptcy claim will not be entitled to post-petition interest under U.S. bankruptcy laws.

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No appraisal of the fair market value of the collateral has been prepared in connection with this offering and we therefore cannot assure you that the value of the noteholders’ interest in the collateral equals or exceeds the principal amounts of each of the Registrable Notes. If the value of the collateral is less than the principal amount of the Registrable Notes, then in the event of bankruptcy, you will only have an unsecured claim against FriendFinder, INI and the subsidiary guarantors to the extent of such shortfall. See “—There may not be sufficient collateral to pay all or any portion of the Registrable Notes.”

Your interest in the collateral may be adversely affected by the failure to record/and/or perfect security interests in certain collateral.

The security interests in the collateral securing the Registrable Notes include a pledge of certain equity interests and a pledge or security interest in, or lien on, assets, whether now owned or acquired or arising in the future. Applicable law requires that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified. Although the agreements governing the Registrable Notes will contain customary further assurances and covenants, the collateral agent under the new agreements governing the Registrable Notes will not monitor the future acquisition or property and rights that constitute collateral.

We may not be able to satisfy our repayment obligations in the event of a change of control because we may lack the funds to do so.

Upon a change of control, each holder of the Registrable Notes will have the right to require us to repurchase their Notes in full at 110% of their principal amount, plus accrued and unpaid interest to the date of repurchase. Any future agreement governing any of our indebtedness may contain similar provisions. Accordingly, it is possible that we will not be able to satisfy our repurchase obligations of the Registrable Notes and future indebtedness upon a change of control because we may not have sufficient funds available to do so.

We breached certain covenants contained in our previously existing note agreements and our Indentures. If we were to breach the covenants contained under our Indentures, which include that we must maintain certain financial ratios, satisfy certain financial tests and remain in compliance with our Indentures, we may be restricted in the way we run our business.

Our previously existing note agreements required, and the Indentures governing our Registrable Notes require us to maintain certain financial ratios as well as comply with other financial covenants relating to minimum consolidated EBITDA and minimum consolidated coverage ratio and permitted investments. We and INI failed to comply with certain covenants contained within some of our previously existing note agreements and our Indentures.

On February 4, 2011, excess cash flow payments of $10.5 million and $0.5 million were paid under our Indentures to the holders of the Senior Secured Notes and Cash Pay Notes, respectively, which payments were in amounts equal to 102% of the principal amounts repaid, amounting to total principal reductions of $10.3 million and $0.5 million for the Senior Secured Notes and Cash Pay Notes, respectively. In the process of calculating the excess cash flow payments on February 4, 2011, we inadvertently used the methodology we applied pursuant to our previously existing note agreements, rather than the methodology from the New Financing.

This error resulted in underpayments of $3.9 million on the Senior Secured Notes and $0.2 million on the Cash Pay Notes, causing an event of default under each of those notes. Upon discovery of the error on February 28, 2011, we recalculated the excess cash flow payments and, on March 2, 2011, we made additional excess cash flow payments in amounts sufficient to cure the underpayments and cure the related event of default, which resulted in further principal reductions of $3.8 million and $0.2 million for the Senior Secured Notes and Cash Pay Notes, respectively.

If events of default occur in the future under any of the Indentures for our Registrable Notes and our efforts to cure such events of default are unsuccessful, it could result in the acceleration of our then-outstanding debt. If all of our indebtedness was accelerated as a result of an event of default, we may not have sufficient funds at the time of acceleration to repay most of our indebtedness and we may not be able to find additional or alternative

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financing to refinance any such accelerated obligations on terms acceptable to us or on any terms, which could have a material adverse effect on our ability to continue as a going concern.

If we do not maintain certain financial ratios, satisfy certain financial tests and remain in compliance with our Indentures, we may be restricted in the way we run our business.

Our Indentures contain certain financial covenants and restrictions requiring us to maintain specified financial ratios and satisfy certain financial tests. As a result of these covenants and restrictions, we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing, compete effectively or take advantage of new business opportunities.

Our failure to comply with the covenants and restrictions contained in our Indentures could lead to a default under these instruments. If such a default occurs and we are unable to cure such default or obtain a waiver, the holders of the debt in default could accelerate the maturity of the related debt, which in turn could trigger the cross-default and cross-acceleration provisions of our other financing agreements. If any of these events occur, we cannot assure you that we will have sufficient funds available to pay in full the total amount of obligations that become due as a result of any such acceleration, or that we will be able to find additional or alternative financing to refinance any such accelerated obligations on terms acceptable to us or on any terms.

We have defaulted on certain terms of our indebtedness in the past and we cannot assure you that we will be able to remain in compliance with these covenants in the future and, if we fail to do so, we cannot assure you that we will be able to cure such default, obtain waivers from the holders of the debt and/or amend the covenants as we have in the past. For more information regarding the potential risks associated with our breach of covenants on certain of our indebtedness see the risk factor entitled “We breached certain covenants contained in our previously existing note agreements and our Indentures. If we were to breach the covenants contained under our Indentures, which include that we must maintain certain financial ratios, satisfy certain financial tests and remain in compliance with our Indentures, we may be restricted in the way we run our business.”

There is no public market for the Registrable Notes.

We do not intend to list the Registrable Notes on any securities exchange. We cannot assure you that an active trading market for the Registrable Notes will develop. If the Registrable Notes are traded, they may trade at a discount from their initial offering price, depending on a number of factors, including:

•  
  the number of noteholders;

•  
  our operating performance and financial condition;

•  
  the market for similar securities;

•  
  the interest of securities dealers in making a market in the Registrable Notes; and

•  
  prevailing interest rates.

Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of these securities. We do not assure you that the market for the Registrable Notes will be free from similar disruptions. Any disruptions could have an adverse effect on noteholders.

Fraudulent conveyance laws may permit courts to void the subsidiary guarantees of the notes in specific circumstances, which would interfere with the payment of the subsidiary guarantees.

Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, any guarantee made by any of our subsidiaries could be voided, or claims under the guarantee made by any of our subsidiaries could be subordinated to all other obligations of any such subsidiary, if the subsidiary, at the time it incurred the obligations under any guarantee:

•  
  incurred the obligations with the intent to hinder, delay or defraud creditors; or

•  
  received less than reasonably equivalent value, or did not receive fair consideration, in exchange for incurring those obligations; and

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(1)  
  was insolvent or rendered insolvent by reason of that incurrence;

(2)  
  was engaged in a business or transaction for which the subsidiary’s remaining assets constituted unreasonably small capital; or

(3)  
  intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.

In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of the creditors of the guarantor. In any such case, your right to receive payments in respect of the notes from any such guarantor would be structurally subordinated to all indebtedness and other liabilities of that guarantor.

A legal challenge to the obligations under any guarantee on fraudulent conveyance grounds could focus on any benefits received in exchange for the incurrence of those obligations. We believe that each of our subsidiaries making a guarantee received reasonably equivalent value for incurring the guarantee, but a court may disagree with our conclusion or elect to apply a different standard in making its determination.

The measures of insolvency for purposes of the fraudulent transfer laws vary depending on the law applied in the proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an entity would be considered insolvent if:

•  
  the sum of its debts, including contingent liabilities, is greater than the fair saleable value of all of its assets;

•  
  the present fair saleable value of its assets is less than the amount that would be required to pay its probable liabilities on its existing debts, including contingent liabilities, as they become absolute and mature; or

•  
  it cannot pay its debts as they become due.

We cannot assure you, however, as to what standard a court would apply in making these determinations. If a guarantee of the notes is voided as a fraudulent conveyance or is found to be unenforceable for any other reason, you will not have a claim against the guarantor.

Risks Related to our Common Stock

Purchasers of Registrable Shares from the selling securityholders may experience dilution.

Sales of Registrable Shares by the selling securityholders will not result in a change in the net tangible book value deficiency per share before and after the distribution of shares by the selling securityholders. However, purchasers of Registrable Shares from the selling securityholders will experience dilution to the extent of the excess of the amount per share paid over the net tangible book value deficiency per share of our common stock at the time of the purchase. Net tangible book value deficiency per share represents the amount that the total liabilities exceeds total tangible assets divided by the number of outstanding shares of our common stock. Any future equity issuances and future exercises of employee stock options or future exercises of outstanding warrants to purchase our common stock may also have a dilutive impact on the holders of our common stock.

Our executive officers, directors and their affiliates own a substantial percentage of our common stock, which may allow them to control matters requiring stockholder approval. They could also make business decisions for us with which you disagree and that cause our stock price to decline.

As of December 14 , 2011, our executive officers, directors and their affiliates beneficially own approximately 41% of our common stock. As a result, if they act in concert, they may be able to control matters requiring approval by our stockholders, including the election of directors, and could have the ability to prevent or approve a corporate transaction, even if other stockholders, including those who acquire shares subsequent to these exchange offers, oppose such action. This concentration of voting power could also have the effect of delaying, deterring, or preventing a change of control or other business combination, which could cause our stock price to decline.

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There are a large number of shares of common stock outstanding, and a significant number of authorized but not issued shares of common stock which may be sold in the future and may cause the prevailing market price of our common stock to decrease and impair our capital raising abilities.

As of December 14 , 2011, 31,219,644 shares of common stock are issued and outstanding and an additional 81,280,356 shares of our voting common stock are authorized and available for issuance, which we may, in general, issue without any action or approval by our stockholders, including in connection with acquisitions or otherwise except as required by relevant stock exchange requirements.

The market price for our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering, and even the perception that these sales could occur may depress the market price. The sale of shares issued upon the exercise or conversion of our derivative securities could also further dilute your investment in our common stock. Further, the sale of any of the foregoing shares could impair our ability to raise capital through the sale of additional equity securities.

Public interest group actions targeted at our stockholders may cause the prevailing market price of our common stock to decrease and impair our capital raising abilities.

Public interest groups may target our stockholders, particularly institutional stockholders, seeking to cause those stockholders to divest their holdings of our securities because of the adult-oriented nature of parts of our business. The sale by any institutional investor of its holdings of our common stock, and the reluctance of other institutional investors to invest in our securities, because of such public interest group actions, or the threat of such actions, could cause the market price of our common stock to decline and could impair our ability to raise capital through the sale of additional equity securities.

We will continue to incur increased costs as a result of being a public company.

As a public company, we will continue to incur increased legal, accounting and other costs not incurred as a private company. The Sarbanes-Oxley Act of 2002 and related rules and regulations of the SEC and NASDAQ regulate the corporate governance practices of public companies. We expect that compliance with these requirements will increase our expenses and make some activities more time consuming than they have been in the past when we were a private company. Although we are currently unable to estimate these increased costs with any degree of certainty, such additional costs going forward could negatively impact our financial results.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required to furnish a report by our management on our internal control over financial reporting. We have not been subject to these requirements in the past. The internal control report must contain (a) a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting, (b) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, and (c) management’s assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective.

To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to dedicate internal resources, engage outside consultants and adopt a detailed work plan to (a) assess and document the adequacy of internal control over financial reporting, (b) take steps to improve control processes where appropriate, (c) validate through testing that controls are functioning as documented, and (d) implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, we can provide no assurance as to our, or our independent registered public accounting firm’s, conclusions with respect to the effectiveness of our internal control over financial reporting under Section 404. There is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the

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prescribed timeframe that our internal controls over financial reporting are effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

We do not intend to pay dividends in the foreseeable future.

You should not rely on an investment in our common stock to provide dividend income. We do not currently pay any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We intend to retain future earnings to fund our growth and repay existing indebtedness. In addition, our ability to pay dividends is prohibited by the terms of our currently outstanding notes and we expect that any future credit facility will contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Accordingly, you will receive a return on your investment in our common stock only if our common stock appreciates in value. You may therefore not realize a return on your investment even if you sell your shares.

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.

Our common stock has been traded on NASDAQ since May 11, 2011. The trading price of our common stock subsequent to our initial public offering has been volatile and may continue to be highly volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include:

•  
  Quarterly variations in our results of operations or those of our competitors.

•  
  Announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments.

•  
  Disruption to our operations or those of our marketing affiliates.

•  
  The emergence of new sales channels in which we are unable to compete effectively.

•  
  Our ability to develop and market new and enhanced products on a timely basis.

•  
  Commencement of, or our involvement in, litigation.

•  
  Any major change in our board or management.

•  
  Changes in governmental regulations or in the status of our regulatory approvals.

•  
  Changes in earnings estimates or recommendations by securities analysts.

•  
  General economic conditions and slow or negative growth of related markets.

In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

If the minimum bid price of our common stock remains below $1.00, our common stock may be delisted by NASDAQ, which could limit your ability to sell shares of our common stock and could limit our ability to raise additional capital.

We need to maintain certain financial and corporate governance qualifications in order to maintain the listing of our shares of common stock on NASDAQ. One of these requirements is that we maintain a minimum bid price for our shares of common stock of $1.00. On December 1 5 , 2011, the last reported sales price of our common stock on NASDAQ was $ 0. 59 per share. If the shares of our common stock were to continue to trade below the $1.00

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minimum bid price for 30 consecutive days, NASDAQ would send us a deficiency notice advising us that we have 180 calendar days to regain compliance with the applicable requirements. We cannot assure you that we will at all times meet the criteria for continued listing, including that our stock price will meet the minimum bid price requirement under NASDAQ’s rules. If our common stock were to be delisted from NASDAQ, the market for your shares may be limited, and as a result, you may not be able to sell your shares at an acceptable price, or at all. In addition, a delisting may make it more difficult or expensive for us to raise additional capital in the future.

Anti-takeover provisions in our articles of incorporation and bylaws or provisions of Nevada law could prevent or delay a change in control, even if a change of control would benefit our stockholders.

Provisions of our articles of incorporation and our bylaws, as well as provisions of Nevada law, could discourage, delay or prevent a merger, acquisition or other change in control, even if a change in control would benefit our stockholders. These provisions:

•  
  establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings;

•  
  authorize our board of directors to issue “blank check” preferred stock to increase the number of outstanding shares and thwart a takeover attempt;

•  
  require the written request of at least 75% of the voting power of our capital stock in order to compel management to call a special meeting of the stockholders; and

•  
  prohibit stockholder action by written consent and require that all stockholder actions be taken at a meeting of our stockholders, unless otherwise specifically required by our articles of incorporation or the Nevada Revised Statutes.

In addition, the Nevada Revised Statutes contain provisions governing the acquisition of a controlling interest in certain Nevada corporations. These laws provide generally that any person that acquires 20% or more of the outstanding voting shares of certain Nevada corporations in the secondary public or private market must follow certain formalities before such acquisition or they may be denied voting rights, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights in whole or in part. These laws will apply to us if we have 200 or more stockholders of record, at least 100 of whom have addresses in Nevada, unless our articles of incorporation or our bylaws in effect on the tenth day after the acquisition of a controlling interest provide otherwise. These laws provide that a person acquires a “controlling interest” whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the Nevada Revised Statutes, would enable that person to exercise (1) one-fifth or more, but less than one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares which it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire a controlling interest become “control shares.” These laws may have a chilling effect on certain transactions if our articles of incorporation or our bylaws are not amended to provide that these provisions do not apply to us or to an acquisition of a controlling interest, or if our disinterested stockholders do not confer voting rights in the control shares.

Nevada law also provides that if a person is the “beneficial owner” of 10% or more of the voting power of certain Nevada corporations, such person is an “interested stockholder” and may not engage in any “combination” with the corporation for a period of three years from the date such person first became an interested stockholder, unless the combination or the transaction by which the person first became an interested stockholder is approved by the board of directors of the corporation before the person first became an interested stockholder. Another exception to this prohibition is if the combination is approved by the affirmative vote of the holders of stock representing a majority of the outstanding voting power not beneficially owned by the interested stockholder at a meeting called for that purpose, no earlier than three years after the date that the person first became an interested stockholder. These laws generally apply to Nevada corporations with 200 or more stockholders of record, but a Nevada corporation may elect in its articles of incorporation not to be governed by these particular laws. We have made such an election in our articles of incorporation. Nevada law also provides that directors may resist a change or potential change in control if the directors determine that the change is opposed to, or not in the best interest of, the corporation.

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Risks Related to our High Level of Indebtedness

Our indebtedness could make obtaining additional capital resources difficult and could materially adversely affect our business, financial condition, results of operations and our growth strategy.

As of September 30, 2011, the outstanding principal balances under our Senior Secured Notes, Cash Pay Notes and Non-Cash Pay Notes, were $235.3 million, $10.6 million and $250.9 million, respectively. We will require additional capital resources in the future and there can be no assurance that such funds will be available to us on favorable terms, or at all. The unavailability of funds could have a material adverse effect on our financial condition, results of operations and ability to expand our operations. Remaining indebtedness after this offering could materially adversely affect us in a number of ways, including the following:

•  
  we may be unable to obtain additional financing for working capital, capital expenditures, acquisitions, repayment of debt at maturity and other general corporate purposes;

•  
  a significant portion of our cash flow from operations must be dedicated to debt service, which reduces the amount of cash we have available for other purposes;

•  
  we may be disadvantaged as compared to our competitors, such as in our ability to adjust to changing market conditions, as a result of the amount of debt we owe;

•  
  we may be restricted in our ability to make strategic acquisitions and to exploit business opportunities; and

•  
  additional dilution of stockholders may be required to service our debt.

Moreover, our Indentures contain covenants that limit our actions. These covenants could materially and adversely affect our ability to finance our future operations or capital needs or to engage in other business activities that may be in our best interest. The covenants limit our ability to, among other things:

•  
  incur or guarantee additional indebtedness;

•  
  repurchase capital stock;

•  
  make loans and investments;

•  
  enter into agreements restricting our subsidiaries’ abilities to pay dividends;

•  
  grant liens on assets;

•  
  sell or otherwise dispose of assets;

•  
  enter new lines of business;

•  
  merge or consolidate with other entities; and

•  
  engage in transactions with affiliates.

Servicing our indebtedness will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Our business may not be able to generate sufficient cash flow from operations or future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness or debt securities, including the Registrable Notes, or to fund our other liquidity needs. As a result, we may need to refinance all or a portion of our indebtedness on or before maturity. However, we may not be able to complete such refinancing on commercially reasonable terms or at all.

Risks Related to our Business and Industry

We have a history of significant net losses and we may incur additional net losses in the future, which have had and may continue to have material consequences to our business.

We have historically generated significant net losses. As of September 30, 2011, we had an accumulated deficit of approximately $251.6 million. For the nine months ended September 30, 2011 and the year ended December 31,

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2010, we had a net loss of $20.9 million and $43.2 million, respectively. For the years ended December 31, 2009 and 2008, we had net losses of approximately $41.2 million and $46.0 million, respectively. We expect our operating expenses will continue to increase during the next several years as a result of additional costs incurred related to our status as a public company, the promotion of our services and the expansion of our operations, including the launch of new websites and entering into acquisitions, strategic alliances and joint ventures. If our revenue does not grow at a substantially faster rate than these expected increases in our expenses or if our operating expenses are higher than we anticipate, we may not be profitable and we may incur additional losses, which could be significant. Our net losses cause us to be more highly leveraged, increase our cost of debt and make us subject to certain covenants which limit our ability to grow our business organically or through acquisitions. For more information with respect to the covenants to which we are currently subject, see the risk factor entitled “—Our indebtedness could make obtaining additional capital resources difficult and could materially adversely affect our business, financial condition, results of operations and our growth strategy.”

Most of our revenue is currently derived from subscribers to our online offerings and a reduction in the number of our subscribers or a reduction in the amount of spending by our subscribers could harm our financial condition.

Our internet business generated approximately 93.5% and 93% of our revenue for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively, from subscribers and other paying customers to our websites. For more information regarding our revenue, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.” We must continually add new subscribers to replace subscribers that we lose in the ordinary course of business due to factors such as competitive price pressures, credit card expirations, subscribers’ perceptions that they do not use our services sufficiently and general economic conditions. Our subscribers maintain their subscriptions on average for approximately six and a half months. Our business depends on our ability to attract a large number of visitors, to convert visitors into registrants, to convert registrants into members, to convert members into subscribers and to retain our subscribers. As of September 30, 2011, we had approximately 900 thousand current subscribers. For more information about our key business metrics including, but not limited to, the number of subscribers and the conversion of members to subscribers, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Internet Segment Historical Operating Data.” If we are unable to provide the pricing and content, features, functions or services necessary to attract new subscribers or retain existing subscribers, our operating results could suffer. To the extent free social networking and personals websites, or free adult content on the internet, continue to be available or increase in availability, our ability to attract and retain subscribers may be adversely affected. In addition, any decrease in our subscribers’ spending due to general economic conditions could also reduce our revenue or negatively impact our ability to grow our revenue.

We face significant competition from other websites.

Our adult-oriented websites face competition for visitors from other websites offering free adult-oriented content. We face competition from companies offering adult-oriented internet personals websites such as Cytek Ltd., the operator of SexSearch.com and Fling Incorporated and we compete with many adult-oriented and live interactive video websites, such as Playboy.com and LiveJasmin.com. Our general audience social networking and personals websites, which contribute substantially less of our revenue and earnings, face significant competition from other social networking websites such as MySpace.com, Facebook.com and Friendster.com, as well as companies providing online personals services such as Match.com, L.L.C., Yahoo!Personals, Windows Live Profile, eHarmony, Inc., Lavalife Corp., Plentyoffish Media Inc. and Spark Networks Limited websites, including jdate.com, americansingles.com and relationships.com. Other social networking websites have higher numbers of worldwide unique users than our network of websites. According to comScore, in December 2010, Facebook.com and MySpace.com had approximately 662 million and 77 million worldwide unique visitors, respectively, compared to our websites’ 196 million worldwide unique visitors. In addition, the number of unique visitors on our general audience social networking and personals websites has decreased and may continue to decrease.

Internet-based social networking is characterized by significant competition, evolving industry standards and frequent product and service enhancements. Our competitors are constantly developing innovations in internet social networking. We must continually invest in improving our visitors’ experiences and in providing services that

20




people expect in a high quality internet experience, including services responsive to their needs and preferences and services that continue to attract, retain and expand our user base.

If we are unable to predict user preferences or industry changes, or if we are unable to modify our services on a timely basis, we may lose visitors, licensees, affiliates and/or advertisers. Our operating results would also suffer if our innovations are not responsive to the needs of our users, advertisers, affiliates or licensees, are not appropriately timed with market opportunity or are not effectively brought to market. As internet-based social networking technology continues to develop, our competitors may be able to offer social networking products or services that are, or that are perceived to be, substantially similar or better than those generated by us. As a result, we must continue to invest resources in order to diversify our service offerings and enhance our technology. If we are unable to provide social networking technologies and other services which generate significant traffic to our websites, our business could be harmed, causing revenue to decline.

Some of our competitors may have significantly greater financial, marketing and other resources than we do. Our competitors may undertake more far-reaching marketing campaigns, including print and television advertisements, and adopt more aggressive pricing policies that may allow them to build larger member and subscriber bases than ours. Our competitors may also develop products or services that are equal or superior to our products and services or that achieve greater market acceptance than our products and services. Our attempts to increase traffic to and revenue from our general audience websites may be unsuccessful. Additionally, some of our competitors are not subject to the same regulatory restrictions that we are, including those imposed by our December 2007 settlement with the Federal Trade Commission over the use of sexually explicit advertising. For more information regarding our potential liability for third party activities see the risk factor entitled “—We may be held secondarily liable for the actions of our affiliates, which could result in fines or other penalties that could harm our reputation, financial condition and business.” These activities could attract members and paying subscribers away from our websites, reduce our market share and adversely affect our results of operations.

We heavily rely on our affiliate network to generate traffic to our websites. If we lose affiliates, our business could experience a substantial loss of traffic, which could harm our ability to generate revenue.

