Item 3. Key Information

The selected financial data set forth in the table below for 2015, 2016, and 2017 has been derived from our audited consolidated financial statements as of December 31, 2015, 2016 and 2017 and for the years then ended. This selected financial data should be read in conjunction with the consolidated financial statements and accompanying notes included herein.

The following table presents certain selected information and Adjusted EBITDA ⁽²⁾ for the periods presented:

Adjusted EBITDA should not be construed as a substitute for net loss (as determined in accordance with IFRS) for the purpose of analyzing our operating performance or financial position, as Adjusted EBITDA is not defined by IFRS.

Exchange Rate Information:

We publish our financial statements in euros. Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar amounts received by owners of our American Depositary Shares (“ADSs”) on conversion of dividends, if any, paid in euro on the ADSs. The following table presents information on the exchange rates between the euro and the U.S. dollar for the periods indicated.

Not applicable.

Not applicable.

Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the United States Securities and Exchange Commission, or the SEC, including the following risks that we face and that are faced by our industry. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements as a result of certain factors including the risks described below and elsewhere in this report and our other SEC filings. See “Cautionary Statement regarding forward-looking statements” above.

Risks Related to Our Business

Spark Networks’ business depends on establishing and maintaining strong brands, and if Spark Networks is not able to maintain and enhance its brands, it may be unable to expand or maintain its member and paying subscriber bases.

Spark Networks believes that establishing and maintaining its brands is essential to its efforts to attract and expand its member and paying subscriber bases. It believes that the importance of brand recognition will continue to increase, given the growing number of online dating sites and applications, or “apps,” and the low barriers to entry for companies offering online dating and other types of personals services. As of December 31, 2017, Spark Networks’ services were available in 29 countries. To attract and retain members and paying subscribers, and to promote and maintain its brands in response to competitive pressures, Spark Networks may have to substantially increase its financial commitment to creating and maintaining its distinct brand. If visitors, members and paying subscribers to its products do not perceive its existing services to be of higher quality, or if it introduces new services or enters into new business ventures that are not favorably received by such parties, the value of its brands could be diluted, thereby decreasing the attractiveness of its websites to such parties. As a result, its results of operations may be adversely affected by decreased brand recognition or negative brand perception.

If Spark Networks’ efforts to attract new members, convert members into paying subscribers and retain its paying subscribers are not successful, its revenue and operating results will suffer.

Since it was launched in 2008, Spark Networks and its predecessor companies has had more than 40 million users register with its dating platforms. A registration is deemed complete once a user has inserted an email/password combination, accepted the terms of service and clicked the registration button in order create a profile with the respective site (such user, a “registered user”). For the twelve months ended December 31, 2017, Spark Networks had an average of approximately 379,000 paying members across all of its platforms. Spark Networks’ future growth depends on its ability to attract new members that fit within its target audience, convert members into paying subscribers and retain its paying subscribers. This in turn depends on its ability to deliver a relevant, high-quality online personals experience to these members and its ability to remain attractive to its existing and potential paying customers. As a result, it must continue to invest significant resources in order to enhance its existing products and services and introduce new high