Our affiliate network generated approximately 46% and 45% of our revenue for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively, from visitor traffic to our websites. We generally pay referring affiliates commissions based on the amount of revenue generated by the traffic they deliver to our websites. Typically, our affiliate arrangements can be terminated immediately by us or our affiliates for any reason. Typically, we do not have exclusivity arrangements with our affiliates, and some of our affiliates may also be affiliates for our competitors. If other websites, including our competitors, were to offer higher paying affiliate programs, we could lose some of our affiliates unless we increased the commission rates we paid under our marketing affiliate program. Any increase in the commission rates we pay our affiliates would result in higher cost of revenue and could negatively impact our results of operations. Finally, we could lose affiliates if their internal policies are revised to prohibit entering into business contracts with companies like ours that provide adult material. The loss of affiliates providing significant traffic and visitors to our websites could harm our ability to generate revenue.

Increased subscriber churn or subscriber upgrade and retention costs could adversely affect our financial performance.

Turnover of subscribers in the form of subscriber service cancellations or failures to renew, or churn, has a significant financial impact on the results of operations of any subscription internet provider, including us, as does the cost of upgrading and retaining subscribers. For the nine months ended September 30, 2011 and the year ended December 31, 2010, our average monthly churn rate for our social networking websites was 16.3% and 16.1%, respectively. Any increase in the costs necessary to upgrade and retain existing subscribers could adversely affect our financial performance. In addition, such increased costs could cause us to increase our subscription rates, which could increase churn. Churn may also increase due to factors beyond our control, including churn by subscribers who are unable or unwilling to pay their monthly subscription fees because of personal financial restrictions, the impact of a slowing economy or the attractiveness of competing services or websites. If excessive numbers of subscribers cancel or fail to renew their subscriptions, we may be required to incur significantly higher marketing

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expenditures than we currently anticipate in order to replace canceled or unrenewed subscribers with new subscribers, which could harm our financial condition.

We have never generated significant revenue from internet advertising and may not be able to in the future and a failure to compete effectively against other internet advertising companies could result in lost customers or could adversely affect our business and results of operations.

We have never generated significant revenue from internet advertising. In the future, we may shift some of our websites with lower subscription penetration to an advertising-based revenue model and may seek to provide selected targeted advertising on our subscriber-focused websites. Our user database serves as an existing source of potential members or subscribers for new websites we create and additionally presents opportunities for us to offer targeted online advertising to specific demographic groups.

Our ability to generate significant advertising revenue will also depend upon several factors beyond our control, including general economic conditions, changes in consumer purchasing and viewing habits and changes in the retail sales environment and the continued development of the internet as an advertising medium. If the market for internet-based advertising does not continue to develop or develops more slowly than expected, or if social networking websites are deemed to be a poor medium on which to advertise, our plan to use internet advertising revenue as a means of revenue growth may not succeed.

Because we allow our registrants to opt out of receiving certain communications from us and third parties, including advertisements, registrants who have opted out of receiving advertisements are potentially less valuable to us as a source of revenue than registrants who have not done so. The number of registrants who have opted out of receiving such communications are not identified in our gross number of registrants.

In addition, filter software programs that limit or prevent advertising from being delivered to an internet user’s computer are becoming increasingly effective and easy to use, making the success of implementing an advertising medium increasingly difficult. Widespread adoption of this type of software could harm the commercial viability of internet-based advertising and, as a result, hinder our ability to grow our advertising-based revenue.

Competition for advertising placements among current and future suppliers of internet navigational and informational services, high-traffic websites and internet service providers, or ISPs, as well as competition with non-internet media for advertising placements, could result in significant price competition, declining margins and/or reductions in advertising revenue. In addition, as we continue to expand the scope of our internet services, we may compete with a greater number of internet publishers and other media companies across an increasing range of different internet services, including in focused markets where competitors may have advantages in expertise, brand recognition and other areas. If existing or future competitors develop or offer services that provide significant performance, price, creative or other advantages over those offered by us, our business, results of operations and financial condition would be negatively affected. We would also compete with traditional advertising media, such as direct mail, television, radio, cable, and print, for a share of advertisers’ total advertising budgets. Many potential competitors would enjoy competitive advantages over us, such as longer operating histories, greater name recognition, larger customer bases, greater access to advertising space on high-traffic websites, and significantly greater financial, technical and marketing resources. As a result, we may not be able to compete successfully.

Our business depends on strong brands, and if we are not able to maintain and enhance our brands, our ability to expand our base of users, advertisers and affiliates will be impaired and our business and operating results could be harmed.

We believe that the brand recognition that we have developed has significantly contributed to the success of our business. We also believe that maintaining and enhancing the “FriendFinder” and “AdultFriendFinder” brands is critical to expanding our base of users, advertisers and affiliates. Maintaining and enhancing our brands’ profiles may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain the “FriendFinder” and “AdultFriendFinder” brands’ profiles, or if we incur excessive expenses in this effort, our business and operating results could be harmed. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brands’ profiles may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend largely on our ability to be a technology leader and to continue to provide attractive products and services, which we may not do successfully.

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People have in the past expressed, and may in the future express, concerns over certain aspects of our products. For example, people have raised privacy concerns relating to the ability of our members to post pictures, videos and other information on our websites. Aspects of our future products may raise similar public concerns. Publicity regarding such concerns could harm our brands. Further, if we fail to maintain high standards for product quality, or if we fail to maintain high ethical, social and legal standards for all of our operations and activities, our reputation could be jeopardized.

In addition, affiliates and other third parties may take actions that could impair the value of our brands. We are aware that third parties, from time to time, use “FriendFinder” and “AdultFriendFinder” and similar variations in their domain names without our approval, and our brands may be harmed if users and advertisers associate these domains with us.

Our business, financial condition and results of operations may be adversely affected by unfavorable economic and market conditions.

Changes in global economic conditions could adversely affect the profitability of our business. Economic conditions worldwide have from time to time contributed to slowdowns in the technology industry, as well as in the specific segments and markets in which we operate, resulting in reduced demand and increased price competition for our products and services. Our operating results in one or more geographic regions may also be affected by uncertain or changing economic conditions within that region, such as the challenges that are currently affecting economic conditions in the United States and abroad. If economic and market conditions in the United States or other key markets, remain unfavorable or persist, spread or deteriorate further, we may experience an adverse impact on our business, financial condition and results of operations. If our entertainment segment continues to be adversely affected by these economic conditions, we may be required to take an impairment charge with respect to these assets. In addition, the current or future tightening of credit in financial markets could result in a decrease in demand for our products and services. The demand for entertainment and leisure activities tends to be highly sensitive to consumers’ disposable incomes, and thus a decline in general economic conditions may lead to our current and potential registrants, members, subscribers and paid users having less discretionary income to spend. This could lead to a reduction in our revenue and have a material adverse effect on our operating results. For the nine months ended September 30, 2011 and the years ended December 31, 2010 and 2009, the growth of our internet and entertainment revenue was adversely impacted by negative global economic conditions. For more information regarding the effect of economic conditions on our operating results see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Accordingly, the economic downturn in the United States and other countries may hurt our financial performance. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions and the effects they may have on our business and financial condition and results of operations.

Continued imposition of tighter processing restrictions by credit card processing companies and acquiring banks would make it more difficult to generate revenue from our websites.

We rely on third parties to provide credit card processing services allowing us to accept credit card payments from our subscribers and paid users. As of September 30, 2011 and December 31, 2010, two credit card processing companies accounted for approximately 57.9% and 48.9% of our accounts receivable, respectively. Our business could be disrupted if these or other companies become unwilling or unable to provide these services to us. We are also subject to the operating rules, certification requirements and rules governing electronic funds transfers imposed by the payment card industry seeking to protect credit card issuers, which could change or be reinterpreted to make it difficult or impossible for us to comply with such rules or requirements. If we fail to comply, we may be subject to fines and higher transaction fees and lose our ability to accept credit card payments from our customers, and our business and operating results would be adversely affected. Our ability to accept credit cards as a form of payment for our online products and services could also be restricted or denied for a number of other reasons, including but not limited to:

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  if we experience excessive chargebacks and/or credits;

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  if we experience excessive fraud ratios;

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•  
  if there is an adverse change in policy of the acquiring banks and/or card associations with respect to the processing of credit card charges for adult-related content;

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  if there is an increase in the number of European and U.S. banks that will not accept accounts selling adult-related content;

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  if there is a breach of our security resulting in the theft of credit card data;

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  if there is continued tightening of credit card association chargeback regulations in international commerce;

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  if there are association requirements for new technologies that consumers are less likely to use; and

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  if negative global economic conditions result in credit card companies denying more transactions.

In May 2000, American Express instituted a policy of not processing credit card transactions for online, adult-oriented content and terminated all of its adult website merchant accounts. If other credit card processing companies were to implement a similar policy, it would have a material adverse effect on our business operations and financial condition.

Our credit card chargeback rate is currently approximately 0.9% of the transactions processed and the reserves the banks require us to maintain are approximately 2.0% of our total net revenues. In addition, our required reserve balances have increased from $7.4 million at December 31, 2010 to $11.7 million at September 30, 2011 due to the addition of a new processor. If our chargeback rate increases or we are required to maintain increased reserves, this could increase our operating expenses and may have a material adverse effect on our business operations and financial condition.

Our ability to keep pace with technological developments is uncertain.

Our failure to respond in a timely and effective manner to new and evolving technologies could harm our business, financial condition and operating results. The internet industry is characterized by rapidly changing technology, evolving industry standards, changes in consumer needs and frequent new service and product introductions. Our business, financial condition and operating results will depend, in part, on our ability to develop the technical expertise to address these rapid changes and to use leading technologies effectively. We may experience difficulties that could delay or prevent the successful development, introduction or implementation of new features or services.

Further, if the new technologies on which we intend to focus our investments fail to achieve acceptance in the marketplace or our technology does not work and requires significant cost to replace or fix, our competitive position could be adversely affected, which could cause a reduction in our revenue and earnings. For example, our competitors could be the first to obtain proprietary technologies that are perceived by the market as being superior. Further, after incurring substantial costs, one or more of the technologies under development could become obsolete prior to its introduction.

To access technologies and provide products that are necessary for us to remain competitive, we may make future acquisitions and investments and may enter into strategic partnerships with other companies. Such investments may require a commitment of significant capital and human and other resources. The value of such acquisitions, investments and partnerships and the technology accessed may be highly speculative. Arrangements with third parties can lead to contractual and other disputes and dependence on the development and delivery of necessary technology on third parties that we may not be able to control or influence. These relationships may commit us to technologies that are rendered obsolete by other developments or preclude the pursuit of other technologies which may prove to be superior.

We may be held secondarily liable for the actions of our affiliates, which could result in fines or other penalties that could adversely affect our reputation, financial condition and business.

Under the terms of our December 2007 settlement with the Federal Trade Commission, we have agreed not to display sexually explicit online advertisements to consumers who are not seeking out sexually explicit content, and we require that members of our marketing affiliate network affirmatively agree to abide by this restriction as

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part of our affiliate registration process. We have also agreed to end our relationship with any affiliate that fails to comply with this restriction. Notwithstanding these measures, should any affiliate fail to comply with the restriction and display sexually explicit advertisements relating to our adult-oriented websites to any consumer not seeking adult content, we may be held liable for the actions of such affiliate and subjected to fines and other penalties that could adversely affect our reputation, financial condition and business.

In addition, we run the risk of being held responsible for the conduct or legal violations of our affiliates or those who have a marketing relationship with us, including, for example, with respect to their use of adware programs or other technology that causes internet advertisements to manifest in pop ups or similar mechanisms that can be argued to block or otherwise interfere with another website’s content or otherwise be argued to violate the Lanham Act or be considered an unlawful, unfair, or deceptive business practice.

If any of our relationships with internet search websites terminate, if such websites’ methodologies are modified or if we are outbid by competitors, traffic to our websites could decline.

We depend in part on various internet search websites, such as Google.com, Bing.com, Yahoo.com and other websites to direct a significant amount of traffic to our websites. Search websites typically provide two types of search results, algorithmic and purchased listings. Algorithmic listings generally are determined and displayed as a result of a set of unpublished formulas designed by search engine companies in their discretion. Purchased listings generally are displayed if particular word searches are performed on a search engine. We rely on both algorithmic and purchased search results, as well as advertising on other internet websites, to direct a substantial share of visitors to our websites and to direct traffic to the advertiser customers we serve. If these internet search websites modify or terminate their relationship with us or we are outbid by our competitors for purchased listings, meaning that our competitors pay a higher price to be listed above us in a list of search results, traffic to our websites could decline. Such a decline in traffic could affect our ability to generate subscription revenue and could reduce the desirability of advertising on our websites.

If members decrease their contributions of content to our websites that depend on such content, the viability of those websites would be impaired.

Many of our websites rely on members’ continued contribution of content without compensation. We cannot guarantee that members will continue to contribute such content to our websites. In addition, we may offer discounts to members who provide content for our websites as an incentive for their contributions. In the event that contributing members decrease their contributions to our websites, or if the quality of such contributions is not sufficiently attractive to our audiences, or if we are required to offer additional discounts in order to encourage members to contribute content to our websites, this could have a negative impact on our business, revenue and financial condition.

Our business, financial condition and results of operations could be adversely affected if we fail to provide adequate security to protect our users and our systems.

Online security breaches could adversely affect our business, financial condition and results of operations. Any well-publicized compromise of security could deter use of the internet in general or use of the internet to conduct transactions that involve transmitting confidential information or downloading sensitive materials. In offering online payment services, we may increasingly rely on technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments could compromise or breach the algorithms that we use to protect our customers’ transaction data. If third parties are able to penetrate our network security or otherwise misappropriate confidential information, we could be subject to liability, which could result in litigation. In addition, experienced programmers or “hackers” may attempt to misappropriate proprietary information or cause interruptions in our services that could require us to expend significant capital and resources to protect against or remediate these problems.

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Our business involves risks of liability claims arising from our media content, which could adversely affect our ability to generate revenue and could increase our operating expenses.

As a distributor of media content, we face potential liability for defamation, invasion of privacy, negligence, copyright or trademark infringement, obscenity, violation of rights of publicity and/or obscenity laws and other claims based on the nature and content of the materials distributed. These types of claims have been brought, sometimes successfully, against broadcasters, publishers, online services and other disseminators of media content. We could also be exposed to liability in connection with content made available through our online social networking and personals websites by users of those websites. Any imposition of liability that is not covered by insurance or is in excess of our insurance coverage could have a material adverse effect on us. In addition, measures to reduce our exposure to liability in connection with content available through our internet websites could require us to take steps that would substantially limit the attractiveness of our internet websites and/or their availability in certain geographic areas, which could adversely affect our ability to generate revenue and could increase our operating expenses.

Privacy concerns could increase our costs, damage our reputation, deter current and potential users from using our products and services and negatively affect our operating results.

From time to time, concerns may arise about whether our products and services compromise the privacy of users and others. Concerns about our practices with regard to the collection, use, disclosure or security of personal information or other privacy-related matters, even if unfounded, could damage our reputation and deter current and potential users from using our products and services, which could negatively affect our operating results. While we strive to comply with all applicable data protection laws and regulations, as well as our own posted privacy policies, any failure or perceived failure to comply may result in proceedings or actions against us by governmental entities or others, which could potentially have an adverse effect on our business. Increased scrutiny by regulatory agencies, such as the Federal Trade Commission and state agencies, of the use of customer information, could also result in additional expenses if we are obligated to reengineer systems to comply with new regulations or to defend investigations of our privacy practices.

In addition, as most of our products and services are web based, the amount of data we store for our users on our servers (including personal information) has been increasing. Any systems failure or compromise of our security that results in the release of our users’ data could seriously harm our reputation and brand and, therefore, our business. A security or privacy breach may:

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  cause our customers to lose confidence in our services;

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  deter consumers from using our services;

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  harm our reputation;

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  require that we expend significant additional resources related to our information security systems and result in a disruption of our operations;

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  expose us to liability;

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  subject us to unfavorable regulatory restrictions and requirements imposed by the Federal Trade Commission or similar authority;

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  cause us to incur expenses related to remediation costs; and

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  decrease market acceptance of the use of e-commerce transactions.

The risk that these types of events could adversely affect our business is likely to increase as we expand the number of products and services we offer as well as increase the number of countries where we operate, as more opportunities for such breaches of privacy will exist.

Proposed legislation concerning data protection is currently pending at the U.S. federal and state level as well as in certain foreign jurisdictions. In addition, the interpretation and application of data protection laws in Europe, the United States and elsewhere are still uncertain and in flux. It is possible that these laws may be interpreted and

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applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could have an adverse effect on our business. Complying with these laws as they evolve could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

We may not be able to protect and enforce our intellectual property rights.

We currently own and maintain approximately 100 U.S. trademark registrations and applications and over 950 foreign trademark registrations and applications. We believe that our trademarks, particularly the “AdultFriendFinder,” “FriendFinder,” “FastCupid,” “Penthouse,” “Penthouse Letters,” “Forum,” and “Variations” names and marks, the One Key Logo, and other proprietary rights are important to our success, potential growth and competitive position. Our inability or failure to protect or enforce these trademarks and other proprietary rights could have a material adverse effect on our business. Accordingly, we devote substantial resources to the establishment, protection and enforcement of our trademarks and other proprietary rights. Our actions to establish, protect and enforce our trademarks and other proprietary rights may not prevent imitation of our products, services or brands or control piracy by others or prevent others from claiming violations of their trademarks and other proprietary rights by us or prevent others from challenging the validity of our trademarks. In addition, the enforcement of our intellectual property rights, including trademark rights, through legal or administrative proceedings would be costly and time-consuming and would likely divert management from their normal responsibilities. An adverse determination in any litigation or other proceeding could put one or more of our intellectual property rights at risk of being invalidated or interpreted narrowly. On April 13, 2011, Facebook, Inc., or Facebook, filed a complaint against us and certain of our subsidiaries in the U.S. District Court for the Northern District of California, alleging trademark infringement. The parties are currently engaged in discovery and the court has ordered the parties to attend mediation by January 2012. For a description of this complaint, please see “Legal Proceedings” below. There are factors outside of our control that pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in every country in which our products and services are distributed or made available through the internet.

Intellectual property litigation could expose us to significant costs and liabilities and thus negatively affect our business, financial condition and results of operations.

We are, from time to time, subject to claims of infringement of third party patents and trademarks and other violations of third party intellectual property rights. For example, on April 13, 2011, Facebook filed a complaint against us and certain of our subsidiaries alleging trademark infringement. For a description of this complaint, please see “Legal Proceedings” below. Intellectual property disputes are generally time-consuming and expensive to litigate or settle, and the outcome of such disputes is uncertain and difficult to predict. The existence of such disputes may require the set-aside of substantial reserves, and has the potential to significantly affect our overall financial standing. To the extent that claims against us are successful, they may subject us to substantial liability, and we may have to pay substantial monetary damages, change aspects of our business model, and/or discontinue any of our services or practices that are found to be in violation of another party’s rights. Such outcomes may severely restrict or hinder ongoing business operations and impact the value of our business. Successful claims against us could also result in us having to seek a license to continue our practices. Under such conditions, a license may or may not be offered or otherwise made available to us. If a license is made available to us, the cost of the license may significantly increase our operating burden and expenses, potentially resulting in a negative effect on our business, financial condition and results of operations.

Although we have been and are currently involved in multiple areas of commerce, internet services, and high technology where there is a substantial risk of future patent litigation, we have not obtained insurance for patent infringement losses. If we are unsuccessful at resolving pending and future patent litigation in a reasonable and affordable manner, it could disrupt our business and operations, including by negatively impacting areas of commerce or putting us at a competitive disadvantage.

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If we are unable to protect the confidentiality of certain information, the value of our products and technology could be materially adversely affected.

Our commercial success depends on our know-how, trade secrets and other intellectual property, including the ability to protect our intellectual property. We rely upon unpatented proprietary technology, processes, know-how and data that we regard as trade secrets, including our proprietary source code for our software systems. We seek to protect our proprietary information in part through confidentiality agreements with employees and others. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors in a manner providing us with no practical recourse against the competing parties. If any such events were to occur, there could be a material adverse effect on our business, financial position, results of operations and future growth prospects.

If we are unable to obtain or maintain key website addresses, our ability to operate and grow our business may be impaired.

Our website addresses, or domain names, are critical to our business. We currently own more than 3,200 domain names. However, the regulation of domain names is subject to change, and it may be difficult for us to prevent third parties from acquiring domain names that are similar to ours, that infringe our trademarks or that otherwise decrease the value of our brands. If we are unable to obtain or maintain key domain names for the various areas of our business, our ability to operate and grow our business may be impaired.

We may have difficulty scaling and adapting our existing network infrastructure to accommodate increased traffic and technology advances or changing business requirements, which could cause us to incur significant expenses and lead to the loss of users and advertisers.

To be successful, our network infrastructure has to perform well and be reliable. The greater the user traffic and the greater the complexity of our products and services, the more computer power we will need. We could incur substantial costs if we need to modify our websites or our infrastructure to adapt to technological changes. If we do not maintain our network infrastructure successfully, or if we experience inefficiencies and operational failures, the quality of our products and services and our users’ experience could decline. Maintaining an efficient and technologically advanced network infrastructure is particularly critical to our business because of the pictorial nature of the products and services provided on our websites. A decline in quality could damage our reputation and lead us to lose current and potential users and advertisers. Cost increases, loss of traffic or failure to accommodate new technologies or changing business requirements could harm our operating results and financial condition.

The loss of our main data center, our backup data center or other parts of our systems and network infrastructure would adversely affect our business.

Our main data center, our backup data center and most of our servers are located at external third-party facilities in Northern California, an area with a high risk of major earthquakes. If our main data center or other parts of our systems and network infrastructure was destroyed by, or suffered significant damage from, an earthquake, fire, flood, lightning, tornado, or other similar catastrophes, or if our main data center was closed because of the operator having financial difficulties, our business would be adversely affected. Our casualty insurance policies may not adequately compensate us for any losses that may occur due to the occurrence of a natural disaster.

Our internet operations are subject to system failures and interruptions that could hurt our ability to provide users with access to our websites, which could adversely affect our business and results of operations.

The uninterrupted performance of our computer systems is critical to the operation of our websites. Our ability to provide access to our websites and content may be disrupted by power losses, telecommunications failures or break-ins to the facilities housing our servers. Our users may become dissatisfied by any disruption or failure of our computer systems that interrupts our ability to provide our content. Repeated or prolonged system failures could substantially reduce the attractiveness of our websites and/or interfere with commercial transactions, negatively affecting our ability to generate revenue. Our websites must accommodate a high volume of traffic and deliver

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regularly-updated content. Some of our network infrastructure is not fully redundant, meaning that we do not have back-up infrastructure on site for our entire network, and our disaster recovery planning cannot account for all eventualities. Our websites have, on occasion, experienced slow response times and network failures. These types of occurrences in the future could cause users to perceive our websites as not functioning properly and therefore induce them to frequent other websites. We are also subject to risks from failures in computer systems other than our own because our users depend on their own internet service providers in order to access our websites and view our content. Our revenue could be negatively affected by outages or other difficulties users experience in accessing our websites due to internet service providers’ system disruptions or similar failures unrelated to our systems. Any disruption in the ability of users to access our websites could result in fewer visitors to our websites and subscriber cancellations or failures to renew, which could adversely affect our business and results of operations. We may not carry sufficient levels of business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service.

Because of our adult content, companies providing products and services on which we rely may refuse to do business with us.

Many companies that provide products and services we need are concerned that associating with us could lead to their becoming the target of negative publicity campaigns by public interest groups and boycotts of their products and services. As a result of these concerns, these companies may be reluctant to enter into or continue business relationships with us. For example, some domestic banks have declined providing merchant bank processing services to us and some credit card companies have ceased or declined to be affiliated with us. This has caused us, in some cases, to seek out and establish business relationships with international providers of the services we need to operate our business. There can be no assurance however, that we will be able to maintain our existing business relationships with the companies, domestic or international, that currently provide us with services and products. Our inability to maintain such business relationships, or to find replacement service providers, would materially adversely affect our business, financial condition and results of operations. We could be forced to enter into business arrangements on terms less favorable to us than we might otherwise obtain, which could lead to our doing business with less competitive terms, higher transaction costs and more inefficient operations than if we were able to maintain such business relationships or find replacement service providers.

Changes in laws could materially adversely affect our business, financial condition and results of operations.

Our businesses are regulated by diverse and evolving laws and governmental authorities in the United States and other countries in which we operate. Such laws relate to, among other things, internet, licensing, copyrights, commercial advertising, subscription rates, foreign investment, use of confidential customer information and content, including standards of decency/obscenity and record-keeping for adult content production. Promulgation of new laws, changes in current laws, changes in interpretations by courts and other government officials of existing laws, our inability or failure to comply with current or future laws or strict enforcement by current or future government officers of current or future laws could adversely affect us by reducing our revenue, increasing our operating expenses and/or exposing us to significant liabilities. The following laws relating to the internet, commercial advertising and adult content highlight some of the potential difficulties we face:

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  Internet. Several U.S. governmental agencies are considering a number of legislative and regulatory proposals that may lead to laws or regulations concerning different aspects of the internet, including social networking, online content, intellectual property rights, e-mail, user privacy, taxation, access charges, liability for third-party activities and personal jurisdiction. New Jersey enacted the Internet Dating Safety Act in 2008, which requires online dating services to disclose whether they perform criminal background screening practices and to offer safer dating tips on their websites. Other states have enacted or considered enacting similar legislation. While online dating and social networking websites are not currently required to verify the age or identity of their members or to run criminal background checks on them, any such requirements could increase our cost of operations or discourage use of our services. The Children’s Online Privacy Protection Act (COPPA) restricts the ability of online services to collect information from minors. The Protection of Children from Sexual Predators Act of 1998 requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances.

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In the area of data protection, many states have passed laws requiring notification to users when there is a security breach for personal data, such as California’s Information Practices Act. Congress, the FTC and at least thirty-seven states have promulgated laws and regulations regarding email advertising and the application of such laws and the extent of federal preemptions is still evolving. Under U.S. law, the Digital Millennium Copyright Act has provisions which limit, but do not eliminate, our liability to list or link to third-party websites that include materials that infringe copyrights, so long as we comply with the statutory requirements of this act. Furthermore, the Communications Decency Act (CDA), under certain circumstances, immunizes computer service providers from liability for certain non-intellectual property claims for content created by third parties. The interpretation of the extent of CDA immunity is evolving and we run the risk that in certain instances we may not qualify for such immunity. We face similar risks in international markets where our products and services are offered and may be subject to additional regulations and balkanized laws. The interpretation and application of data protection laws in the United States, Europe and elsewhere are still uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines and other monetary remedies, this could result in an order requiring that we change our data practices. In 2008, Nevada enacted a law prohibiting businesses from transferring a customer’s personal information through an electronic transmission, unless that information is encrypted. In practice, the law requires businesses operating in Nevada to purchase and implement data encryption software in order to send any electronic transmission (including e-mail) that contains a customer’s personal information.

More recently, Massachusetts has adopted regulations, which, like the Nevada law, require businesses to encrypt data sent over the internet. However, these Massachusetts regulations also require encryption of data on laptops and flash drives or other portable devices, and apply to anyone who owns, licenses, stores, or maintains personal information about the state’s residents. Any failure on our part to comply with these regulations may subject us to additional liabilities.

Regulation of the internet could materially adversely affect our business, financial condition and results of operations by reducing the overall use of the internet, reducing the demand for our services or increasing our cost of doing business. Proposed legislation concerning data protection is currently pending at the U.S. federal and state level as well as in certain foreign jurisdictions. Complying with these laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

•  
  Commercial advertising. We receive a significant portion of our print publications advertising revenue from companies that sell tobacco products. Significant limitations on the ability of those companies to advertise in our publications or on our websites because of legislative, regulatory or court action could materially adversely affect our business, financial condition and results of operations.

•  
  Adult content. Regulation, investigations and prosecutions of adult content could prevent us from making such content available in certain jurisdictions or otherwise have a material adverse effect on our business, financial condition and results of operations. Government officials may also place additional restrictions on adult content affecting the way people interact on the internet. The governments of some countries, such as China and India, have sought to limit the influence of other cultures by restricting the distribution of products deemed to represent foreign or “immoral” influences. Regulation aimed at limiting minors’ access to adult content both in the United States and abroad could also increase our cost of operations and introduce technological challenges by requiring development and implementation of age verification systems. U.S. government officials could amend or construe and seek to enforce more broadly or aggressively the adult content recordkeeping and labeling requirements set forth in 18 U.S.C. Section 2257 and its implementing regulations in a manner that is unfavorable to our business. Court rulings may place additional restrictions on adult content affecting how people interact on the internet, such as mandatory web labeling.

We could be held liable for any physical and emotional harm caused by our members and subscribers to other members or subscribers.

We cannot control the actions of our members and subscribers in their online behavior or their communication or physical actions with other members or subscribers. There is a possibility that one or more of our members or

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subscribers could be physically or emotionally harmed by the behavior of or following interaction with another of our members or subscribers. We warn our members and subscribers that member profiles are provided solely by third parties, and we are not responsible for the accuracy of information they contain or the intentions of individuals that use our sites. We are also unable to and do not take any action to ensure personal safety on a meeting between members or subscribers arranged following contact initiated via our websites. If an unfortunate incident of this nature occurred in a meeting between users of our websites following contact initiated on one of our websites or a website of one of our competitors, any resulting negative publicity could materially and adversely affect us or the social networking and online personals industry in general. Any such incident involving one of our websites could damage our reputation and our brands. This, in turn, could adversely affect our revenue and could cause the value of our common stock to decline. In addition, the affected members or subscribers could initiate legal action against us, which could cause us to incur significant expense, whether or not we were ultimately successful in defending such action, and damage our reputation.

Our websites may be misused by users, despite the safeguards we have in place to protect against such behavior.

Users may be able to circumvent the controls we have in place to prevent illegal or dishonest activities and behavior on our websites, and may engage in such activities and behavior despite these controls. For example, our websites could be used to exploit children and to facilitate individuals seeking payment for sexual activity and related activities in jurisdictions in which such behavior is illegal. The behavior of such users could injure our other members and may jeopardize the reputation of our websites and the integrity of our brands. Users could also post fraudulent profiles or create false or unauthorized profiles on behalf of other, non-consenting parties. This behavior could expose us to liability or lead to negative publicity that could injure the reputation of our websites and of social networking and online personals websites in general.

Our business is exposed to risks associated with online commerce security and credit card fraud.

Consumer concerns over the security of transactions conducted on the internet or the privacy of users may inhibit the growth of the internet and online commerce. To transmit confidential information such as customer credit card numbers securely, we rely on encryption and authentication technology. Unanticipated events or developments could result in a compromise or breach of the systems we use to protect customer transaction data. Furthermore, our servers may also be vulnerable to viruses and other attacks transmitted via the internet. While we proactively check for intrusions into our infrastructure, a new and undetected virus could cause a service disruption. Under current credit card practices, we may be held liable for fraudulent credit card transactions and other payment disputes with customers. A failure to control fraudulent credit card transactions adequately would adversely affect our business.

If one or more states or countries successfully assert that we should collect sales or other taxes on the use of the internet or the online sales of goods and services, our expenses could increase, resulting in lower margins.

In the United States, federal and state tax authorities are currently exploring the appropriate tax treatment of companies engaged in e-commerce and new state tax regulations may subject us to additional state sales and income taxes, which could increase our expenses and decrease our profit margins. The application of indirect taxes (such as sales and use tax, value added tax, goods and services tax, business tax and gross receipt tax) to e-commerce businesses such as ours and to our users is a complex and evolving issue. Many of the statutes and regulations that impose these taxes were established before the growth in internet technology and e-commerce. In many cases, it is not clear how existing statutes apply to the internet or e-commerce or communications conducted over the internet. In addition, some jurisdictions have implemented or may implement laws specifically addressing the internet or some aspect of e-commerce or communications on the internet. The application of existing or future laws could have adverse effects on our business.

Under current law, as outlined in the U.S. Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), a seller with substantial nexus (usually defined as physical presence) in its customer’s state is required to collect state (and local) sales tax on sales arranged over the internet (or by telephone, mail order, or other means). In contrast, an out-of-state seller without substantial nexus in the customer’s state is not required to collect the sales tax. The U.S. federal government’s moratorium on states and other local authorities imposing new taxes on internet

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access or multiple or discriminatory taxes on internet commerce is scheduled to expire in October 31, 2014. This moratorium, however, does not prohibit the possibility that U.S. Congress will be willing to grant state or local authorities the authority to require remote (out-of-state) sellers to collect sales and use taxes on interstate sales of goods (including intellectual property) and services over the internet. Several proposals to that extent have been made at the U.S. federal, state and local levels (for example, the Streamlined Sales and the Use Tax initiative). These proposals, if adopted, would likely result in our having to charge state sales tax to some or all of our users in connection with the sale of our products and services, which would harm our business if the added cost deterred users from visiting our websites and could substantially impair the growth of our e-commerce opportunities and diminish our ability to derive financial benefit from our activities.

Certain states, including New York, Illinois, Connecticut, Colorado, North Carolina, Rhode Island and Tennessee, have adopted, or are in the process of adopting, state nexus laws, often referred to as Amazon tax laws, whereby the responsibility to collect sales or use taxes is imposed on an out-of-state- seller which used an in-state resident to solicit business from the residents of that state using internet sites. If it is determined that these laws are applicable to our operations, then we could be required to collect from our customers and remit additional sales or use taxes and, if any state determines that we should have been collecting such taxes previously, we may be subject to past tax, interest, late fees and penalties.

In addition, in 2007 we received a claim from the State of Texas for an immaterial amount relating to our failure to file franchise tax returns for the years 2000 through 2006. We believe that we are not obligated to file franchise tax returns because of the nature of our services provided and the lack of sufficient nexus to the State of Texas. On appeal the State of Texas reversed their earlier position and found in our favor. We have received and could continue to receive similar inquiries from other states attempting to impose franchise, income or similar taxes on us.

We collect and remit VAT on digital orders from purchasers in most member states of the European Union. There can be no assurance that this increased cost will not adversely affect our ability to attract new subscribers within the European Union or to retain existing subscribers within the European Union and consequently adversely affect our results of operations. Certain member states, including the United Kingdom, have ruled that we are not required to register and account for VAT in their jurisdiction. There can be no assurance that the tax authorities of these jurisdictions will not, at some point in the future, revise their current position and require us to register and account for VAT.

Our liability to tax authorities in the European Union for the failure of Various and its subsidiaries to collect and remit VAT on purchases made by subscribers in the European Union could adversely affect our financial condition and results of operations.

After our acquisition of Various in December 2007, we became aware that Various and its subsidiaries had not collected VAT from subscribers in the European Union nor had Various remitted VAT to the tax jurisdictions requiring it. We have initiated discussions with most tax authorities in the European Union jurisdictions to attempt to resolve liabilities related to Various’ past failure to collect and remit VAT, and while we have resolved such prior liabilities in several jurisdictions on favorable terms, there can be no assurance that we will resolve or reach a favorable resolution in every jurisdiction. If we are unable to reach a favorable resolution with a jurisdiction, the terms of such resolution could adversely affect our financial condition or results of operations. For example, we might be required to pay substantial sums of money without the benefit of a payment deferral plan, which could adversely affect our cash position and impair operations. As of September 30, 2011 and December 31, 2010, the total amount of historical uncollected VAT payments was approximately $40.3 million and $39.4 million, respectively, including approximately $21.2 million and $19.5 million, respectively, in potential penalties and interest. For more information regarding the potential effect that our VAT liability could have on our operations see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Until we have reached a favorable resolution with a jurisdiction, the jurisdictions might take action against us and against our managers. For example, in an effort to recover VAT payments it claims it is owed, the German tax authority has attempted unsuccessfully to freeze assets in bank accounts maintained by subsidiaries of Various in Germany, and did freeze €610,343 of assets in a bank account in The Netherlands with the cooperation of the Dutch authorities and continues to enlist the Dutch tax authorities to assist in its collection efforts. If another jurisdiction were to freeze or seize our cash or other assets, our operations and financial condition could be impaired. In addition,

32




in many jurisdictions the potential exists for criminal investigations or proceedings to be instituted against us and against individual members of prior or current management. Were members of our management to face criminal processes individually, their attention to operational matters could be diverted and their ability to continue to serve in their capacities could be impaired. Were Various or its subsidiaries to face criminal processes, it could result in additional fines and penalties, or substantially interfere with continued operations in such jurisdictions. We are actively engaged in efforts to resolve all issues, but there can be no assurance that we will be able to do so.

Unforeseen liabilities arising from our acquisition of Various could materially adversely affect our financial condition and results of operations.

Our acquisition of Various and its subsidiaries in December 2007 may expose us to undisclosed and unforeseen operating risks and liabilities arising from Various’s operating history. For example, after our acquisition of Various we became aware that VAT had not been collected from subscribers in the European Union and that VAT had not been paid to tax authorities in the European Union. There can be no assurance that other unforeseen liabilities related to the acquisition of Various and its subsidiaries (including, without limitation, VAT issues in other non-European Union jurisdictions) could materialize.

Our recourse for liabilities arising from our acquisition of Various is limited.

Under the agreement pursuant to which we purchased Various and its subsidiaries in December 2007, our sole recourse against the sellers for most losses suffered by us as a result of liabilities was to offset the principal amount of our Subordinated Convertible Notes by the amount of any such losses. The maximum amount of such offset available to us was $175 million. On October 8, 2009, we settled and released all indemnity claims against the sellers (whether the claims were VAT related or not) by reducing the original principal amount of the Subordinated Convertible Notes to $156 million from $170 million. In addition, the sellers agreed to make available to us, to pay VAT and certain VAT-related expenses, $10.0 million cash held in a working capital escrow account established at the closing of the Various transaction. If the actual costs to us of eliminating the VAT liability are less than $29.0 million, after applying amounts from the working capital escrow, then the principal amount of the Old Non-Cash Pay Notes (notes issued in exchange for the Subordinated Convertible Notes in the New Financing) will be increased by the issuance of Non-Cash Pay Notes to reflect the difference between $29.0 million and the actual VAT liability, plus interest on such difference. Accordingly, any additional undisclosed liabilities arising from our acquisition of Various may result in losses that we can no longer attempt to recover from the sellers. Any such liabilities for which we have no recourse could adversely affect our financial condition and results of operations.

In pursuing future acquisitions we may not be successful in identifying appropriate acquisition candidates or consummating acquisitions on favorable or acceptable terms. Furthermore, we may face significant integration issues and may not realize the anticipated benefits of the acquisitions due to integration difficulties or other operating issues.

If appropriate opportunities become available, we may acquire businesses, products or technologies that we believe are strategically advantageous to our business. Transactions of this sort could involve numerous risks, including:

•  
  unforeseen operating difficulties and expenditures arising from the process of integrating any acquired business, product or technology, including related personnel, and maintaining uniform standards, controls, procedures and policies;

•  
  diversion of a significant amount of management’s attention from the ongoing development of our business;

•  
  dilution of existing stockholders’ ownership interests;

•  
  incurrence of additional debt;

•  
  exposure to additional operational risks and liabilities, including risks and liabilities arising from the operating history of any acquired businesses;

•  
  negative effects on reported results of operations from acquisition-related charges and amortization of acquired intangibles;

33



•  
  entry into markets and geographic areas where we have limited or no experience;

•  
  the potential inability to retain and motivate key employees of acquired businesses;

•  
  adverse effects on our relationships with suppliers and customers; and

•  
  adverse effects on the existing relationships of any acquired companies, including suppliers and customers.

In addition, we may not be successful in identifying appropriate acquisition candidates or consummating acquisitions on favorable or acceptable terms, or at all. Failure to effectively manage our growth through acquisitions could adversely affect our growth prospects, business, results of operations and financial condition.

Our efforts to capitalize upon opportunities to expand into new markets may fail and could result in a loss of capital and other valuable resources.

One of our strategies is to expand into new markets to increase our revenue base. We intend to identify new markets by targeting identifiable groups of people who share common interests and the desire to meet other individuals with similar interests, backgrounds or traits. Our planned expansion into new markets will occupy our management’s time and attention and will require us to invest significant capital resources. The results of our expansion efforts into new markets are unpredictable and there is no guarantee that our efforts will have a positive effect on our revenue base. We face many risks associated with our planned expansion into new markets, including but not limited to the following:

•  
  competition from pre-existing competitors with significantly stronger brand recognition in the markets we enter;

•  
  our erroneous evaluations of the potential of such markets;

•  
  diversion of capital and other valuable resources away from our core business;

•  
  foregoing opportunities that are potentially more profitable; and

•  
  weakening our current brands by over expansion into too many new markets.

We face the risk that additional international expansion efforts and operations will not be effective.

One of our strategies is to increase our revenue base by expanding into new international markets and expanding our presence in existing international markets. Further expansion into international markets requires management time and capital resources. We face the following risks associated with our expansion outside the United States:

•  
  challenges caused by distance, language and cultural differences;

•  
  local competitors with substantially greater brand recognition, more users and more traffic than we have;

•  
  challenges associated with creating and increasing our brand recognition, improving our marketing efforts internationally and building strong relationships with local affiliates;

•  
  longer payment cycles in some countries;

•  
  credit risk and higher levels of payment fraud in some countries;

•  
  different legal and regulatory restrictions among jurisdictions;

•  
  political, social and economic instability;

•  
  potentially adverse tax consequences; and

•  
  higher costs associated with doing business internationally.

Our business will suffer if we lose and are unable to replace key personnel, in the event that we fail or choose not to pay severance to Messrs. Bell and Staton and they choose to compete against us or solicit our employees or if the other obligations of our key personnel create conflicts of interest or otherwise distract these individuals.

We believe that our ability to successfully implement our business strategy and to operate profitably depends on the continued employment of our executive officers and other key employees. In particular, Marc Bell and Daniel Staton are critical to our overall management and our strategic direction. We have entered into employment

34




agreements with each of Messrs. Bell and Staton which sets a term of employment and provides for certain bonuses and grants of our stock in order to incentivize performance. However, the executives are free to voluntarily terminate their employment upon 180 days’ prior written notice. Therefore, the agreements do not ensure continued service with us. In the event we do not pay severance to Messrs. Bell and Staton, including under circumstances pursuant to which either of Messrs. Bell or Staton are terminated by us for cause (as defined in their employment agreement) or terminate their employment for good reason (as defined in their employment agreement) and our board of directors fails or chooses not to pay severance to them, Messrs. Bell and Staton will not be subject to a non-compete or a non-solicitation agreement. If that occurs, Messrs. Bell and Staton could immediately compete against us and solicit our employees to work for them. We have not obtained key-man life insurance and there is no guarantee that we will be able to obtain such insurance in the future. Furthermore, most of our key employees are at-will employees. If we lose members of our senior management without retaining replacements, or in the event that we do not pay severance to Messrs. Bell and Staton and they choose to compete against us or solicit our employees to work for them, our business, financial condition and results of operations could be materially adversely affected.

Additionally, Mr. Staton serves as Chairman and Mr. Bell serves as a director of ARMOUR Residential REIT, Inc., or ARMOUR. Staton Bell Blank Check LLC, an entity affiliated with Messrs. Bell and Staton, is contractually obligated to provide services to ARMOUR Residential Management LLC, or ARRM, which entity will manage and advise ARMOUR, pursuant to a sub-management agreement. Staton Bell Blank Check LLC will be receiving a percentage of the net management fees earned by ARRM. Each of Messrs. Bell and Staton is permitted to devote up to twenty percent of his business time to other business activities. We expect that Messrs. Bell and Staton, will devote approximately ten percent of their combined time to ARMOUR. Messrs. Bell and Staton’s service as a director or an affiliate of the sub-manager of ARMOUR could cause them to be distracted from the management of our business and could also create conflicts of interest if they are faced with decisions that could have materially different implications for us and for ARMOUR, such as in the area of potential acquisitions. If such a conflict arises, we believe our directors and officers intend to take all actions necessary to comply with their fiduciary duties to our stockholders, including, where appropriate, abstaining from voting on matters that present a conflict of interest. However, these conflicts of interest, or the perception among investors that conflicts of interest could arise, could harm our business and cause our stock price to fall.

We rely on highly skilled personnel and, if we are unable to attract, retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

Our growth strategy and performance is largely dependent on the talents and efforts of highly skilled individuals. Our success greatly depends on our ability to attract, hire, train, retain and motivate qualified personnel, particularly in sales, marketing, service and support. There can be no assurance that we will be able to successfully recruit and integrate new employees. We face significant competition for individuals with the skills required to perform the services we offer and currently we do not have non-compete agreements with a number of our executive officers or key personnel. In addition, in the event we do not pay severance to Messrs. Bell and Staton, including under circumstances pursuant to which either of Messrs. Bell or Staton are terminated by us for cause (as defined in their employment agreement) or terminate their employment for good reason (as defined in their employment agreement) and our board of directors fails or chooses not to pay severance to them, Messrs. Bell and Staton will not be subject to a non-compete or a non-solicitation agreement. If that occurs, Messrs. Bell and Staton could immediately compete against us and solicit our employees to work for them. The loss of the services of our executive officers or other key personnel, particularly if lost to competitors, could materially and adversely affect our business. If we are unable to attract, integrate and retain qualified personnel or if we experience high personnel turnover, we could be prevented from effectively managing and expanding our business.

Moreover, companies in technology industries whose employees accept positions with competitors have in the past claimed that their competitors have engaged in unfair competition or hiring practices. If we received such claims in the future as we seek to hire qualified personnel, it could lead to material litigation. We could incur substantial costs in defending against such claims, regardless of their merit. Competition in our industry for qualified employees is intense, and certain of our competitors may directly target our employees. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.

35



Workplace and other restrictions on access to the internet may limit user traffic on our websites.

Many offices, businesses, libraries and educational institutions restrict employee and student access to the internet or to certain types of websites, including social networking and personals websites. Since our revenue is dependent on user traffic to our websites, an increase in these types of restrictions, or other similar policies, could harm our business, financial condition and operating results. In addition, access to our websites outside the United States may be restricted by governmental authorities or internet service providers. These restrictions could hinder our growth.

Adverse currency fluctuations could decrease revenue and increase expenses.

We conduct business globally in many foreign currencies, but report our financial results in U.S. dollars. We are therefore exposed to adverse movements in foreign currency exchange rates because depreciation of non-U.S. currencies against the U.S. dollar reduces the U.S. dollar value of the non-U.S. dollar denominated revenue that we recognize and appreciation of non-U.S. currencies against the U.S. dollar increases the U.S. dollar value of expenses that we incur that are denominated in those foreign currencies. Such fluctuations could decrease revenue and increase our expenses. We have not entered into foreign currency hedging contracts to reduce the effect of adverse changes in the value of foreign currencies but may do so in the future.

We are subject to litigation and adverse outcomes in such litigation could have a material adverse effect on our financial condition.

We are party to various litigation claims and legal proceedings including, but not limited to, actions relating to intellectual property, in particular patent infringement claims against us, breach of contract and fraud claims, some of which are described in this prospectus in the section entitled “Legal Proceedings” and the notes to our audited consolidated financial statements, that involve claims for substantial amounts of money or for other relief or that might necessitate changes to our business or operations. The defense of these actions may be both time consuming and expensive.

We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and/or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. As a result, actual outcomes or losses may differ materially from those envisioned by our current assessments and estimates. Our failure to successfully defend or settle any of these litigations or legal proceedings could result in liability that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenue and profitability and could cause the market value of our common stock to decline.

Industry reports may not accurately reflect the current economic climate.

Because industry reports and publications contain data that has been compiled for prior measurement periods, such reports and publications may not accurately reflect the current economic climate affecting the industry. The necessary lag time between the end of a measured period and the release of an industry report or publication may result in reporting results that, while not inaccurate with respect to the period reported, are out of date with the current state of the industry.

36



USE OF PROCEEDS

The selling securityholders will receive all of the proceeds from the sale of the Registrable Notes and Registrable Shares offered by this prospectus. We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of Registrable Notes or Registrable Shares by the selling securityholders. No consideration will be paid in connection with the conversion of the Non-Cash Pay Notes to Note Shares.

DILUTION

Pursuant to this offering, we are registering the resale of the Registrable Notes and Registrable Shares to permit the resale of these securities by the selling securityholders on a continuous or delayed basis in the future. Sales of Registrable Shares by the selling securityholders will not result in a change to the net tangible book value deficiency per share before and after the distribution of shares by the selling securityholders. However, purchasers of Registrable Shares from the selling securityholders will experience dilution to the extent of the excess of the amount per share paid over the net tangible book value deficiency per share of our common stock at the time of the purchase. Net tangible book value deficiency per share represents the amount that the total liabilities exceeds total tangible assets divided by the number of outstanding shares of our common stock.

37



SELLING SECURITYHOLDERS

The selling securityholders, including their transferees, pledgees, donees or their successors, may from time to time offer and sell, pursuant to this prospectus, any or all of the Senior Secured Notes, Cash Pay Notes, Non-Cash Pay Notes, shares of common stock issuable upon the conversion of the Non-Cash Pay Notes and shares of common stock owned outright by the selling securityholders. The following tables and footnotes set forth certain information with respect to selling securityholders and the principal amount of Registrable Notes, principal amount of paid-in-kind Non-Cash Pay Notes and the amount of Registrable Shares beneficially owned by each selling securityholder that may be offered under this prospectus. Beneficial ownership has been determined in accordance with the rules of the SEC, and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shares voting or investment power of that security, and includes any security with respect to which a person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right.

The information in the tables below is based on information provided by or on behalf of the selling securityholders, or our records, the records of the trustee of the Registrable Notes and the records of the transfer agent as of December 14 , 2011.

Our registration of these securities does not necessarily mean that the selling securityholders will sell any or all of the securities covered by this prospectus. See the section, “Plan of Distribution” in this prospectus for additional information about the selling securityholders and the manner in which the selling securityholders may dispose of their securities. In addition, the selling securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of the Registrable Notes or Registrable Shares since the date on which they provided the information regarding their Registrable Notes or Registrable Shares in transactions exempt from the registration requirements of the Securities Act. Except as we otherwise indicate below and under applicable community property laws, we believe that the beneficial owners of the securities listed below have sole voting and investment power with respect to the Registrable Notes and Registrable Shares. Unless set forth below, none of the selling securityholders has nor had within the past three years any material relationship with us or any of our predecessors or affiliates. To our knowledge, except as indicated in the footnotes to the tables below, none of the selling securityholders is a registered broker-dealer or an affiliate thereof.

Information about the selling securityholders may change over time. Any changed information given to us by the selling securityholders may be set forth in amendments or prospectus supplements if and when necessary.

Senior Secured Notes

Name of Selling Securityholder
        Principal
Amount of
Notes
Outstanding
That are
Owned and
That May
Be Sold
Pursuant to
This
Prospectus*
    Principal
Amount of
Notes
Beneficially
Owned After
Completion
of the
Offering
    Percentage
of Aggregate
Principal
Amount of
Notes
Beneficially
Owned After
Completion
of the
Offering(1)
ADVANCED SERIES TRUST—AST ACADEMIC STRATEGIES ASSET ALLOCATION PORTFOLIO(2)
              $ 88,732             0                 
AMERICAN BEACON SIM HIGH YIELD OPPORTUNITIES FUND(3)
              $ 650,000             0                 
ANDREW B CONRU TRUST(4)
              $ 77,157,996             0                 
AQR DELTA MASTER ACCOUNT, L.P.(5)
              $ 702,138             0                 
AQR DELTA SAPPHIRE FUND, L.P.(6)
              $ 104,164             0                 
AQR FUNDS—AQR DIVERSIFIED ARBITRAGE FUND(7)
              $ 856,454             0                 
AQR OPPORTUNISTIC PREMIUM OFFSHORE FUND, L.P.(8)
              $ 111,879             0                 
CNH DIVERSIFIED OPPORTUNITIES MASTER ACCOUNT, L.P.(9)
              $ 65,585             0                 
DEL MAR MASTER FUND, LTD(10)
              $ 19,227,391             0                

38



Name of Selling Securityholder
        Principal
Amount of
Notes
Outstanding
That are
Owned and
That May
Be Sold
Pursuant to
This
Prospectus*
    Principal
Amount of
Notes
Beneficially
Owned After
Completion
of the
Offering
    Percentage
of Aggregate
Principal
Amount of
Notes
Beneficially
Owned After
Completion
of the
Offering(1)
PERMAL CAPITAL STRUCTURE OPPORTUNITIES, LTD(11)
              $ 1,410,000             0                 
QWEST PENSION TRUST(12)
              $ 1,025,000             0                
ROCKVIEW SHORT ALPHA FUND, LTD(13)
              $ 3,351,445             0                 
ROCKVIEW TRADING, LTD(14)
              $ 24,843,719             0                 
STONEHILL INSTITUTIONAL PARTNERS LP(15)
              $ 19,300,721             0                 
STONEHILL MASTER FUND LTD(16)
              $ 23,755,535             0                 
THORNBURG STRATEGIC INCOME FUND(17)
              $ 578,685             0                 
VISIUM BALANCED MASTER FUND LTD(18)
              $ 1,424,400             0                 
VISIUM CREDIT MASTER FUND LTD(19)
              $ 17,304,633             0                 
VISIUM EQUITY GLOBAL MASTER FUND LTD(20)
              $ 4,459,650             0                 
TOTAL
              $ 196,418,127             0                 
 


*
  Amounts have been rounded to the nearest dollar.

  Less than 1%.

(1)
  Based on the aggregate principal amount of Senior Secured Notes outstanding of $235,331,887.

(2)
  Advanced Series Trust — AST Academic Strategies Asset Allocation Portfolio (“AST”) is an affiliate of Pruco Securities, LLC, Prudential Investment Management Services LLC and Prudential Annuities Distributors, Inc., which are broker-dealers registered pursuant to Section 15 of the Securities and Exchange Act of 1934. AST purchased the notes in the ordinary course of business and at the time of the purchase of the notes, it had no agreements or understandings with any person to distribute the securities. CNH Partners, LLC is the sub-advisor of AST. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AST. AQR Capital Management, LLC acts as the investment manager to the Diversified Arbitrage investment arm of AST. The address of AST is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(3)
  Strategic Income Management is the investment subadvisor to American Beacon Sim High Yield Opportunities Fund. Mr. Gary Pokrzywinski is the portfolio manager of Strategic Income Management and has sole voting and investment power over the notes owned by American Beacon Sim High Yield Opportunities Fund. The address of American Beacon Sim High Yield Opportunities Fund is 4151 Amon Carter Blvd., MD 2450, Fort Worth, TX 76155.

(4)
  To the best of our knowledge, Andrew Conru holds voting and investment power over the notes owned by the Andrew B. Conru Trust. The address of the Andrew B. Conru Trust is c/o Bose McKinney & Evans LLP 111 Monument Circle, Suite 2700, Indianapolis, IN 46204.

(5)
  The general partner of AQR DELTA Master Account, L.P. is AQR Capital Management III, LLC. AQR Capital Management, LLC is the sole member of AQR Capital Management III, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH Partners, LLC is the sub-advisor of AQR DELTA Master Account, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR DELTA Master Account, L.P. The address of AQR DELTA Master Account, L.P. is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(6)
  The general partner of AQR DELTA Sapphire Fund, L.P. is AQR Capital Management II, LLC. AQR Capital Management, LLC is the sole member of AQR Capital Management II, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH Partners, LLC is the sub-advisor of AQR DELTA Sapphire Fund, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR DELTA Sapphire Fund, L.P. The address of AQR DELTA Sapphire Fund, L.P. is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(7)
  CNH Partners, LLC is the sub-advisor of AQR Funds — AQR Diversified Arbitrage Fund. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR Funds — AQR Diversified Arbitrage Fund. AQR Funds — AQR Diversified Arbitrage Fund is a series of the Delaware Statutory Trust, AQR Funds (the “Trust”). AQR Capital Management, LLC acts as the investment advisor to the Trust. The address of AQR Funds — AQR Diversified Arbitrage Fund is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(8)
  The general partner of AQR Opportunistic Premium Offshore Fund, L.P. is AQR Capital Management III, LLC. AQR Capital Management, LLC is the sole member of AQR Capital Management III, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH

39




  Partners, LLC is the sub-advisor of AQR Opportunistic Premium Offshore Fund, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR Opportunistic Premium Offshore Fund, L.P. The address of AQR Opportunistic Premium Offshore Fund, L.P. is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(9)
  The general partner of CNH Diversified Opportunities Master Account, L.P. is CNH Principal Partners I, LLC. CNH Partners, LLC is the sole member of CNH Principal Partners I, LLC. RAIM Corp. is a 50% owner of CNH Partners, LLC. Mr. Todd Pulvino and Mr. Mark Mitchell are each 50% owners of RAIM Corp. AQR Capital Management, LLC is a 50% owner of CNH Partners, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH Partners, LLC is the sub-advisor of CNH Diversified Opportunities Master Account, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by CNH Diversified Opportunities Master Account, L.P. The address of CNH Diversified Opportunities Master Account, L.P. is Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(10)
  Mr. Marc Simon is the Director of Del Mar Master Fund, Ltd. Del Mar Asset Management, LP is the advisor to Del Mar Master Fund, Ltd. The general partner of Del Mar Asset Management, LP is Del Mar Management, LLC. David Freelove is the president, chief executive officer and a managing member of Del Mar Management, LLC and has sole voting and investment power over the notes owned by Del Mar Master Fund, Ltd. The address of Del Mar Master Fund, Ltd. is c/o Walkers Financial Svcs, 83 Mary St., Georgetown, Grand Cayman KY1-9005 Cayman Islands.

(11)
  Sandler Capital Management is the Investment Manager for Permal Capital Structure Opportunities, Ltd. (“PCSO”) and SERF Corp. is a General Partner in Sandler Capital Management. The controlling entity of PCSO is Citco Bank and Trust Company, Ltd. Mr. Doug Schimmel holds sole voting and investment power over the notes held by Permal Capital Structure Opportunities, Ltd. The address of PCSO is 711 5th Ave., 15th Floor, New York, NY 10022.

(12)
  GoldenTree Asset Management LP, a Delaware limited partnership, is the investment manager to Qwest Pension Trust. The general partner of GoldenTree Asset Management LP is GoldenTree Asset Management LLC. The senior managing member and sole member of GoldenTree Asset Management LLC is Mr. Steven A. Tananbaum, who has sole voting and investment power over the notes owned by Qwest Pension Trust. The address for Qwest Pension Trust is c/o GoldenTree Asset Management, LP, 485 Lexington Ave., 15th Floor, New York, NY 10017.

(13)
  Mr. Kevin Schweitzer is the managing member of Zabak Capital, LLC and holds sole voting and investment power over the notes owned by Rockview Short Alpha Fund, Ltd. Zabak Capital, LLC is the managing member of Rockview Management, LLC. Rockview Management, LLC is the investment manager to Rockview Short Alpha Fund, Ltd. The address of Rockview Short Alpha Fund, Ltd. is MetroCenter, One Station Place, 7th Floor, Stamford, CT 06902.

(14)
  Mr. Kevin Schweitzer is the managing member of Zabak Capital, LLC and holds sole voting and investment power over the notes owned by RockView Trading, Ltd. Zabak Capital, LLC is the managing member of RockView Management LLC. Rockview Management, LLC is the investment manager to RockView Trading, Ltd. The address of Rockview Trading, Ltd. is MetroCenter, One Station Place, 7th Floor, Stamford, CT 06902.

(15)
  Stonehill Capital Management LLC, a Delaware limited liability company (“SCM”), is the investment advisor of Stonehill Institutional Partners, L.P. (“Stonehill Institutional”) and Stonehill General Partner, LLC, (“Stonehill GP”) is the General Partner of Stonehill Institutional. Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky and Mr. Michael Thoyer (collectively, the “Members”) are the managing members of SCM and Stonehill GP and therefore share voting and investment power over the notes owned by Stonehill Institutional. The address of Stonehill Institutional is c/o Stonehill Capital Management LLC, 885 Third Avenue, 30th Floor, New York, NY 10022.

(16)
  Stonehill Capital Management LLC, a Delaware limited liability company (“SCM”) is the investment advisor of Stonehill Master Fund Ltd (“Stonehill Master”). Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky and Mr. Michael Thoyer (collectively, the “Members”) are the managing members of SCM and therefore share voting and investment power over the notes owned by Stonehill Master. The address of Stonehill Master is c/o Stonehill Capital Management LLC, 885 Third Avenue, 30th Floor, New York, NY 10022.

(17)
  Thornburg Strategic Income Fund is an affiliate of a broker-dealer registered pursuant to Section 15 of the Securities and Exchange Act of 1934. Thornburg Strategic Income Fund purchased the notes in the ordinary course of business and at the time of the purchase of the notes, it had no agreements or understandings with any person to distribute the securities. Mr. Jason Brady is the portfolio manager of Thornburg Strategic Income Fund and therefore has sole voting and investment power over the notes owned by Thornburg Strategic Income Fund. The address of Thornburg Strategic Income Fund is 2300 North Ridgetop Road, Santa Fe, NM 87506.

(18)
  Visium Asset Management, LP has discretionary trading authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Balanced Master Fund Ltd. The address of Visium Balanced Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022.

(19)
  Visium Asset Management, LP has discretionary trading authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Credit Master Fund Ltd. The address of Visium Credit Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022.

(20)
  Visium Asset Management, LP has discretionary trading authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Equity Global Master Fund Ltd. The address of Visium Equity Global Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022.

40



Cash Pay Notes

Name of Selling Securityholder
        Principal
Amount of
Notes
Outstanding
That are
Owned and
That May
Be Sold
Pursuant to
This
Prospectus*
    Principal
Amount of
Notes
Beneficially
Owned After
Completion
of the
Offering
    Percentage
of Aggregate
Principal
Amount of
Notes
Beneficially
Owned After
Completion
of the
Offering(1)
MARC H. BELL(2)
              $ 5,315,333             0                 
STATON FAMILY INVESTMENTS LTD(3)
              $ 5,315,333             0                 
TOTAL
              $ 10,630,66 7             0                 
 


*
  Amounts have been rounded to the nearest dollar.

  Less than 1%.

(1)
  Based on the aggregate principal amount of Cash Pay Notes outstanding of $10,630,66 7 .

(2)
  Marc H. Bell is our Chief Executive Officer, President and a Director.

(3)
  Daniel C. Staton, our Chairman of the Board, is a member of Staton Family Investments, Ltd. and has sole voting and investment power over the notes owned by Staton Family Investments, Ltd. The address of Staton Family Investments, Ltd. is 6800 Broken Sound Parkway, Boca Raton, FL 33487.

Non-Cash Pay Notes And Common Stock

Name of Selling
Securityholder
        Aggregate
Principal
Amount of
Notes
Owned
and
Outstanding*
    Aggregate
Principal
Amount of
Notes
Paid-In
Kind That
May Be
Paid(1)*
    Aggregate
Principal
Amount
of Notes
That May
be Sold*
    Number of
Shares of
Common
Stock
Owned
Upon Full
Conversion
of Notes
    Number of
Shares Of
Common
Stock
Owned
Outright
    Aggregate
Number of
Shares of
Common
Stock
That May
Be Sold
Pursuant
to This
Prospectus(2)
    Principal
Amount of
Notes
Beneficially
Owned
After This
Offering
    Percentage
of
Principal
Amount of
Notes
Beneficially
Owned
After
This
Offering(3)
    Number of
Shares of
Common
Stock
Owned
After
This
Offering(4)
    Percentage
of Shares
of
Common
Stock
Owned
After
This
Offering(4),(5)
ABSOLUTE INCOME FUND, LP(6)
              $           $           $                           1,991,703             1,991,703                                       0                 
ADVANCED SERIES TRUST — AST ACADEMIC STRATEGIES ASSET ALLOCATION PORTFOLIO(7)
              $ 237,938          $ 88,802          $ 326,739             7,883                          7,883             0                           0                 
ANDREW B. CONRU TRUST(8)
              $ 165,409,752          $ 61,733,473          $ 227,143,225             5,480,112             3,380,879             8,860,991             0                           0                 
AQR DIVERSIFIED ARBITRAGE FUND(9)
              $ 2,405,813          $ 897,886          $ 3,303,699             79,706                          79,706             0                           0                 
AQR OPPORTUNISTIC PREMIUM OFFSHORE FUND LP(10)
              $ 264,375          $ 98,669          $ 363,044             8,759                          8,759             0                           0                 
BELL FAMILY 2003 CHARITABLE LEAD ANNUITY TRUST(11)
              $           $           $                           184,190             184,190                                       0                 
MARC H. BELL(12)
              $           $           $                           5,147,671             5,087,668                                       60,003                
BESSEMER TRUST COMPANY, N.A. AND MATTHEW SMYTH AS TRUSTEES OF THE DIETRICH WEISMANN SETTLEMENT TRUST A(13)
              $           $           $                           1,883             1,883                                       0                 

41



Name of Selling
Securityholder
        Aggregate
Principal
Amount of
Notes
Owned
and
Outstanding*
    Aggregate
Principal
Amount of
Notes
Paid-In
Kind That
May Be
Paid(1)*
    Aggregate
Principal
Amount
of Notes
That May
be Sold*
    Number of
Shares of
Common
Stock
Owned
Upon Full
Conversion
of Notes
    Number of
Shares Of
Common
Stock
Owned
Outright
    Aggregate
Number of
Shares of
Common
Stock
That May
Be Sold
Pursuant
to This
Prospectus(2)
    Principal
Amount of
Notes
Beneficially
Owned
After This
Offering
    Percentage
of
Principal
Amount of
Notes
Beneficially
Owned
After
This
Offering(3)
    Number of
Shares of
Common
Stock
Owned
After
This
Offering(4)
    Percentage
of Shares
of
Common
Stock
Owned
After
This
Offering(4),(5)
BESSEMER TRUST COMPANY, N.A. AND ROGER KIMBALL AS TRUSTEES OF THE DIETRICH WEISMANN SETTLEMENT TRUST B(14)
              $           $           $                           2,152             2,152                                       0                 
SHMUEL BRILL AND SUSANNA BRILL(15)
              $           $           $                           3,043             3,043                                       0                 
CAMHZN MASTER LDC(16)
              $           $           $                           25,345             25,345                                       0                 
CAMOFI MASTER LDC17)
              $           $           $                           157,132             157,132                                       0                 
CEDARVIEW OPPORTUNITIES MASTER FUND, LP(18)
              $ 3,624,243          $ 1,352,624          $ 4,976,867             120,073                          120,073             0                           0                 
CITIGROUP PENSION PLAN — DALTON DISTRESSED CREDIT(19)
              $ 846,000          $ 315,740          $ 1,161,740             28,028                          28,028             0                           0                 
CMI II LLC(20)
              $           $           $                           428,555             428,555                                       0                 
COMMERCE COURT(21)
              $ 88,125          $ 32,889          $ 121,015             2,919                          2,919                                                       
DALTON DISTRESSED CREDIT (MASTER) FUND LTD(22)
              $ 317,250          $ 118,403          $ 435,653             10,511                          10,511             0                           0                 
DEL MAR MASTER FUND, LTD(23)
              $           $           $                           698,180             698,180                                       0                 
DG VALUE PARTNERS LP(24)
              $ 722,625          $ 269,695          $ 992,320             23,941                          23,941             0                           0                 
EPIC DISTRESSED DEBT OPPORTUNITY MASTER FUND, LTD(25)
              $           $           $                           354,839             354,839                                       0                 
FLORESCUE FAMILY CORPORATION(26)
              $ 1,869,439          $ 697,704          $ 2,567,143             61,936             1,086,366             1,148,302             0                           0                 
RUSSELL FRYE(27)
              $           $           $                           133,949             133,949                                       0                 
HAYMAN CAPITAL MASTER FUND, LP(28)
              $ 12,954,375          $ 4,834,773          $ 17,789,148             429,185                          429,185             0                           0                 
INTERACTIVE BRAND DEVELOPMENT INC(29)
              $           $           $                           32,965             32,965                                       0                 
INVESTIN PRO FMBA DALTON DISTRESSED DEBT(30)
              $ 1,374,750          $ 513,078          $ 1,887,828             45,546                          45,546             0                           0                 
MAPSTEAD TRUST (31)
              $ 22,247,057          $ 8,302,945          $ 30,550,002             737,057             512,992             1,250,049             0                           0                 
PAW ASSOCIATES LLC(32)
              $           $           $                           11,454             11,454                                       0                 
PERMAL CAPITAL STRUCTURE OPPORTUNITIES LTD(33)
              $ 1,586,250          $ 592,013          $ 2,178,263             52,553                          52,553             0                           0                 
ANDREW RECHTSCHAFFEN(34)
              $           $           $                           30,414             30,414                                       0                 

42



Name of Selling
Securityholder
        Aggregate
Principal
Amount of
Notes
Owned
and
Outstanding*
    Aggregate
Principal
Amount of
Notes
Paid-In
Kind That
May Be
Paid(1)*
    Aggregate
Principal
Amount
of Notes
That May
be Sold*
    Number of
Shares of
Common
Stock
Owned
Upon Full
Conversion
of Notes
    Number of
Shares Of
Common
Stock
Owned
Outright
    Aggregate
Number of
Shares of
Common
Stock
That May
Be Sold
Pursuant
to This
Prospectus(2)
    Principal
Amount of
Notes
Beneficially
Owned
After This
Offering
    Percentage
of
Principal
Amount of
Notes
Beneficially
Owned
After
This
Offering(3)
    Number of
Shares of
Common
Stock
Owned
After
This
Offering(4)
    Percentage
of Shares
of
Common
Stock
Owned
After
This
Offering(4),(5)
ROCKVIEW SHORT ALPHA FUND LTD(35)
              $           $           $                           82,090             82,090                                       0                 
ROCKVIEW TRADING LTD(36)
              $ 1,057,500          $ 394,675          $ 1,452,175             35,036             556,584             591,620             0                           0                 
SG AURORA MASTER FUND LP(37)
              $ 528,750          $ 197,338          $ 726,088             17,518                          17,518             0                           0                 
SPECIAL SITUATIONS, LLC(38)
              $ 246,750          $ 92,091          $ 338,841             8,175             22,075             30,250             0                           0                 
SPECIAL SITUATIONS X, LLC(39)
              $ 528,750          $ 197,338          $ 726,088             17,518                          17,518             0                           0                 
STATON FAMILY PERPETUAL TRUST(40)
              $           $           $                           1,688,970             1,688,970                                       0                 
STATON MEDIA LLC(41)
              $           $           $                           149,995             149,995                                       0                 
STATON FAMILY INVESTMENTS LTD(42)
              $           $           $                           3,432,893             3,432,893                                       0                 
STONEHILL INSTITUTIONAL PARTNERS LP(43)
              $ 5,917,274          $ 2,208,418          $ 8,125,692             196,042             353,105             549,147             0                           0                 
STONEHILL MASTER FUND LTD(44)
              $ 11,596,359          $ 4,327,940          $ 15,924,300             384,193             868,724             1,252,917             0                           0                 
STRATEGIC MEDIA I LLC(45)
              $           $           $                           1,274,165             1,274,165                                       0                 
VISIUM BALANCED MASTER FUND LTD(46)
              $ 2,013,480          $ 751,462          $ 2,764,942             66,708                          66,708             0                           0                 
VISIUM CREDIT MASTER FUND LTD(47)
              $ 3,274,020          $ 1,221,915          $ 4,495,935             108,470                          108,470             0                           0                 
VISIUM EQUITY GLOBAL MASTER FUND LTD(48)
              $           $           $                           81,812             81,812                                       0                 
THE WEISMANN FOUNDATION(49)
              $           $           $                           15,634             15,634                                       0                 
THE 2007 AIDAN STIRLING WEISMANN TRUST(50)
              $           $           $                           407              407                                        0                 
DIETRICH WEISMANN CHARITABLE LEAD ANNUITY TRUST (LUCY MANAGED) (51)
              $           $           $                           1,219             1,219                                       0                 
DIETRICH WEISMANN CHARITABLE LEAD ANNUITY TRUST (PAUL MANAGED)(52)
              $           $           $                           1,219             1,219                                       0                 
DIETRICH WEISMANN REVOCABLE TRUST(53)
              $           $           $                           37,454             37,454                                       0                 
THE 2005 OWEN AYRTON WEISMANN TRUST(54)
              $           $           $                           507              507                                        0                 
PAUL A. WEISMANN(55)
              $           $           $                           292              292                                        0                 
PAUL A. WEISMANN DESCENDANTS TRUST(56)
              $           $           $                           2,866             2,866                                       0                 

43



Name of Selling
Securityholder
        Aggregate
Principal
Amount of
Notes
Owned
and
Outstanding*
    Aggregate
Principal
Amount of
Notes
Paid-In
Kind That
May Be
Paid(1)*
    Aggregate
Principal
Amount
of Notes
That May
be Sold*
    Number of
Shares of
Common
Stock
Owned
Upon Full
Conversion
of Notes
    Number of
Shares Of
Common
Stock
Owned
Outright
    Aggregate
Number of
Shares of
Common
Stock
That May
Be Sold
Pursuant
to This
Prospectus(2)
    Principal
Amount of
Notes
Beneficially
Owned
After This
Offering
    Percentage
of
Principal
Amount of
Notes
Beneficially
Owned
After
This
Offering(3)
    Number of
Shares of
Common
Stock
Owned
After
This
Offering(4)
    Percentage
of Shares
of
Common
Stock
Owned
After
This
Offering(4),(5)
PHILLIPA V. WEISMANN(57)
              $           $           $                           2,691             2,691                                       0                 
LUCY C. VELTRI(58)
              $           $           $                           292              292                                        0                 
ZELL CREDIT OPPORTUNITIES MASTER FUND LP(59)
              $ 10,575,000          $ 3,946,753          $ 14,521,753             350,355                          350,355             0                           0                 
2B LLC(60)
              $ 1,163,250          $ 434,143          $ 1,597,393             38,539                          38,539             0                           0                 
TOTAL
              $ 250,849,125          $ 93,620,767          $ 344,469,892             8,310,763             22,756,706             31,007,466             0                           60,003                
 


*
  Amounts have been rounded to the nearest dollar.

  Less than 1%.

(1)
  Equals the maximum aggregate principal amount of Non-Cash Pay Notes that may be paid-in-kind in respect of interest payments.

(2)
  Includes the aggregate number of shares of common stock held upon full conversion of the Non-Cash Pay Notes and shares held outright that may be sold pursuant to this Prospectus.

(3)
  Based on the aggregate principal amount of Non-Cash Pay Notes outstanding of $250,849,125 and $93,620,767 of Non-Cash Pay Notes that may be paid-in-kind in respect of interest payments.

(4)
  The shares and percentages reflected in these columns reflect the aggregate number of shares of common stock held upon full conversion of the Non-Cash Pay Notes and shares held outright by certain selling securityholders after public resale of all shares that may be sold pursuant to this Prospectus.

(5)
  Based on 31,219,644 shares of our common stock outstanding as of December 14, 2011.

(6)
  Shares of common stock beneficially owned consist of 1,753,028 shares of common stock and 238,675 shares of common stock held at Cede & Co. through a brokerage account with J.P. Morgan Bank. Income Fund GP Limited (“IFGPL”) is the general partner of Absolute Income Fund, L.P. Ben Christian Rispoli is the sole director of IFGPL. Greymoor International Limited is the sole stockholder of IFGPL and is a wholly-owned subsidiary of Neville Holdings Group Limited. Olivier Claude Michel Bassou and Olivier Pierre Adam are the directors of Greymoor International Limited and Neville Holdings Group Limited. Mr. Rispoli, Mr. Bassou and Mr. Adam share voting and investment power over the shares held by Absolute Income Fund, L.P. The address of Absolute Income Fund, L.P. is c/o Lainston International Management Ltd., Suite 4-213-4 Governors Square, PO Box 31298, Grand Cayman, KY1-1206, Cayman Islands.

(7)
  Advanced Series Trust —AST Academic Strategies Asset Allocation Portfolio (“AST”) is an affiliate of Pruco Securities, LLC, Prudential Investment Management Services LLC and Prudential Annuities Distributors, Inc., which are broker-dealers registered pursuant to Section 15 of the Securities and Exchange Act of 1934. AST purchased the notes in the ordinary course of business and at the time of the purchase of the notes, it had no agreements or understandings with any person to distribute the securities. CNH Partners, LLC is the sub-advisor of AST. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AST. AQR Capital Management, LLC acts as the investment manager to the Diversified Arbitrage investment arm of AST. The address of AST is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(8)
  To the best of our knowledge, Andrew Conru holds voting and investment power over the notes and shares held by the Andrew B. Conru Trust. The address of the Andrew B. Conru Trust Agreement is c/o Bose Mckinney & Evans, LLP, 111 Monument Circle, Suite 2700, Indianapolis, IN 46204.

(9)
  CNH Partners, LLC is the sub-advisor of AQR Diversified Arbitrage Fund. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR Diversified Arbitrage Fund. The address of AQR Diversified Arbitrage Fund is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(10)
  The general partner of AQR Opportunistic Premium Offshore Fund, L.P. is AQR Capital Management III, LLC. AQR Capital Management, LLC is the sole member of AQR Capital Management III, LLC. AQR Capital Management Holdings, LLC is the sole member of AQR Capital Management, LLC. Mr. Clifford S. Asness is a greater than 25% shareholder of AQR Capital Management Holdings, LLC. CNH Partners, LLC is the sub-advisor of AQR Opportunistic Premium Offshore Fund, L.P. CNH Partners, LLC is controlled indirectly by Mr. Todd Pulvino and Mr. Mark Mitchell. Accordingly, Mr. Pulvino and Mr. Mitchell share voting and investment power over the notes owned by AQR Opportunistic Premium Offshore Fund, L.P. The address of AQR Opportunistic Premium Offshore Fund, L.P. is c/o AQR Capital Management, LLC, Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.

(11)
  Mr. Marc H. Bell is the trustee and has sole voting and investment power over the shares owned by the trust. The shares are held in trust for the benefit of Mr. Bell’s children. The address of the Bell Family 2003 Charitable Lead Annuity Trust is 6800 Broken Sound Parkway, Boca Raton, FL 33487.

44



(12)
  Marc H. Bell is our Chief Executive Officer, President and a Director. The address for Mr. Bell is 6800 Broken Sound Parkway, Boca Raton, FL 33487. The shares reflected in the column “Number of Shares of Common Stock Owned After This Offering” are shares of common stock owned outright by Mr. Bell and are not being offered for public resale by Mr. Bell under this Prospectus.

(13)
  Bessemer Trust Company, N.A. and Mr. Matthew Smyth are the trustees of the Dietrich Weismann Settlement Trust A and share voting and dispositive power over the shares held by the Dietrich Weismann Settlement Trust A. The address of the Dietrich Weismann Settlement Trust A is c/o Bessemer Trust Co., 100 Woodbridge Center Drive, Woodbridge, NJ 07095, Attn: Custody Asset Transfer Unit.

(14)
  Bessemer Trust Company, N.A. and Mr. Roger Kimball are the trustees of the Dietrich Weismann Settlement Trust B and share voting and dispositive power over the shares held by the Dietrich Weismann Settlement Trust B. The address of the Dietrich Weismann Settlement Trust B is c/o Bessemer Trust Co., 100 Woodbridge Center Drive, Woodbridge, NJ 07095, Attn: Custody Asset Transfer Unit.

(15)
  Mr. and Mrs. Brill share voting and investment power over their shares of common stock. The address for Shmuel & Susana Brill is 1 Landmark Square, FL4 Stamford, CT 06901.

(16)
  Centrecourt Asset Management LLC is the investment advisor to CAMHZN Master LDC. Mr. Richard Smithline is a managing member and a director of Centrecourt Asset Management LLC and therefore has sole voting and investment power over the shares of common stock owned by Camhzn Master LDC. The address of CAMHZN Master LDC is c/o Centrecourt Asset Management LLC, 350 Madison Avenue, 8th Floor, New York, NY 10017.

(17)
  Centrecourt Asset Management LLC is the investment advisor to CAMOFI Master LDC. Mr. Richard Smithline is the managing member and a director of Centrecourt Asset Management LLC and therefore has sole voting and investment power over the shares of common stock owned by Camofi Master LDC. The address of CAMOFI Master LDC is c/o Centrecourt Asset Management LLC, 350 Madison Avenue, 8th Floor, New York, NY 10017.

(18)
  The General Partner of Cedarview Opportunities Master Fund, LP is Cedarview GP, LLC. Mr. Burton Weinstein is the holder of the membership interests in Cedarview GP, LLC and therefore has sole voting and investment power over the notes owned by Cedarview Opportunities Master Fund, LP. The address of Cedarview Opportunities Master Fund, LP is One Penn Plaza, 45th Floor, New York, NY 10119.

(19)
  Mr. Arthur Hebert is the senior managing director and chief financial officer of Dalton Investments LLC, which is the investment advisor to Citigroup Pension Plan — Dalton Distressed Credit. Mr. Herbert, Mr. Steve Persky, Ms. Michelle Lynd and Mr. Todd Sherer all share voting and investment power over the notes held by Citigroup Pension Plan — Dalton Distressed Credit. The address of Citigroup Pension Plan — Dalton Distressed Credit is c/o Dalton Investments LLC, 1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404.

(20)
  CMI II, LLC is a wholly-owned subsidiary of Castlerigg Master Investments Ltd. Sandell Asset Management Corp. is the investment manager of Castlerigg Investments Ltd. Thomas Sandell is the controlling person of Sandell Asset Management Corp. and therefore has sole voting and investment power over the shares of common stock owned by CMI II LLC. The address of CMI II LLC is c/o Sandell Asset Management Corp., 40 West 57th Street, 26th Floor, New York, New York 10019.

(21)
  DG Capital Management, LLC is the investment manager for Commerce Court. Dov Gertzulin is the managing member of DG Capital Management, LLC and has sole voting and investment power over the notes held by Commerce Court. The address of Commerce Court is c/o DG Capital Management, LLC, 460 Park Avenue, 13th Floor, New York, NY 10022.

(22)
  Mr. Arthur Hebert is the senior managing director and chief financial officer of Dalton Investments LLC, which is the investment advisor to Dalton Distressed Credit (Master) Fund Ltd. Mr. Herbert, Mr. Steve Persky, Ms. Michelle Lynd and Mr. Todd Sherer all share voting and investment power over the notes held by Dalton Distressed Credit (Master) Fund Ltd. The address of Dalton Distressed Credit (Master) Fund Ltd is c/o Dalton Investments LLC, 1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404.

(23)
  Mr. Marc Simon is the Director of Del Mar Master Fund, Ltd. Del Mar Asset Management, LP is the advisor to Del Mar Master Fund, Ltd. The general partner of Del Mar Asset Management, LP is Del Mar Management, LLC. David Freelove is the president, chief executive officer and a managing member of Del Mar Management, LLC and has sole voting and investment power over the shares of common stock owned by Del Mar Master Fund, Ltd. The address of Del Mar Master Fund, Ltd. is c/o Walkers Financial Svcs, 83 Mary St., Georgetown, Grand Cayman KY1-9005 Cayman Islands.

(24)
  DG Capital Management, LLC is the investment manager to DG Value Partners, LP. Mr. Dov Gertzulin is the managing member of DG Capital Management, LLC and has sole voting and investment power over the notes held by DG Value Partners, LP. The address of DG Value Partners, LP is c/o DG Capital Management, LLC, 460 Park Avenue, 13th Floor, New York, NY 10022.

(25)
  Citigroup Alternative Investments LLC, a registered investment advisor, is the investment manager to Epic Distressed Debt Opportunity Master Fund Ltd. Herbert E. Seit and James J. Duplessie are the controlling persons of the investment manager and therefore have shared voting and investment power over the shares of common stock owned by Epic Distressed Debt Opportunity Master Fund, Ltd. Citigroup Alternative Investments LLC is an affiliate of Citigroup, which is a broker-dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. Epic Distressed Debt Opportunity Master Fund purchased the shares of common stock in the ordinary course of business and at the time of the purchase of the shares of common stock, it had no agreements or understandings with any person to distribute the securities. The address of Epic Distressed Debt Opportunity Master Fund, Ltd. is c/o Citi Alternative Investments, 399 Park Avenue, 7th Floor, New York, New York 10022.

(26)
  Mr. Barry Florescue is President of Florescue Family Corporation and has voting and investment power over the notes and shares of common stock owned by Florescue Family Corporation. The address of Florescue Family Corporation is 50 E. Sample Rd, Suite 400, Pompano Beach, Florida 30064.

(27)
  Mr. Russell Frye has voting and investment power over his own shares of common stock. The address for Mr. Frye is 4045 NW 58th Place, Boca Raton, FL 33496.

45



(28)
  Hayman Capital Management, L.P., the controlling entity of Hayman Capital Master Fund L.P., and Hayman Offshore Management, Inc. (Cayman Islands) are the General Partners of Hayman Capital Master Fund L.P. Hayman Investments, LLC is the General Partner of Hayman Capital Management, L.P. Mr. J. Kyle Bass is the owner of Hayman Investments, LLC, Hayman Capital Management, L.P. and Hayman Offshore Management, Inc., individually and through trust vehicles and therefore has sole voting and investment power over the notes owned by Hayman Capital Master Fund, L.P. The address of Hayman Capital Master Fund L.P. is 2101 Cedar Springs Road, Dallas, TX 75201.

(29)
  These shares of common stock were issued in November 2011 upon the exchange of the 32,965 shares of Series B common stock previously owned for 32,965 shares of common stock. Mr. Steve Markley is the President, Chief Executive Officer and sole director of Interactive Brand Development, Inc., and has sole voting and investment power over its shares. The address of Interactive Brand Development, Inc. is 934 N University Drive, Coral Springs, FL 33071.

(30)
  Mr. Arthur Hebert is the senior managing director and chief financial officer of Dalton Investments LLC, which is the investment advisor to Investin Pro FMBA Dalton Distressed Debt. Mr. Herbert, Mr. Steve Persky, Ms. Michelle Lynd and Mr. Todd Sherer all share voting and investment power over the notes held by Investin Pro FMBA Dalton Distressed Debt. The address of Investin Pro FMBA Dalton Distressed Debt is c/o Dalton Investments LLC, 1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404.

(31)
  Mr. Lars Mapstead and Mrs. Marin Mapstead are trustees of the Mapstead Trust, created on April 16, 2002 and hold shared voting and investment power over notes and shares of common stock owned by the Mapstead Trust. The address of Mapstead Trust is c/o Bose Mckinney & Evans LLP, 111 Monument Circle, Suite 2700, Indianapolis, IN 46204.

(32)
  Mr. Paul Weismann is the Manager of PAW Associates, LLC and therefore has sole voting and investment power over the shares of common stock owned by PAW Associates LLC. The address of PAW Associates, LLC is 1 Landmark Square, FL4, Stamford, CT 06901.

(33)
  Sandler Capital Management is the investment manager for Permal Capital Structure Opportunities, Ltd. (“PCSO”) and SERF Corp. is a general partner of Sandler Capital Management. The controlling entity of PCSO is Citco Bank and Trust Company, Ltd. Mr. Doug Schimmel holds sole voting and investment power over the notes held by Permal Capital Structure Opportunities, Ltd. The address of PCSO is 711 5th Ave., 15th Floor, New York, NY 10022.

(34)
  Mr. Andrew Rechtschaffen has voting and investment power over his own shares of common stock. The address for Mr. Rechtschaffen is JP Morgan Chase FAO Andrew Rechtschaffen, 500 Stanton Christiana Road, Newark, DE 19713.

(35)
  Mr. Kevin Schweitzer is the managing member of Zabak Capital, LLC and has sole voting and investment power over the shares of common stock owned by Rockview Short Alpha Fund, Ltd., Zabak Capital LLC is the managing member of Rockview Management, LLC. Rockview Management, LLC is the investment manager to Rockview Short Alpha Fund, Ltd. The address of Rockview Short Alpha Fund, Ltd. is MetroCenter, One Station Place, 7th Floor, Stamford, CT 06902.

(36)
  Mr. Kevin Schweitzer is the managing member of Zabak Capital, LLC and holds sole voting and investment power over the notes and shares of common stock held by RockView Trading, Ltd. Zabak Capital, LLC is the managing member of RockView Management LLC. Rockview Management, LLC is the investment manager to RockView Trading, Ltd. The address of Rockview Trading, Ltd. is MetroCenter, One Station Place, 7th Floor, Stamford, CT 06902.

(37)
  Sheldon Goldman has voting and dispositive power over the notes owned by SG Aurora Master Fund L.P. The address of SG Aurora Master Fund L.P. is 825 Third Ave., 34th Floor, New York, NY 10022.

(38)
  DG Capital Management, LLC is the investment manager for Special Situations, LLC. Dov Gertzulin is the managing member of DG Capital Management, LLC and has sole voting and investment power over the notes held by Special Situations, LLC. The address of Special Situations, LLC is c/o DG Capital Management, LLC, 460 Park Avenue, 13th Floor, New York, NY 10022.

(39)
  DG Capital Management, LLC is the investment manager for Special Situations X, LLC. Dov Gertzulin is the managing member of DG Capital Management, LLC and has sole voting and investment power over the notes held by Special Situations X, LLC. The address of Special Situations X, LLC is c/o DG Capital Management, LLC, 460 Park Avenue, 13th Floor, New York, NY 10022.

(40)
  Mr. Staton is the trustee of Staton Family Perpetual Trust and has sole voting and investment power over the shares of common stock owned by the Staton Family Perpetual Trust, which are held in trust for the benefit of his minor children. The address of Staton Family Perpetual Trust is 6800 Broken Sound Parkway, Boca Raton, FL 33487.

(41)
  Mr. Staton is a member and the manager of Staton Media LLC and therefore has sole voting and investment power over the shares of common stock owned by Staton Media LLC. The address of Staton Media LLC is 6800 Broken Sound Parkway, Boca Raton, FL 33487.

(42)
  Mr. Staton is a member of Staton Family Investments, Ltd. and has sole voting and investment power over the shares of common stock owned by Staton Family Investment, Ltd. The address of Staton Family Investments, Ltd. is 6800 Broken Sound Parkway, Boca Raton, FL 33487.

(43)
  Stonehill Capital Management LLC, a Delaware limited liability company (“SCM”), is the investment advisor of Stonehill Institutional Partners, L.P. (“Stonehill Institutional”) and Stonehill General Partner, LLC, (“Stonehill GP”) is the General Partner of Stonehill Institutional. Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky and Mr. Michael Thoyer (collectively, the “Members”) are the managing members of SCM and Stonehill GP and share voting and investment power over the notes and shares of common stock owned by Stonehill Institutional. The address of Stonehill Institutional is c/o Stonehill Capital Management LLC, 885 Third Avenue, 30th Floor, New York, NY 10022.

(44)
  Stonehill Capital Management LLC, a Delaware limited liability company (“SCM”) is the investment advisor of Stonehill Master Fund Ltd (“Stonehill Master”). Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky and Mr. Michael Thoyer (collectively, the “Members”) are the managing members of SCM and share voting and investment power over the notes and shares of common stock owned by Stonehill Master. The address of Stonehill Master is c/o Stonehill Capital Management LLC, 885 Third Avenue, 30th Floor, New York, NY 10022.

46



(45)
  The following shares are owned by the members of Strategic Media I LLC: 318,541 shares held by the Bell Family 2000 Trust; 318,541 shares held by Staton Family Investments, Ltd.; 79,635 shares held by James LaChance, a member of the Board of Directors of FriendFinder Networks, Inc., and his wife, Hilary LaChance; 238,906 shares held by Equity Acquisition LLC; 159,271 shares held by PJJZRL, LLC; and 159,271 shares held by the Millenium Gift Trust. The shares held by the Bell Family 2000 Trust are held in trust for the benefit of Mr. Bell’s children. Mr. Staton has sole voting and investment power over the shares of common stock owned by Strategic Media I LLC in his capacity as a member of Staton Family Investments, Ltd. The address of Strategic Media I LLC is 6800 Broken Sound Parkway, Boca Raton, FL 33487.

(46)
  Visium Asset Management, LP has discretionary authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Balanced Master Fund, Ltd. The address of Visium Balanced Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022.

(47)
  Visium Asset Management, LP has discretionary authority over these notes. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the holders of membership interests in JG Asset, LLC and therefore share voting and investment power over the notes owned by Visium Credit Master Fund, Ltd. The address for Visium Credit Master Fund, Ltd. is c/o Visium Asset Management LP, 950 Third Avenue, 29th Floor, New York, NY 10022.

(48)
  Visium Asset Management, LP has discretionary trading authority over these shares of common stock. The General Partner of Visium Asset Management, LP is JG Asset, LLC. Mr. Jacob Gottlieb and Mr. Mark Gottlieb are the members of JG Asset, LLC and therefore share voting and investment power over the shares of common stock owned by Visium Equity Global Master Fund, Ltd. The address of Visium Equity Global Master Fund, Ltd. is c/o Visium Asset Management, LP, 950 Third Avenue, 29th Floor, New York, NY 10022.

(49)
  Mr. Paul Weismann is the trustee of the Weismann Foundation and therefore has sole voting and investment power over the shares of common stock owned by the Weismann Foundation. The address of the Weismann Foundation is 1 Landmark Square, FL4, Stamford, CT 06901.

(50)
  Mr. Paul Weismann is the trustee for the 2007 Aidan Stirling Weismann Trust and therefore has sole voting and investment power over the shares of common stock owned by the 2007 Aidan Stirling Weismann Trust. The address of the 2007 Aidan Stirling Weismann Trust is 1 Landmark Square, FL4, Stamford, CT 06901.

(51)
  Ms. Lucy Veltri is the manager of the Dietrich Weismann Charitable Lead Annuity Trust (Lucy Managed) and has sole voting and investment power over the shares of common stock held by the Dietrich Weismann Charitable Lead Annuity Trust (Lucy Managed). The address of the Dietrich Weismann Charitable Lead Annuity Trust (Lucy Managed) is c/o Philippa V. Weismann, 115 Central Park West, #8FE, New York, NY 10023.

(52)
  Mr. Paul A. Weismann is the manager of the Dietrich Weismann Charitable Lead Annuity Trust (Paul Managed) and has sole voting and investment power over the shares of common stock held by the Dietrich Weismann Charitable Lead Annuity Trust (Paul Managed). The address of the Dietrich Weismann Charitable Lead Annuity Trust (Paul Managed) is c/o Philippa V. Weismann, 115 Central Park West, #8FE, New York, NY 10023.

(53)
  Mr. Lawrence Flynn is the trustee of the Dietrich Weismann Revocable Trust and therefore has sole voting and investment power over the shares of common stock owned by the Dietrich Weismann Revocable Trust. The address of the Dietrich Weismann Revocable Trust is 645 Madison Avenue, Floor 14, New York, NY 10022.

(54)
  Mr. Paul Weismann is the trustee for the 2005 Owen Ayrton Weismann Trust and therefore has sole voting and investment power over the shares of common stock owned by the 2005 Owen Ayrton Weismann Trust. The address for the 2005 Owen Ayrton Weismann Trust is 1 Landmark Square, FL4, Stamford, CT 06901.

(55)
  Mr. Paul A. Weismann has sole voting and investment power over his own shares of common stock. The address of Mr. Weismann is 3141 Salt Point Tpk, Clinton Corners, NY 12514.

(56)
  Mr. Paul Weismann is the trustee for the Paul A. Weismann Descendants Trust and therefore has sole voting and investment power over the shares of common stock owned by the Paul A. Weismann Desendants Trust. The address for the Paul A. Weismann Descendants Trust is 1 Landmark Square, FL4, Stamford, CT 06901.

(57)
  Ms. Philippa V. Weismann has sole voting and investment power over her own shares. The address of Ms. Weismann is 115 Central Park West, #8FE, New York, NY 10023.

(58)
  Ms. Lucy C. Veltri has sole voting and investment power over her own shares. The address of Ms. Veltri is 5250 Advance Mills Road, Earlysville, VA 22963.

(59)
  The general partner of Zell Credit Opportunities Master Fund, L.P. is Zell Credit Opportunities (GenPar), L.L.C. Voting and dispositive power over the notes is indirectly held by the trustee of trusts established for the benefit of the family of Samuel Zell, which trusts indirectly own and control Zell Credit Opportunities (GenPar), L.L.C. The trustee of each of the trusts is Chai Trust Company, LLC. The managing member of Chai Trust Company, LLC is EGI Investors, L.L.C. The members of the board of managers of Chai Trust Company, LLC are Matthew Zell, JoAnn Zell, Kellie Zell, Jon Wasserman, Donald Liebentritt and Leah Zell Wanger (collectively, the “Board”). The Board has voting and investment power over the notes owned by Zell Credit Opportunities Master Fund, L.P. The address of Zell Credit Opportunities Master Fund, L.P. is 2 North Riverside Plaza, Suite 600, Chicago, IL 60606.

(60)
  Mr. Arthur Hebert is the senior managing director and chief financial officer of Dalton Investments LLC, which is the investment advisor to 2B LLC. Mr. Herbert, Mr. Steve Persky, Ms. Michelle Lynd and Mr. Todd Sherer all share voting and investment power over the notes held by 2B LLC. The address of 2B LLC is c/o Dalton Investments LLC, 1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404.

47



BUSINESS

Company Overview

We are a leading internet and technology company providing services in the rapidly expanding markets of social networking and web-based video sharing. Our business consists of creating and operating technology platforms which run several of the most heavily visited websites in the world. Through our extensive network of more than 44,000 websites, since our inception, we have built a base of more than 484 million registrants and more than 320 million members in more than 200 countries. We are able to create and maintain, in a cost-effective manner, websites intended to appeal to users of diverse cultures and interest groups. In December 2010, we had more than 196 million unique visitors to our network of websites, according to comScore. We offer our members a wide variety of online services so that they can interact with each other and access the content available on our websites. Our most heavily visited websites include AdultFriendFinder.com, Amigos.com, AsiaFriendFinder.com, Cams.com, FriendFinder.com, BigChurch.com and SeniorFriendFinder.com. For the nine months ended September 30, 2011, we had net revenue, income from operations and net losses of $249.6 million, $52.4 million and ($20.9) million, respectively. For the year ended December 31, 2010 we had net revenue, income from operations and net losses of $346.0 million, $71.7 million and ($43.2) million, respectively.

Our revenues to date have been primarily derived from online subscription and paid-usage for our products and services. These products and services are delivered primarily through two highly scalable revenue-generating technology platforms:

•  
  Social Networking. Approximately 69% and 70% of our total net revenues for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively, were generated through our targeted social networking technology platform. Our social networking technology platform provides users who register or purchase subscriptions to one or more of our websites with the ability to communicate and to establish new connections with other users via our personal chat rooms, instant messaging and e-mail applications and to create, post and view content of interest. The content on our social networking sites is generated by our users for our users. Our social networking technology platform is extremely scalable and requires limited incremental cost to add additional users or to create new websites catering to additional unique audiences. As a result, we have been able to rapidly create and seamlessly maintain multiple websites tailored to specific categories or genres and designed to cater to targeted audiences with mutual interests. We believe that our ability to create and operate a diverse network of specific interest websites with unique, user-generated content in a cost-effective manner is a significant competitive differentiator that allows us to implement a subscription-fee based revenue model while many other popular social networking websites rely primarily upon free-access, advertising-based revenue models.

•  
  Live Interactive Video. Approximately 24% and 22% of our total net revenues for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively, were generated through our live interactive video technology platform. Our live interactive video technology platform is a live video broadcast platform that enables models to broadcast from independent studios throughout the world and interact with our users via instant messaging and video. Users are charged on a per-minute basis to interact with models. We pay a percentage of the revenues we generate to the studios that employ the models. We believe our live interactive video platform provides a unique offering including bi-directional and omni-directional video and interactive features that allow models to communicate with and attract users through a variety of mediums including blogs, newsletters and video. As a result, many studios and their models prefer our platform given our audience size and international reach, and our users prefer our platform as a result of the quality and variety of our models, the reliability of our network and the diversity of interactive features our platform provides. In addition, we believe the reliability of our live interactive video technology platform, which had approximately 99.1% uptime during 2010, is a key factor allowing us to maintain a large base of users.

In addition to our revenue-generating technology platforms, we have invested significant time and resources into developing our back-end marketing, analytics and billing technologies. Our marketing, analytics and billing technologies are the result of more than seven years of development work and are a key contributor to the success of our business. During that time, we have developed proprietary systems to allow our marketing affiliates to

48




maximize their revenue for our mutual benefit. These systems include proprietary white-labeling solutions, in which we provide back-end technology solutions to permit affiliates and marketing partners to deliver our products and services while maintaining the affiliate’s and marketing partner’s own branding and style, self-optimizing ad spots, and a robust banner optimization engine that automatically chooses the best possible site and banner to promote in a given ad spot. Our marketing technology has also enabled the creation and continued growth of our network of more than 280,000 affiliates, which we believe is one of the largest of its kind in the world and a significant barrier to entry to potential and existing competitors. Similarly, our proprietary analytics technology provides us with an advantage relative to less sophisticated competitors by enabling us to estimate future revenue based on short-term response to our advertising campaigns, as well as providing for analysis of key data and metrics in order to optimize our marketing spend and maximize the revenues our websites generate. Our robust billing platform allows our customers to pay using many of the widely-adopted methods of e-commerce, both domestically as well as internationally. In addition, as a result of our size and technical sophistication, we can collect monies from regions and customers that other companies cannot, using payment methods that go beyond traditional credit card billing, like SMS billing.

We categorize our users into five categories: visitors, registrants, members, subscribers and paid users.

•  
  Visitors. Visitors are users who visit our websites but do not necessarily register. Visitors come to our websites through a number of channels, including by being directed from affiliate websites, keyword searches through standard search engines and by word of mouth. We believe we achieve large numbers of unique visitors because of our focus on continuously enhancing the user experience and expanding the breadth of our services. We had more than 196 million unique worldwide visitors in the month of December 2010, representing a growth of more than 300% from our approximately 46.9 million unique worldwide visitors in January 2009, according to comScore.

•  
  Registrants. Registrants are visitors who complete a free registration form on one of our websites by giving basic identification information and submitting their e-mail address. For the nine months ended September 30, 2011, we averaged more than 6.4 million new registrations on our websites each month. For the year ended December 31, 2010, we averaged more than 6.4 million new registrations on our websites each month. Some of our registrants are also members, as described below.

•  
  Members. Members are registrants who log into one of our websites and make use of our free products and services. Members are able to complete their personal profile and access our searchable database of members but do not have the same full-access rights as subscribers. For the nine months ended September 30, 2011, we averaged more than 4.0 million new members on our websites each month. For the year ended December 31, 2010, we averaged more than 3.9 million new members on our websites each month.

•  
  Subscribers. Subscribers are members who purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions for one or more of our websites. Subscribers have full access to our websites and may access special features. For the nine months ended September 30, 2011, we had a monthly average of approximately 950 thousand paying subscribers and for the year ended December 31, 2010, we had a monthly average of approximately 1 million paying subscribers, respectively.

•  
  Paid Users. Paid users are members who purchase products or services on a pay-by-usage basis. For the nine months ended September 30, 2011, we averaged approximately 2.9 million purchased minutes by paid users each month. For the year ended December 31, 2010, we averaged approximately 3.0 million purchased minutes by paid users each month.

We focus on the following key business metrics to evaluate the effectiveness of our operating strategies.

•  
  Average Revenue per Subscriber. We calculate average revenue per subscriber, or ARPU, by dividing net revenue for the period by the average number of subscribers in the period and by the number of months in the period. As such, our ARPU is a monthly calculation. For the nine months ended September 30, 2011, our average monthly revenue per subscriber was $20.22. For the year ended December 31, 2010, our average monthly revenue per subscriber was $20.49. For more information regarding our revenue, see the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Nine Months Ended September 30, 2011 as Compared to the Nine Months Ended

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  September 30, 2010” and “ — Year Ended December 31, 2010 as Compared to the Year Ended December 31, 2009.”

•  
  Churn. Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period. Our average monthly churn rate, which measures the rate of loss of subscribers, for the nine months ended September 30, 2011 was approximately 16.3%. Our average monthly churn rate for the year ended December 31, 2010 was 16.1% per month.

•  
  Cost Per Gross Addition. Cost per gross addition, or CPGA, is calculated by adding affiliate commission expense plus ad buy expenses and dividing by new subscribers during the measurement period. Our CPGA for the nine months ended September 30, 2011 was $42.76. Our CPGA for the year ended December 31, 2010 was $47.25.

•  
  Average Lifetime Net Revenue Per Subscriber. Average Lifetime Net Revenue Per Subscriber is calculated by multiplying the average lifetime (in months) of a subscriber by ARPU for the measurement period and then subtracting the CPGA for the measurement period. Our Average Lifetime Net Revenue Per Subscriber for the nine months ended September 30, 2011 was $81.06. Our Average Lifetime Net Revenue Per Subscriber for the year ended December 31, 2010 was $80.17. While we monitor many statistics in the overall management of our business, we believe that Average Lifetime Net Revenue Per Subscriber and the number of subscribers are particularly helpful metrics for gaining a meaningful understanding of our business as they provide an indication of total revenue and profit generated from our base of subscribers inclusive of affiliate commissions and advertising costs required to generate new subscriptions.

In addition to our social networks and live interactive video platforms, we also offer professionally-generated content through our premium content technology platform, and our non-internet entertainment business. Approximately 1.5% and 6.5% of our total net revenues for the nine months ended September 30, 2011 and approximately 1.4% and 7.0% of our total net revenues for the year ended December 31, 2010 were generated via our premium content technology platform and our non-internet entertainment business, respectively. Through websites such as Penthouse.com and HotBox.com, our subscribers and paid users have access to our collection of more than 15,000 hours of professional video, which includes our library of more than 800 standard and high-definition full-length feature films and one million professionally produced images. We began shooting all of our content in 3D in September 2010. By the end of September 2011, we were producing more than 145 hours of content per month. Additionally, subscribers have access to editorial content, chat rooms and other interactive features. In addition to our online products and services, we also have a non-technology legacy entertainment business, in which we produce and distribute original pictorial and video content via traditional distribution channels including licensing and retail DVD channels, license the globally-recognized Penthouse brand to a variety of consumer product companies and entertainment venues and public branded men’s lifestyle magazines.

Our Competitive Strengths

We believe that we have the following competitive strengths that we can leverage to implement our strategy:

  Proprietary and Scalable Technology Platform.

Our robust, proprietary and highly scalable technology platform supports our social networking, live interactive video and premium content websites. We are able to use our customized back-end interface to quickly and affordably generate new websites, launch new features and target new audiences at a relatively low incremental cost. Our technology platform enables us to rapidly redeploy the architecture underlying our websites with new appearances and themes in order to create additional websites for our users. We believe that our ability to create new websites and provide new features is crucial to cost-effectively maintaining our relationships with existing users and attracting new users. Furthermore, our technology platform has also enabled us to create and continue to expand our affiliate network and to measure and optimize the efficiency of our marketing spend, allowing us to expand the number of visitors to our site in an economical manner.

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  Paid Subscriber-Based Model.

We operate social networking websites that allow our members to make connections with other members with whom they share common interests. Our members are able to post their profiles and other content of interest for free and our subscribers are then able to access this content for a fee. Our paid subscriber-based model of social networking websites is distinctly different from the business models of other free social networking websites whose users access the websites to remain connected to their pre-existing friends and interest groups.

  Large and Diverse User Base.

We operate some of the most heavily visited social networking websites in the world, currently adding on average more than 6.4 million new registrants and more than 4.0 million new members each month. Since our inception, more than 484 million registrants and more than 320 million members have registered on our websites, with a majority of our members outside of the United States. Our websites are designed to appeal to individuals with a diversity of interests and backgrounds. We believe potential members are attracted to the opportunity to interact with other individuals by having access to our large, diverse user base. We believe that our broad and diverse international user base also represents a valuable asset that will provide opportunities for us to offer targeted online advertising to specific demographic groups and represents a substantial barrier to entry for potential competitors.

  Large and Difficult to Replicate Affiliate Network and Significant Marketing Spend.

Our marketing affiliates are companies that market our services on their websites, allowing us to market our brand beyond our established user base. These affiliates direct visitor traffic to our websites by using our technology to place banners or links on their websites to one or more of our websites for a fee. As of September 30, 2011 and December 31, 2010, we had more than 280,000 and 250,000 participants, respectively, in our marketing affiliate program from which we derive a substantial portion of our new members and approximately 46% of our net revenues for the nine months ended September 30, 2011 and 45% of our net revenues for the year ended December 31, 2010. For the nine months ended September 30, 2011, we made payments to marketing affiliates of approximately $47.9 million, a large portion of which was on a revenue share basis with the Company, as opposed to a pay-per-order basis. In addition, we spent $16.6 million on ad buy expenses during the same time period. We believe that the difficulty in building an affiliate network of this large size, together with our combined affiliate and advertising spend of approximately $64.5 million for the nine months ended September 30, 2011, presents a significant barrier to entry for potential competitors.

Our Strategy

Our goal is to enhance revenue opportunities while improving our profitability. We plan to achieve these goals using the following strategies:

  Convert Visitors, Registrants and Members into Subscribers or Paid Users.

We continually seek to convert visitors, registrants and members into subscribers or paid users. We do this by constantly evaluating, adding and enhancing features on our websites to improve our users’ experience. We also dynamically adjust offers and pricing to users based on a variety of factors such as geography, currency, payment system, country of origin, time of day or calendar date in order to encourage users to become subscribers or paid users.

  Create Additional Websites and Diversify Offerings.

We are constantly seeking to identify groups of sufficient size who share a common interest in order to create a website intended to appeal to their interests. Our technology provides us with a scalable, low-cost capacity to quickly create and launch additional websites, such as new social networking websites, content-driven websites that serve as portals for user-generated and professional content and

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complementary FriendFinder branded websites, without substantial additional capital investment. Our extensive user database serves as an existing source of potential members and subscribers for new websites we create.

  Expand into and Monetize Current Foreign Markets.

In 2010, nearly 71% of our members were outside the United States, but non-U.S. users accounted for less than half of our total net revenues. We seek to expand in selected geographic markets, including Southeast Europe, South America and Asia. Our geographic expansion, in conjunction with growth in alternative payment mechanisms — including credit card and non-credit card payments, such as pre-authorized debiting and mobile phone payments — in our targeted geographic areas should allow us to significantly increase our revenue and EBITDA.

  Pursue Targeted Acquisitions.

We intend to expand our business by acquiring and integrating additional social networking websites, technology platforms, owners, creators and distributors of content and payment processing and advertising businesses. Our management team possesses significant mergers and acquisitions and integration expertise and regularly screens the marketplace for strategic acquisition opportunities.

  Generate Online Advertising Revenue.

To date, online advertising revenue has represented less than 0.1% of our net revenue, averaging approximately $8,000 per month during the nine months ended September 30, 2011 and $9,000 per month for the year ended December 31, 2010. With continued worldwide growth in this advertising segment, we see this as a significant growth opportunity. We believe that our broad and diverse user base represents a valuable asset that will provide opportunities for us to offer targeted online advertising to specific demographic groups. We believe we will be able to offer advertisers an opportunity to achieve superior results with advertisements that are well-targeted to their preferred demographic and interest groups. We intend to focus our advertising efforts on our general audience social networking websites and maintain our subscription-based model for our adult social networking websites.

Our Products and Services

Our products and services consist of our social networking, live interactive video and premium content websites and, to a lesser extent, the licensing of our Penthouse brand, the publishing of branded men’s lifestyle magazines and the production and distribution of original video and pictorial content. For a discussion of our financial information for specific geographic areas, see “Note O — Segment Information” in our consolidated financial statements included elsewhere in this prospectus.

Social Networking Websites

The social networking aspect of our business is a cornerstone of our business model and is our largest source of revenue. We believe we are a leading provider of social networking websites in the world. In December 2010, our websites were ranked in the top 15 most-visited websites in the world by comScore. These websites accounted for 67.6% and 69.5% of our net revenue in the nine months ended September 30, 2011 and for the year ended December 31, 2010, respectively.

We provide social networking and online personals services for members of diverse cultures, ethnicities and interest groups. Each website is built around a central theme, which often relates to the ethnicity or social interests of its members. These online communities are delivered in the language appropriate to the group targeted by the website, including:

•  English
           
•  German
   
•  Portuguese
•  Chinese
           
•  Italian
   
•  Spanish
•  Dutch
           
•  Japanese
   
•  Swedish
•  French
           
•  Korean
   
•  Tagalog
 

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Membership on our social networking websites generally includes access to member-generated content including the ability to post a personal profile and photographs, create a social network, chat and instant message with other members, and search our database of member profiles as well as company-generated features and content such as contests, newsletters and articles as well as the loyalty program we administer. We believe that this variety of revenue-enhancing features encourages visitors to join as members. The ability to initiate communication with other members and subscribers via our e-mail communications platform and view the full profiles of the members in our database requires payment of a subscription fee. Depending on the specific website, subscribers also have access to additional functionality and increased or enhanced levels of services and content. Described below are several of the features that are accessible on many of our websites.

  Blogs — Blogs are a simple way to create a regularly updated home page where members can express themselves, learn about others, get more noticed and attract new friends. There are numerous blogs, grouped by subject.

  Chatrooms — Chatrooms are areas where members can discuss a specific topic or join rooms established by region. A private chatroom lets a member host a chat party by invitation only.

  Contests — Contests are a means of engaging our members by offering rewards for member-generated content. Examples include Best Holiday Greeting Card, Silly Photos with Clever Captions and many more. Prizes include upgraded memberships, free points, DVDs, T-shirts and mugs.

  Cupid Reports — Once a member has described an ideal match, the member is automatically notified by e-mail when a person matching that description becomes a member.

  Friends Network — A member can invite specified members into a personal group, keep track of them, share private photos and send personalized bulletins.

  Get Local — Websites list local events that are geographically targeted according to a member’s location.

  Groups — Groups are the place to find people who share interests and to develop new friendships. Members search for groups by topics, names or keywords and correspond, exchanging ideas. All groups have their own discussion boards and chatrooms, which facilitate communication and relationship building. Popular groups include “Single again? Let’s get together!,” “Dancing” and “Adventures, Romantic Getaways.”

  Instant Messaging — Two different types of our instant messaging system are available: a standard service and a faster Flash system, which offers extra options such as live video and sound.

  Loyalty Program — Our point based loyalty program is designed to increase participation in our websites membership activities, such as participating in blogs and online magazines and creating video introductions as members are awarded points for participating in these activities. Points can be redeemed for other membership services such as upgraded memberships or more prominence of member profiles in online searches.

  Newsletters — Our most popular websites periodically send newsletters to members, including photos and brief descriptions of other members, advice on enhancing one’s profile to attract more responses from other members and practical tips on dating and relationships.

  Online Magazine — At magazine pages, members can participate in many ways: read articles with expert advice on dating and relationships, enjoy fiction serials, submit their own articles, vote and comment on their reading, post original polls they have created, give advice and exchange opinions on various subjects, and view archives of articles.

  Photo, Video and Voice Sharing — Members can post their photographs and create webcam video introductions and voice introductions of themselves, which generates member-to-member contact.

  Posting Profiles — Members include personal details, such as city of residence and birthday, physical information, such as height and hair color, personal information, such as education, and occupation as well as other information. They describe themselves, specifying hobbies, the type of person they are

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  seeking for a friend or for dating and can present up to 20 photographs. Members are encouraged to make their profiles as unique as possible by including personal details.

  Search — Members can conduct searches for compatible members according to a substantial list of criteria, including gender, geographical proximity, availability of photos and interests. Search criteria can be saved for repeated use.

Website Data

Below is a list of each of our websites that had more than 100,000 registrants since its inception as of September 30, 2011. As of the nine months ended September 30, 2011, we had approximately 900 thousand subscribers.

Website
        Description
    Registrants
Since Inception
(in thousands)
AdultFriendFinder.com
           
Our most popular adult social networking and dating website.
         261,043   
Amigos.com
           
Spanish version of FriendFinder.com, translated into Spanish, Portuguese and English.
         58,137   
Cams.com
           
Adult content live interactive video website where members pay per minute to chat with models who broadcast on the website via their webcams.
         47,910   
AsiaFriendFinder.com
           
Chinese version of FriendFinder.com, features traditional and simplified Chinese character sets as well as an English interface.
         45,793   
FriendFinder.com
           
Website targeted toward singles looking for love, romance and marriage. Also includes many social networking aspects.
         17,666   
ALT.com
           
Alternative lifestyle personals website, catering to users with fetish, role-playing and other alternative sexuality interests.
         16,343   
GetItOn.com
           
Adult social networking and personals website where members from around the world log on to chat and view each other via their webcams.
         14,641   
OutPersonals.com
           
Adult-oriented dating website for gay men.
         8,080   
Penthouse.com
           
Premium content-based website with varying levels of access to Penthouse pictorials, articles, videos and live webcams shows with Penthouse Pets.
         4,935   
GradFinder.com
           
Alumni directory where members can contact friends from elementary school through college.
         3,453   
IndianFriendFinder.com
           
Indian version of FriendFinder.com, where users can narrow their searches by specific criteria, including language, religion, diet, and caste.
         3,395   
BigChurch.com
           
Christian dating website with searchable bible passages and daily bible chapter e-mails.
         2,578   
SeniorFriendFinder.com
           
Website targeted toward people over 40 years of age.
         2,420   
FrenchFriendFinder.com
           
French version of FriendFinder.com, translated into French and English.
         2,069   
FilipinoFriendFinder.com
           
Filipino version of FriendFinder.com, translated into Tagalog and English.
         2,049   
GermanFriendFinder.com
           
German version of FriendFinder.com, translated into German and English.
         1,494   

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Website
        Description
    Registrants
Since Inception
(in thousands)
NoStringsAttached.com
           
Adult Discreet Relationship Site
         1,481   
FastCupid.com
           
Social networking and personals website for dating, romance and friendship.
         1,343   
Bondage.com
           
World’s largest BDSM community
         1,274   
GayFriendFinder.com
           
Dating website for gay men.
         1,255   
ItalianFriendFinder.com
           
Italian version of FriendFinder.com, translated into Italian and English.
         1,176   
KoreanFriendFinder.com
           
Korean version of FriendFinder.com, translated into Korean and English.
         1,066   
Millionairemate.com
           
Dating website targeted toward like-minded people who understand that intelligence, success and drive are key elements to attraction.
         964    
stripshow.com
           
Low cost cams site which offers group viewing
         818    
JewishFriendFinder.com
           
Jewish dating website.
         640    
icams.com
           
Cams site dedicated to amateur videos
         499    
AllPersonals.com
           
Allows users to join multiple top personal sites at one time
         301    
Slim.com
           
Health and wellness website.
         148    
HotBox.com
           
Premium content-based website that allows members to search a database of adult movies by favorite actor or by category of movie.
         119    
 

Internet Privacy

Our privacy principles represent the continuing evolution of our long-standing commitment to consumer privacy. Our privacy principles related to our internet websites and services provide for consumer notice, choice and data security. Our privacy principles include:

  Notice. Users are provided meaningful notice about the information collected and used for internet related advertising. Users visiting our websites are provided notice via links to our privacy policies usually located on every one of our web pages and other methods of the types of individual information collected for advertising purposes, the technologies employed to collect such information, and how such information is used, including if applicable that other companies operate on the website and may collect such information.

  Choice. Users are provided with a choice on how certain information is used. We provide for an opt-out mechanism for e-mail advertising and members of our social networking websites have access to a control panel that allows them to make choices on the type of data that is stored on our servers or made available to the public or other members using our websites.

  Security. We strive to provide reasonable security for consumer data. Our security methods are based on the sensitivity of the data, the nature of the services provided, the types of risks related to such data and the reasonable protections available to us for practical implementation. We require our business service providers, such as credit card processors, to contractually maintain appropriate information security procedures based upon the sensitivity of the data and industry practices. We also ask registrants and members to provide their age and we review all member-generated content prior to its appearing on our websites.

  Responsiveness. Users have a readily accessible means to contact us to express concerns and complaints regarding privacy matters and we have a team associated with handling such concerns and complaints.

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  Most of our web pages have a link directly to a web based form for providing complaints to us for processing.

Live Interactive Video Websites

Our live interactive video websites, such as Cams.com, are a broadcast platform that enables models with a camera and a broadband internet connection to broadcast to an audience of users of any size. These websites represented approximately 27.3% of our net revenue for the nine months ended September 30, 2011. On these websites we offer an interactive webcam service where users can contact models, visually see them and communicate via on-screen text messaging or via webcam to webcam. The models broadcast from independent studios throughout the world to a group of our users. The models interact with a group of users until an individual user requests a private one-on-one experience at which time the per-minute usage charge begins and the screen is blocked to all but the user who is being charged. In some cases, other users are permitted to view the private session for a fee but not interact with the model. In addition to the pay-by-usage service, we offer subscription-based payment options that provide discounts on the pay-per-usage services. The majority of the revenues we generate from these websites are from users who may not be subscribers but provide a credit card for payment under the pay-by-usage plan. For the nine months ended September 30, 2011, we paid approximately 31% of the revenues derived from these websites to the studios that employ the models.

Premium Content Websites

We operate a number of websites with premium content, such as Penthouse.com and HotBox.com. These websites represented approximately 1.5% of our net revenue in the nine months ended September 30, 2011. Premium content is professionally-generated content as opposed to member-generated content. These websites provide subscribers and paid users access to our collection of more than 15,000 hours of professional video, which includes our library of more than 800 standard and high-definition full-length feature films. Our subscribers also have access to our collection of over one million professionally produced images. Additionally, subscribers have access to editorial content, chat rooms and other interactive features.

We believe that we are one of the few companies that produce high quality, high definition video productions available on the internet. In 2010, we averaged 75 high definition productions per calendar quarter using a combination of freelance and contract directors. Our programming is available on television in the United States, Latin America, Europe and Asia.

We derive revenue through third party license agreements for the distribution of our programming in which we may receive a percentage of the subscription fee paid by the customer, a percentage of the single program or title fee purchased by the customer, a fixed fee for the licensed program, or a combination of the above. Our fixed fee contracts may receive a fixed amount of revenue per title, group of titles or for a certain amount of programming during a period of time. Our studio group also realizes revenue through the sale of DVDs. We sell our productions in the retail DVD marketplace through distribution outlets that make DVDs available to retail outlets, internet stores, and mail order. We release an average of one new DVD title every week to the retail marketplace.

Technology Platform

We have developed a robust, highly scalable technology platform over the last ten years, which is supported by approximately 182 architects, programmers and designers as of September 30, 2011. Our proprietary technology platform operates on more than 2,000 internal network and storage devices and allows us to add new registrants and members and additional websites at a very low incremental cost. In addition, we have developed a wide array of technologies to support our affiliate program, our billing processes, content management and translation and for business analytics.

Our technology platform allows us to collect and sort a variety of data which permits us to monitor all areas of our business and increase the traffic and revenue to our websites. We collect and evaluate information related to the activity of the users on our websites, the nature of our users and the processing of information on our servers.

The data we collect concerning our users’ activities on our websites includes:

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•  number of users
           
•  number of registrants completing registration
•  number of paid subscriptions
           
•  number of messages sent
•  number of images uploaded
           
•  number of customer service requests
•  number of blogs created
           
•  number of videos uploaded and viewed
 

The data we collect concerning the nature of our users includes:

•  referring link/domain
           
•  referring affiliate/ad buy/traffic source
•  country
           
•  language
•  gender
           
•  email domain
 

Statistics monitored on a per-server basis include:

•  number of requests served
           
•  time spent per request
•  central processing unit utilization
           
•  memory utilization
•  disc utilization
                       
 

We have developed a substantial portfolio of technology-related intellectual property assets. Almost every aspect of our technology, including software code and network architecture, is developed in-house and designed to help optimize our website performance. For example, our content management system enables translation of our websites into a dozen languages or rebranding to address certain target or niche audiences, and our billing software quickly allows the addition of new billing sources.

With respect to marketing technologies, our in-house monitoring systems provide analytical tools during every stage of the “sales funnel” and help us to react quickly to changes in user or potential member behavior. Sophisticated live A-B testing in which we run controlled blind tests in different control groups enables us to determine how a website design element affects our business.

Finally, our in-house developed and maintained software also allows us to provide our third-party advertisers and affiliates with near real-time statistics so that they can monitor their performance and quickly make necessary adjustments. Similarly, we can provide these advertisers with a variety of improved business models based upon the efficiency of their traffic source.

Licensing of Penthouse Brand

We license the Penthouse name, logos, trademarks and artwork for the manufacture, sale and distribution of consumer products. Licensing represented approximately 0.7% of our net revenue in the nine months ended September 30, 2011. We work with our U.S. and international licensees to develop, market and distribute Penthouse-branded products, including books, apparel, accessories, lingerie, shoes and novelties. We have eight international editions of Penthouse magazine and its associated magazines and digests available in 13 countries. We continually seek to expand our licenses and products in new markets and retail categories both domestically and internationally.

We also license our Penthouse brand to 13 upscale gentlemen’s clubs and nightclubs. We actively seek to expand our location-based entertainment business, and we are in negotiations on a number of other locations in the United States, Europe and Asia. Our licensing arrangements require limited capital investment or expense on our part.

Magazine Publishing

Penthouse magazine and its related publications are our branded men’s lifestyle publications offering a combination of pictorials, editorial content and humor. We also publish several other adult-oriented magazines and digests. Magazine Publishing represented approximately 3.0% of our net revenue in the nine months ended September 30, 2011. We believe that Penthouse magazine plays a key role in driving the continued popularity and recognition of the Penthouse brand. Accordingly, in the past few years we made significant changes to Penthouse magazine in order to appeal to a wider customer base. We softened the magazine’s pictorial content to improve newsstand positioning and attract a wider national advertising base, and we added editorial content covering sports, music, video and gaming in order to attract additional categories of advertisers and new readers, primarily targeting

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21 to 39 year old males. This resulted in the magazine re-entering sales channels in retail establishments. Our advertising base has expanded to now include tobacco, liquor, apparel, footwear, toiletries, men’s grooming, consumer products and direct-response companies.

Broadcasting

We produce professionally generated original adult video and pictorial content in high-definition and standard definition formats, which in addition to providing superior quality resolution on our websites, gives us the flexibility to convert the content into different media and market it through a wide range of broadcast distribution channels including cable, satellite, internet protocol television, or IPTV, DVDs and mobile devices. Broadcasting accounted for 2.9% of our net revenue in the nine months ended September 30, 2011. We operate three high-definition channels by satellite serving Europe and the Middle East. These channels are also available via terrestrial cable and IPTV.

Payment for Our Internet Products and Services

We derive our revenue primarily from subscriptions. Our users can purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions that give them access to all members’ full profile information and the ability to contact other members in one-on-one e-mail correspondence. During the years ended December 31, 2010 and 2009, our monthly ARPU across our subscriber base was $20.49 and $20.55, respectively. Monthly subscription fees and ARPU tend to be lower on our non-adult-oriented or general interest websites. All subscriptions are charged in advance and we recognize the revenue over the terms of such subscriptions. Subscribers on a majority of our websites can upgrade their subscription level for an additional cost in order to have access to additional features and content. On average, our subscribers maintain their subscriptions for approximately six months.

On our live interactive video websites, our users are primarily paid users who purchase products and services on a pay-by-usage basis, and some users pay a monthly fee for access to the websites. During the years ended December 31, 2010 and 2009, these websites averaged a usage fee of $3.90 and $3.49 per minute, respectively, and ranged from $0.99 to as high as $9.99 per minute, as determined by the studio producing the video. The paid users purchase minutes in advance of their use and draw down on the available funds as the minutes are used.

Our internet-based business does not carry customer receivables on the balance sheet since our products and services are paid for in advance. Subscribers pay for products and services on our websites using several payment methods including credit card and non-credit card payments, such as preauthorized bank account debiting, regular bank transfers, e-money and mobile phone payments. As of September 30, 2011, credit card payments represented approximately 94.6% of our total payments while other payment methods represented 5.4% of our total payments, which we consider to present a significant opportunity for growth. We have maintained long-standing relationships with merchant banks and have more than 20 merchant bank accounts. Our technology platform includes proprietary anti-fraud measures to protect us against unauthorized use of credit cards and fraudulent activity on our websites. As a result, at September 30, 2011, our credit card chargeback rate was approximately 0.9% of the transactions processed and the reserves the banks require us to maintain approximately 2.0% of our total net revenues.

Internet Product and Feature Development

We believe we are at the leading-edge of creating, implementing and commercializing advanced features and product enhancements to our websites. We continually evaluate and add features to our websites to improve our users’ experience. New features and designs are tested on a statistically significant sample of our user base, and features and designs are released to the entire user base only after satisfactory results are achieved. We believe the release of new features and designs results in new registrants and members, increased member loyalty, the purchase of additional services on our websites, and increased visitation and utilization of our other websites and services.

Marketing

Our marketing primarily consists of our marketing affiliates program and online advertising.

Marketing Affiliates Program

Our marketing affiliates are companies that operate websites that market our services on their websites. Our affiliates’ websites cover a wide range of content and interests. Our affiliates direct visitor traffic to our websites

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by using our technology to place banners or links on their websites to one or more of our websites. When a visitor to an affiliate’s website clicks on the banner or link, the visitor will be directed to one of our websites. In addition, we maintain more than 47,000 private label websites for our affiliates that provide a seamless, turnkey outsourced solution using our technology platform for social networking and live interactive video websites. Many of these websites have the look and feel of the affiliate’s website with the affiliate’s logo and website name but are operated by us. Users who click through the affiliate’s website are tagged with the affiliate’s identifier that tracks the user to calculate the payment due to the affiliate. Private labeling allows our affiliates to preserve their brand while generating revenue for us. Generally our websites have different programs from which our affiliates may derive revenue.

Our affiliates may derive revenue based on:

  a percentage of revenue generated and collected;

  per registrant or member; and

  per subscriber.

With more than 280,000 participants registered in our affiliate marketing program, we believe our affiliate network is one of the largest in the world and one of the highest paying programs in the industry. We do not typically have exclusive arrangements with our affiliates and some of our affiliates may also be affiliates for our competitors. We provide our affiliates with daily updated statistics, bi-monthly payments and technical support. Our affiliates are required to comply with a strict code of conduct, including a strict prohibition on spam and spyware and mandated compliance with our regulatory restrictions. We believe that as a result of these policies, the quality of our visitor traffic is enhanced.

Online Advertising

Another method we use for marketing our websites is by purchasing prepaid advertising, or ad buys, which consists primarily of pay-per-click keyword advertising on major search engines and advertising on third party websites via banner advertisements and ad networks. Through the use of our technology, we analyze returns and estimate the long-term revenue that a particular advertising program will generate after only a few days of monitoring traffic. This allows us to test different text, formats, placements and graphics relating to marketing programs on a cost effective basis, where we are able to analyze activity, estimate results and quickly and efficiently make changes to the program if necessary.

FriendFinder Ventures Inc.

Our subsidiary FriendFinder Ventures Inc., a startup entity formed in December 2010, focuses on strategic relationships and investment opportunities in online, gaming, mobile and software based companies. In addition to pursuing investment opportunities, FriendFinder Ventures Inc. also focuses on entering into strategic relationships and offering its expertise to companies ranging from those already in operation to new start ups in the areas of revenue enhancement, technology and infrastructure, user experience, recruiting and exploring financial opportunities. No investments have been made to date by FriendFinder Ventures Inc.

Competition

As an internet-based social networking and multimedia entertainment company we operate in several submarkets within a highly competitive but fragmented industry. We compete with a number of large and small companies that provide a range of internet products and services including adult-oriented communities and adult content websites, general audience communities and internet personals websites. We believe that the primary competitive factors in social networking and online communities are functionality, brand recognition, member affinity and loyalty, ease-of-use, quality of service, reliability and critical mass. We believe the primary competitive factors in our entertainment segment is brand recognition, video and pictorial content. While our management does not believe there is another company with whom we compete across all the areas of our business, we tend to compete with companies in four categories, with some overlap among these categories:

  Social Networking Websites — Unlike most other social networking websites which are free, we have a paid subscription-based business model, which we believe is a significant competitive advantage. Our

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  adult-themed community websites from which the majority of our revenue and earnings are derived, including AdultFriendFinder.com, do not directly compete with other general interest social networking websites because of the adult nature of the content. Our general audience websites, which contribute substantially less of our revenue and earnings, compete with other companies offering social networking websites such as MySpace, Inc., Facebook, Inc. and Friendster, Inc. Our general audience websites provide a wide range of social networking tools including blogs, chatrooms and messaging similar to our competitors. We also believe that a significant advantage to our websites is the ease with which members meet other members who were not known to them prior to joining our network.

  Internet Personals Websites — We compete with certain elements of the internet personals business provided by companies including Match.com, L.L.C., Yahoo!Personals, a website owned and operated by Yahoo! Inc., Windows Live Profile, run by Microsoft Corporation, eHarmony, Inc., Lavalife Corp., Plentyoffish Media Inc. and Spark Networks Limited websites, including jdate.com, americansingles.com and relationships.com, as well as companies offering adult-oriented internet personals websites such as Cytek Ltd., the operator of SexSearch.com, and Fling Incorporated.

  Adult Audience Websites — We compete with many adult-oriented and live interactive video websites, such as RedTube.com, Pornhub.com, YouPorn.com, Playboy.com and LiveJasmin.com. These websites are largely distinguished by the quality of the video and the quantity and caliber of the video content. We continue to seek to be at the forefront of video technology by seeking to offer our users the best available experience. As adult content receives wider mainstream acceptance, we expect our websites to benefit from an increased volume of member-generated content that will enhance our large library of adult content which is frequently updated and refreshed.

  Adult Entertainment Providers — We compete with other publishers of branded men’s lifestyle magazines, such as Maxim and Playboy, and we compete with other producers of adult pictorial and video content, such as Playboy Enterprises Inc., tmc Content Group AG and Total Media Agency.

Intellectual Property

Our Penthouse mark has been in use since 1965 and is a globally recognized brand in the adult entertainment industry. Through continuous and widespread use, we have developed strong trademark rights or brand recognition in numerous trademarks, including Penthouse Forum, Penthouse Variations, Penthouse Letters, the One Key Logo and Three Key Logo, Pet Of The Year, Pet Of The Month and Penthouse Pet, as well as the AdultFriendFinder, FriendFinder, ALT.com, Bondage.com, OutPersonals.com and FriendFinder trademarks used in our internet social networking and online personals business. We have developed the “FriendFinder” service mark and its many variations, including AdultFriendFinder, SeniorFriendFinder, FrenchFriendFinder, Asia FriendFinder and India FriendFinder.

We currently own and maintain approximately 100 U.S. trademark registrations and applications and more than 950 foreign trademark registrations and applications. We have generated very large volumes of written, visual and audiovisual content, including over one million photographic images. We own and maintain hundreds of U.S. copyright registrations covering our magazines and videos. As our intellectual property assets are one of the keys to our continued growth and success, we enforce our rights against infringers as is reasonably prudent. We regularly evaluate and grant requests to license our brands and content and participate in other commercial ventures by contributing trademark and content licenses.

We devote substantial resources to the establishment, protection and enforcement of our trademarks and other proprietary rights. However, our actions to establish, protect and enforce our trademarks and other proprietary rights may not prevent imitation of our products, services or brands or control piracy by others or prevent others from claiming violations of their trademarks and other proprietary rights by us. There are factors outside of our control that pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in every country in which our products and services are distributed or made available through the internet. We are, from time to time, subject to claims of infringement of third party patents and trademarks and other violations of third party intellectual property rights. Any infringement or related claims, even if not meritorious, may be costly and time-consuming to litigate, may distract our management from other tasks of

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operating the business and may result in the loss of significant financial and managerial resources, which could harm our business, financial condition or operating results. If we are not successful in defending against such claims, our financial condition or operating results would be materially adversely affected.

Successful claims against us could also result in us having to seek a license to continue our practices, which may significantly increase our operating burden and expenses, potentially resulting in a negative effect on our business, financial condition and results of operations and such license may not be offered to us at all, which could severely restrict or hinder our business and impact the value of our business.

Employees

As of September 30, 2011, we had approximately 524 full-time employees and six part-time employees, none of whom is represented by a collective bargaining agreement. We believe we maintain a satisfactory relationship with our employees.

Properties

Our headquarters are in Boca Raton, Florida. As of September 30, 2011, our principal offices consisted of the following properties:

Location/Principal Use
        Square Feet
    Lease Expiration Date
Sunnyvale, California — internet
                 50,112       
October 31, 2015
Los Angeles, California — entertainment
                 35,400       
April 30, 2014
New York, New York — entertainment
                 16,431       
January 31, 2019
Boca Raton, Florida — corporate administrative offices
                 8,533       
December 31, 2015
Las Vegas, Nevada — internet
                 6,976       
December 31, 2012
 

We believe that our properties are in good operating condition and adequately serve our current business operations. We also anticipate that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable terms for future expansion.

Government Regulation

We are subject to a number of foreign and domestic laws that affect companies conducting business on the internet. In addition, laws relating to user privacy, freedom of expression, content, advertising, information security, internet obscenity and intellectual property rights are being considered for adoption by many countries throughout the world. We face risks from some of this proposed legislation that could be passed in the future.

In the United States, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, which include actions for libel, slander, invasion of privacy and other tort claims, unlawful activity, copyright and trademark infringement and other theories based on the nature and content of the materials searched, the ads posted or the content generated by users. Certain foreign jurisdictions are also testing the liability of providers of online services for activities of their users and other third parties. Any court ruling that imposes liability on providers of online services for activities of their users and other third parties could expose us to liability.

A range of other laws and new interpretations of existing laws could have an impact on our business. For example, the Digital Millennium Copyright Act has provisions that limit, but do not necessarily eliminate, our liability for listing, linking or hosting third-party content that includes materials that infringe copyrights. Portions of the Communications Decency Act are intended to provide statutory protections to online service providers who distribute third-party content. We rely on the protections provided by both the Digital Millennium Copyright Act and Communications Decency Act in conducting our business. Any changes in these laws or judicial interpretations narrowing their protections will subject us to greater risk of liability and may increase our costs of compliance with these laws or limit our ability to operate certain lines of business. The Children’s Online Privacy Protection Act restricts the ability of online services to collect information from children under 13. In the area of data protection, many states have passed laws requiring notification to users when there is a security breach for personal data, such as California’s Information Practices Act. The costs of compliance with these laws may increase in the future as

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interpretations change. Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities.

Similarly, the application of existing laws prohibiting, regulating or requiring licenses for certain businesses of our advertisers, including, for example, online gambling, distribution of pharmaceuticals, adult content, financial services, alcohol or firearms, can be unclear. Application of these laws in an unanticipated manner could expose us to substantial liability and restrict our ability to deliver services to our users.

We also face risks related to investigations and prosecutions involving our adult content. Current or future government officials may choose to increase enforcement of obscenity laws and government officials could also change or interpret current laws in a manner that is unfavorable to our business. U.S. government officials could amend or construe and seek to enforce more broadly or aggressively the adult content recordkeeping and labeling requirements set forth in 18 U.S.C. Section 2257 and its implementing regulations in a manner that is unfavorable to our business. In addition, court rulings may place additional restrictions on adult content affecting how people interact on the internet, such as mandatory web labeling.

We also face risks relating to government failure to preserve the internet’s basic neutrality as to the services and websites that users can access through their broadband service providers, as governments can arbitrarily choose to block websites. Such a failure to enforce network neutrality could limit the internet’s pace of innovation and the ability of large competitors, small businesses and entrepreneurs to develop and deliver new products, features and services, which could harm our business.

We are also subject to federal, state and foreign laws regarding privacy and protection of user data. We post on our website our privacy policies and practices concerning the use and disclosure of user data. Any failure by us to comply with our posted privacy policies or privacy-related laws and regulations could result in proceedings against us by governmental authorities or others, which could potentially harm our business. In addition, the interpretation of data protection laws, and their application to the internet, in the United States, Europe and other foreign jurisdictions is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways from country to country and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Further, any failure by us to protect our users’ privacy and data could result in a loss of user confidence in our services and ultimately in a loss of users, which could adversely affect our business.

In addition, because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required to comply with their laws, even where we have no local entity, employees or infrastructure.

Legal Proceedings

We are currently a party to several legal proceedings, including the ones discussed below. Management presently believes that the ultimate outcome of these pending proceedings will be favorable to us. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting us from selling one or more services or conducting enjoined activities. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the business or results of operations for the period in which the ruling occurs or future periods.

On December 28, 2007, Broadstream Capital Partners, Inc., or Broadstream, filed a lawsuit against us in the State Superior Court of California, County of Los Angeles, Central District, and we subsequently removed the case to the Federal District Court for the Central District of California. The complaint alleged, among other matters, breach of contract, breach of covenant of good faith and fair dealing, breach of fiduciary duty and constructive fraud arising out of a document entitled “Non-Disclosure Agreement”. The complaint sought, among other things, that Broadstream entered into a Non-Disclosure Agreement with us that required Broadstream’s prior written consent for us to knowingly acquire Various or any of its subsidiaries and that such consent was not obtained. The complaint sought damages which Broadstream alleged to be in excess of $20.0 million, plus interest, costs and punitive damages. Broadstream later asserted up to $557.0 million in damages plus punitive damages. On July 20, 2009, we entered into an agreement with Broadstream under which, without admitting liability and in addition to paying

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Broadstream $3.0 million dollars, after January 20, 2011, but no later than January 20, 2012, Broadstream had to choose either to (i) refile its complaint in Federal District Court provided that it first repay us the $3.0 million or (ii) demand arbitration. If Broadstream were to elect arbitration, the parties agreed that there would be an arbitration award to Broadstream of at least $10.0 million but not more than $47.0 million. In December 2010, Broadstream elected arbitration and as a result, we recognized a loss in connection with the matter of $13.0 million as of December 31, 2010. The mediation was held on April 14, 2011 and resulted in an impasse. On July 6, 2011, we entered into a settlement agreement with Broadstream that obligates us to pay Broadstream a total of $15 million, in three installments of $8.0 million, $5.0 million and $2.0 million, the first two of which were due on July 13, 2011 and September 29, 2011 and have been paid and the third of which is due on January 2, 2012.

On December 23, 2005, Robert Guccione, our former president, filed an action against us and some of our current officers, among other defendants, in New York State Court for breach of contract, fraud, unjust enrichment, promissory estoppel, failure to pay severance and conspiracy to defraud. The amount of damages requested in the complaint against us is approximately $9.0 million and against the officers is in excess of $10.0 million. Some of the counts in the complaint also demand an unspecified amount of damages. Mr. Guccione filed an amended complaint on June 5, 2007 to include additional claims relating to ownership of certain United Kingdom, Jersey and Guernsey trademarks and added Penthouse Publications Limited, an entity with no current affiliation with us, as party plaintiff. Mr. Guccione agreed to dismiss the count for conspiracy to defraud only. Mr. Guccione filed a second amended complaint on December 14, 2007 adding General Media International, Inc., an entity with no current affiliation with us, as party plaintiff and a new claim for inducement to breach a contract. We filed our motion to dismiss the second amended complaint on January 31, 2008, which was granted in part and denied in part. The court dismissed the claims for unjust enrichment and promissory estoppel. On August 14, 2008, Mr. Guccione filed a voluntary petition for Chapter 7 bankruptcy. Mr. Guccione filed a dismissal of the bankruptcy proceedings on November 4, 2009. The Court dismissed the bankruptcy action on November 9, 2009. The settlement agreement between Mr. Guccione and his judgment creditors assigns all rights to the New York state court action to his judgment creditors. The New York state court action has now resumed. On January 8, 2010, we filed an amended answer with counterclaims against Guccione and Penthouse Publications Limited for conversion, breach of fiduciary duty, declaratory relief and indemnification. No specific amount of damages has been requested in the counterclaims. In January and February 2010, certain defendants filed their answers to Plaintiff’s Second Amended Complaint with cross claims against us for contribution and indemnification. No specific amount of damages has been requested. We filed answers and affirmative defenses to the cross-claims in February and March 2010. Mediation was set for November 2010; however, Mr. Guccione passed away in October 2010. On November 1, 2011, the Court substituted the personal representative of the Estate of Robert Guccione as the Plaintiff. On November 14, 2011, the Court ordered the parties to attend a status conference on January 18, 2012 and to participate in mediation before January 31, 2012. We and our officers believe that we have meritorious defenses to all claims and intend to vigorously defend the lawsuit and prosecute the counterclaims.

On November 28, 2006, Antor Media Corporation, or Antor, filed a complaint against us, our subsidiary, General Media Communications, Inc., and several non-affiliate media/entertainment defendants in the U.S. District Court for the Eastern District of Texas, Texarkana Division, alleging infringement of U.S. Patent No. 5,734,961 entitled “Method and Apparatus for Transmitting Information Recorded on Information Storage Means from a Central Server to Subscribers via a High Data Rate Digital Telecommunications Network.” No specific amount of damages has been requested, and injunctive relief was sought. We and our subsidiary filed an answer, affirmative defenses and counterclaims. In a separate patent reexamination proceeding before the United States Patent and Trademark Office (“USPTO”) that was filed by third parties sued by Antor, the USPTO issued a non-final office action rejecting Antor’s patent claims. Antor filed a response to the office action which added 83 new claims to the original 29 rejected claims. In August 2008, the USPTO issued its final office action, sustaining the rejection of Plaintiff’s original 29 claims and rejecting the 83 new claims. Antor filed its Petition to Vacate Finality of Office Action, on the grounds it introduced new grounds of rejection. Based on the final office action in the reexamination proceeding, we filed an expedited motion to stay the lawsuit. In December 2008, pursuant to an order granting a second reexamination proceeding filed by a third party, the USPTO issued a non- final office action again rejecting the original 29 claims of the patent and the 83 new claims. The two reexamination proceedings were ultimately merged. In February 2009, Plaintiff filed a response in which it agreed to cancel the 83 new claims previously proposed. On May 11, 2009, the Court entered an Order granting Defendants’ Motion to Stay the lawsuit as modified.

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On May 22, 2009, the defendants accepted the terms of the Court’s proposed Stipulation regarding the use of prior art at trial and filed their Stipulation. On June 5, 2009, the USPTO issued a Final Office Action in the merged reexamination proceeding, rejecting all of Plaintiff’s claims. Plaintiff filed an appeal in the reexamination proceeding on July 7, 2009 and an appellate brief on October 8, 2009. On October 21, 2010 the USPTO Board of Patent Appeals (the “Board”) entered an order in the reexamination proceeding affirming the rejection of Antor’s claims. On December 21, 2010, Antor filed a request for rehearing before the Board. On March 23, 2011, the Board denied Antor’s request for rehearing. On May 23, 2011, Antor filed its Notice of Appeal of the Board’s October 21, 2010 decision rejecting its claims. The case will remain stayed pending the appeal. On September 28, 2011, Antor filed its Appeal Brief. The USPTO filed its brief in response to Antor’s Appeal Brief on December 12, 2011. Antor’s brief in reply is due on December 29, 2011. We and our subsidiary believe that we have meritorious defenses to all claims and intend to vigorously defend the lawsuit.

On or about November 27, 2006, John Fithian filed a consumer class action arbitration at Judicial Arbitration and Mediation Services, Inc., or JAMS, in San Jose, California, alleging a nationwide class action against our subsidiary Various, Inc. under a variety of legal theories related to, among other things, representations regarding the number of active users on its internet dating websites, causing the appearance of erroneous member profiles, and a failure to adequately remove or account for alleged erroneous member profiles. The claimant is seeking unspecified damages. Claimants moved for class certification on December 6, 2010. We dispute the claims and intend to defend the arbitration vigorously.

After our acquisition of Various, Inc. in December 2007, we became aware that Various, Inc. had not collected VAT from subscribers in the European Union nor had Various, Inc. been paying VAT to the appropriate tax jurisdictions. As of December 31, 2010, the total amount of historical uncollected VAT payments was approximately $39.4 million, including approximately $19.5 million in potential penalties and interest. However, the resulting liability for such omissions has yet to be determined and there can be no assurance that we will reach a favorable outcome with the tax jurisdictions. We have registered effective July 1, 2008 with the tax authorities of the applicable jurisdictions and effective July 29, 2008 have begun collecting VAT from our subscribers in the European Union. We have initiated discussions with most of these tax jurisdictions on resolving the liability and we have come to a resolution with respect to the liability in certain tax jurisdictions but there can be no assurance that we will reach a favorable accommodation with all of these tax jurisdictions. If we are unable to reach a favorable accommodation with these tax jurisdictions, the terms of the payment of these liabilities could adversely affect our financial condition. On June 10, 2009, the United Kingdom taxing authority notified us that it had reversed its previous position and that we are not subject to VAT in the United Kingdom in connection with providing internet services. Certain member states, including the United Kingdom, have ruled that we are not required to register and account for VAT in their jurisdiction. There can be no assurance that the tax authorities of these jurisdictions will not, at some point in the future, revise their current position and require us to register and account for VAT. Our primary recourse to the sellers for any losses suffered by us as a result of such liabilities (VAT-related or otherwise) was to offset the principal amount of the Subordinated Convertible Notes by the amount of any such losses. On October 14, 2008, we made an indemnity claim against these notes under the acquisition agreement for Various in the amount of $64.3 million due to working capital adjustments resulting from the VAT liability which was not disclosed at the closing of the acquisition. The sellers have denied responsibility for the VAT liability. On October 8, 2009, we settled and released all indemnity claims against the sellers (whether claims are VAT related or not) by adjusting the original principal amount of the Subordinated Convertible Notes to $156.0 million. In addition, the sellers agreed to make available to us, to pay VAT and certain VAT-related expenses, $10.0 million held in a working capital escrow established at the closing of the Various transaction. On November 17, 2009, we filed a lawsuit against Grant Thornton LLP and two individuals who worked for Grant Thornton LLP in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, alleging accounting malpractice arising from the defendants’ failure to advise of the VAT issue as part of its provision of pre-acquisition due diligence services conducted on acquisition targets Various, Inc., its subsidiaries and certain affiliates. On August 17, 2010, we filed an Amended Complaint. On December 3, 2010, we filed a Second Amended Complaint. Grant Thornton LLP and the two individuals moved to dismiss this case. The Court denied portions of Defendants’ Motion to Dismiss on April 1, 2011 and entered its Order on May 9, 2011. On April 25, 2011, the Defendants filed a Motion for Reconsideration. On June 21, 2011, the Court denied Defendants’ Motion for Reconsideration. The Court set an evidentiary hearing on the issue of personal jurisdiction on its September/October 2011 trial calendar. On October 18, 2011, the Court

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made an oral ruling granting the individual Defendants’ Motion to Dismiss. The Court filed its written Order on November 29, 2011. On November 17, 2010, we filed a substantially similar lawsuit in the Supreme Court of the State of New York. On August 29, 2011, the Defendants filed their Answer and Affirmative Defenses in the New York lawsuit.

On or about March 26, 2009, Kevin Cammarata filed a complaint against our subsidiary FriendFinder California, Inc. and other defendants in the State Superior Court of California, County of Los Angeles in connection with their advertising on a free adult content website run by a third party known as Bright Imperial Limited. In April 2009, we and our subsidiary Various, Inc. were added as defendants. The complaint alleges that the defendants aided and abetted Bright Imperial Limited in engaging in below cost competition and unlawful use of “loss leaders” in violation of California law by providing free, apparently professionally produced adult content. The plaintiff is seeking $10.0 million in damages, trebled to at least $30.0 million, plus injunctive relief and attorneys’ fees. On May 8, 2009, the Court denied the Plaintiff’s request for an Order to Show Cause concerning its request for preliminary injunction, citing insufficient evidence among other factors. On May 26, 2009, we filed an “Anti-SLAPP” Motion to Strike the Complaint along with a Motion to Dismiss the claims in the Complaint. On or about July 24, 2009, Plaintiff stipulated to the form of an Order on the Anti-SLAPP Motion that finds in favor of us, effectively terminating the case. On August 10, 2009, Plaintiff filed his Notice of Appeal. In January 2011, the Order was affirmed by the appellate court.

On May 19, 2009, representatives for Summit Trading Limited, or Summit, sent a letter to our outside legal counsel, alleging that we, Interactive Brand Development, Inc. (a holder of our common stock) and entities affiliated with Marc Bell and Daniel Staton defrauded Summit of financial compensation for services provided to our predecessor entity, General Media Inc. Among other claims, Summit asserted bad faith breach of contract and fraud by our management and us, and claimed it is owed an equity interest in us, as well as compensatory, punitive and exemplary damages in excess of $500.0 million. No legal action has been taken to date by Summit against us. We believe that the allegations stated in the letter are vague and lack factual basis and merit. Should Summit take legal action, we would vigorously defend the lawsuit.

On November 16, 2010, Patent Harbor, LLC filed a complaint for patent infringement against, among others, Penthouse Digital Media Productions Inc. (“PDMP”), in the U.S. District Court for the Eastern District of Texas. The complaint alleges an infringement of U.S. Patent No. 5,684,514 (the “514 Patent”) issued for an invention entitled “Apparatus and Method for Assembling Content Addressable Video”. No specific amount of damages has been requested. However, on November 16, 2010, we received a settlement demand from Plaintiff in the amount of $800,000, which was lowered to $500,000. On January 28, 2011, we filed an answer, affirmative defenses and counterclaims. On February 25, 2011, Patent Harbor, LLC filed an answer to our counterclaims. On August 10, 2011, Patent Harbor, LLC filed its Answer and Affirmative Defenses to our amended counterclaim. On October 4, 2011, the Markman Hearing was held, and the parties await the Court’s decision. Patent Harbor, LLC filed an Amended Complaint on October 11, 2011. On November 3, 2011, the parties entered into a settlement agreement whereby PDMP agreed to pay Patent Harbor, LLC $80,000 in exchange for a license agreement for use of the 514 Patent. The first installment of $40,000 was paid on November 15, 2011 and Patent Harbor, LLC dismissed PDMP from the lawsuit on that day. The second installment of $20,000 was paid on December 15, 2011 . The final installment of $20,000 will be paid on January 17, 2012.

On April 13, 2011, Facebook, Inc., or Facebook, filed a complaint against us and certain of our subsidiaries in the U.S. District Court for the Northern District of California, alleging trademark infringement with regard to the use of the terms “face book of sex”. The Complaint contains causes of action for: trademark dilution, false designation of origin, trademark infringement, violation of the Anti-Cybersquatting Consumer Protection Act, and for unfair competition. The Complaint also seeks a declaratory judgment that Facebook’s use of “friend finder” on its website is a descriptive fair use that does not infringe Various’ trademark rights in the “FRIENDFINDER” mark. No specific amount of damages has been sought. However, the Complaint requests monetary relief, injunctive relief, punitive damages, cancellation of the “FRIENDFINDER” marks, attorneys’ fees, other equitable relief, and costs among other things. On May 23, 2011, the Company, and its subsidiaries, filed their Answer, Affirmative Defenses and Counterclaims to the Complaint. On June 16, 2011, Facebook filed its Answer and Affirmative Defenses to the Counterclaims. The court held a case management conference on September 29, 2011 and ordered the parties to attend mediation by January 2012. A settlement conference was held on November 4, 2011. The parties

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are currently in the process of negotiating a final settlement agreement. On November 7, 2011, the Court approved the Joint Stipulation for Stay and all deadlines in the litigation are stayed pending the negotiation of the final settlement agreement.

On November 11, 2011, a putative shareholder class action was filed in the United States District Court for the Southern District of Florida by Greenfield Childrens Partnership, on behalf of investors who purchased our common stock pursuant to our initial public offering, against us, Ladenburg Thalmann & Co., Inc. and Imperial Capital LLC, the underwriters in our initial public offering, and our directors and certain of our executive officers. The complaint alleges, among other things, that our initial public offering documents contained certain of our false and misleading statements and seeks an unspecified amount of compensatory damages. We believe that we have meritorious defenses to all claims and intend to vigorously defend the lawsuit. We were served with the lawsuit on December 1, 2011 .

We believe there are currently no litigation or legal or administrative proceedings, including the ones described above, pending against us that are likely to have, individually or in the aggregate, a material adverse effect on our business or our results of operations. As described before, we recognized a loss of $13.0 million in connection with the Broadstream arbitration and ultimately entered into a settlement agreement with Broadstream on July 6, 2011, which obligates us to pay Broadstream a total of $15.0 million. The settlement agreement obligation, however, does not constitute a breach of our covenants under our Senior Secured Notes, Cash Pay Notes and Non-Cash Pay Notes resulting in an event of default.

Our New Financing

On October 27, 2010, we issued new debt to repay our then existing debt, which we refer to as the New Financing. We, along with our wholly-owned subsidiary Interactive Network, Inc., or INI, co-issued $305.0 million principal amount of Senior Secured Notes, $13.8 million of Cash Pay Notes, and $232.5 million of the Non-Cash Pay Notes.

Our Initial Public Offering

On May 16, 2011, we issued 5,000,000 shares of common stock at a price of $10.00 per share and completed our initial public offering. We raised gross proceeds of $50.0 million, less underwriting fees and commissions of 7.25% of the gross proceeds, or $3.6 million, and incurred other offering expenses of $2.9 million to be paid from the proceeds of the offering, resulting in $43.5 million of net proceeds. In addition, we had incurred and paid as of December 31, 2010, $13.3 million of offering costs, which were included in deferred offering costs in the accompanying balance sheet at December 31, 2010 and written off by a charge to capital in excess of par value in the quarter ended June 30, 2011.

On May 19, 2011, we redeemed $37,832,000 of our Senior Secured Notes and $1,709,000 of our Cash Pay Notes for a total of $39,541,000 principal amount of New Financing Notes redeemed from the net proceeds of our IPO and incurred a loss on extinguishment of debt estimated to be approximately $7.3 million. As of September 30, 2011, the outstanding principal amounts of the Senior Secured Notes, Cash Pay Notes and Non-Cash Pay Notes were $235.3 million, $10.6 million and $250.9 million, respectively.

Recent Developments

In July 2011, we acquired, through one of our subsidiaries, PerfectMatch.com, an online relationship service helping adults seeking successful, lasting connections. We paid approximately $2.5 million in cash and stock to acquire the assets of the website. PerfectMatch.com uses the Duet® Total Compatibility System, a system which analyzes the “whole person” to find friends, taking into account each member’s personality, values and ideals, life and love-style preferences to identify and find the person right for them. The acquisition of this website and related assets adds to our portfolio of general audience social networking websites.

In September 2011, we acquired, through one of our subsidiaries, BDM Global Ventures Ltd., the company which owns the operations of JigoCity. The acquisition was completed pursuant to an Agreement and Plan of Merger entered into on September 7, 2011 among us, JGC Holdings Limited, our wholly-owned subsidiary, BDM Global

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Ventures Limited, which we refer to as BDM, Global Investment Ventures LLC and Anthony R. Bobulinski, which we refer to as the Merger Agreement. Under the terms of the Merger Agreement, the shareholders of BDM, in exchange for their outstanding shares and options in BDM and its subsidiaries, received merger consideration consisting of 1,555,555, shares of our common stock, 500,000 of which will be held in escrow until no later than December 31, 2012, and warrants exercisable into 6,436,851 shares of our common stock with exercise prices ranging from $5-$18 per share with an expiration date of December 31, 2021. Pursuant to an equity put agreement we entered into, the shareholders of BDM have the option to sell all of the shares of our common stock and warrants issued as merger consideration back to us in exchange for the return of 70% of the equity in BDM if the volume-weighted average price of our common stock fails to equal or exceed $12.00 per share during any 10 trading day period principally between the closing date and the later of June 30, 2014 and the date upon which our current indentures are fully discharged, or if an “indenture modification” is made, as defined in the equity put agreement, the later of June 30, 2014 and the date the indenture modification takes place (the later date hereinafter referred to as the “Vesting Date”). The equity put agreement provides that the put right shall become exercisable at the sole discretion of the shareholders’ appointed representative during the period commencing on the Vesting Date and expiring sixty (60) days thereafter. Additionally, if the shareholders of BDM exercise the put right, we have the right to pay them in our common stock and/or cash, having a combined value as of the later of the above dates equal to the product of (i) 2,209,414 shares of common stock (subject to dilutive adjustment) and (ii) the difference between the highest 10 day volume-weighted average price attained by our common stock during such period and $12.00, in which case the put right terminates. Pursuant to a registration rights agreement, we also granted demand registration rights under certain circumstances, with respect to the shares of our common stock and warrants issued as merger consideration. JigoCity is a global social commerce organization committed to providing members with high quality daily deals that are relevant to their individual lifestyles. The acquisition of JigoCity adds to our portfolio a social commerce company and what we believe will be an additional avenue to monetize our foreign markets.

Our Corporate Information

Our executive offices are located at 6800 Broken Sound Parkway, Suite 200, Boca Raton, Florida 33487 and our telephone number is (561) 912-7000. Our website address is www.ffn.com. The information contained in, or accessible through, our website is not part of this prospectus.

67



MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is listed and posted for trading on NASDAQ under the trading symbol “FFN.” Our common stock commenced trading on NASDAQ on May 11, 2011. On December 1 5 , 2011, the last reported sales price of our common stock on NASDAQ was $ 0. 59 per share.

The following table sets forth, for the periods indicated, the high and low per share sale prices of our common stock, as reported by NASDAQ.

        Price Range of Common Stock
   
        High
    Low
2011
                                      
Second Quarter (commencing May, 11, 2011)
              $ 10.01          $ 3.61   
Third Quarter (through September 30, 2011)
              $ 5.22          $ 1.81   
Fourth Quarter (through December 1 5 , 2011)
              $ 2.20          $ 0. 59   
 

As of December 14 , 2011, there were 31,219,644 shares of our common stock issued and outstanding and we had 68 registered stockholders of record.

We have never paid or declared dividends on our common stock. Furthermore, we are prohibited by the provisions in our Indentures, on declaring dividends. In addition we expect that any future credit facility will contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. We do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future, as we currently plan to retain any earnings to fund our future growth and repay existing indebtedness. Payments of any cash dividends in the future, however, is within the discretion of our board of directors and will depend on our financial condition, results of operations and capital and legal requirements as well as other factors deemed relevant by our board of directors.

Equity Compensation Plan Information Table

The following information is with respect to our 2008 Stock Option Plan and 2009 Restricted Stock Plan for the fiscal year 2010.

Plan Category
        Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
    Weighted-average
exercise price of
outstanding options,
warrants and
rights
    Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column (a))
        (a)
    (b)
    (c)
Equity compensation plans approved by security holders
                                              
Equity compensation plans not approved by security holders
                 551,750 (1)         $ 10.00             1,186,122 (1)  
Total
                 551,750 (1)         $ 10.00             1,186,122 (1)  
 


(1)
  The information set forth above pertains to our 2008 Stock Option Plan and our 2009 Restricted Stock Plan as of December 31, 2010. For a discussion of our 2008 Stock Option Plan please refer to the section entitled “— Executive Compensation — Executive Compensation Components — Long Term Equity Incentive Compensation” or refer to Note 11, “Stock Options” of our consolidated financial statements included elsewhere in this prospectus.

68



SELECTED CONSOLIDATED FINANCIAL DATA

The following tables set forth selected historical consolidated financial data of the Company as of the dates and for the periods indicated. The statement of operations data for the years ended December 31, 2010, 2009 and 2008 as well as the balance sheet data as of December 31, 2010 and 2009 are derived from our audited consolidated financial statements also included as part of this prospectus. The statement of operations data for the years ended December 31, 2007 and 2006 and the balance sheet data as of December 31, 2008, 2007 and 2006 are derived from our audited consolidated financial statements which are not contained in this prospectus. The statement of operations data for the nine months ended September 30, 2011 and 2010 as well as the balance sheet data as of September 30, 2011 and 2010 are derived from our unaudited condensed consolidated financial statements also included as part of this prospectus. The audited consolidated financial statements are prepared in accordance with GAAP and have been audited by EisnerAmper LLP, an independent registered public accounting firm.

These historic results are not necessarily indicative of results for any future period. You should read the following selected financial data in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere in this prospectus.

        Consolidated Data
   
        Nine Months
Ended September 30,
    Year Ended December 31,
   
        2011
    2010
    2010
    2009
    2008(1)
    2007(1)
    2006
        (in thousands, except per share data)
   
Statements of Operations and
Per Share Data:
                                                                                                                      
Net revenue
              $ 249,627          $ 257,490          $ 345,997          $ 327,692          $ 331,017          $ 48,073          $ 29,965   
Cost of revenue
                 79,806             84,790             110,490             91,697             96,514             23,330             15,927   
Gross profit
                 169,821             172,700             235,507             235,995             234,503             24,743             14,038   
Operating expenses
                                                                                                                       
Product development
                 12,080             9,304             12,834             13,500             14,553             1,002                
Selling and marketing
                 22,679             30,589             37,258             42,902             59,281             7,595             1,430   
General and administrative
                 67,507             60,155             79,855             76,863             88,280             24,466             24,354   
Amortization of acquired intangibles and software
                 11,906             18,793             24,461             35,454             36,347             2,262                
Depreciation and other amortization
                 3,268             3,556             4,704             4,881             4,502             2,829             3,322   
Impairment of goodwill
                                                                     9,571             925              22,824   
Impairment of other intangible assets
                                           4,660             4,000             14,860             5,131                
Total operating expenses
                 117,440             122,397             163,772             177,600             227,394             44,210             51,930   
Income (loss) from operations
                 52,381             50,303             71,735             58,395             7,109             (19,467 )            (37,892 )  
Interest expense, net of interest income
                 (65,097 )            (69,128 )            (88,508 )            (92,139 )            (80,510 )            (15,953 )            (7,918 )  
Other finance expenses
                                           (4,562 )                                                      
Interest related to VAT liability not charged to customers
                 (1,410 )            (1,742 )            (2,293 )            (4,205 )            (8,429 )            (1,592 )               
Net loss on extinguishment and modification of debt
                 (7,312 )                         (7,457 )            (7,240 )                                      (3,799 )  
Foreign exchange gain (loss) principally related to VAT liability not charged to customers
                 (1,521 )            436              610              (5,530 )            15,195             546                 
Gain on elimination of liability for United Kingdom VAT not charged to customers
                                                        1,561                                          
Gain on settlement of VAT liability not charged to customers
                                                        232              2,690                             
Gain on liability related to warrants
                 391              427              38              2,744                                          
Other non-operating (expense) income, net
                 (3,912 )            5              (13,202 )            (366 )            (197 )            119              (332 )  
Loss before income tax benefit
                 (26,480 )            (19,699 )            (43,639 )            (46,548 )            (64,142 )            (36,347 )            (49,941 )  
Income tax expense (benefit)
                 (5,542 )            (219 )            486              5,332             18,176             6,430                

69



        Consolidated Data
   
        Nine Months
Ended September 30,
    Year Ended December 31,
   
        2011
    2010
    2010
    2009
    2008(1)
    2007(1)
    2006
        (in thousands, except per share data)
   
Net loss
              $ (20,938 )         $ (19,480 )         $ (43,153 )         $ (41,216 )         $ (45,966 )         $ (29,917 )         $ (49,941 )  
Non-cash dividends on convertible preferred stock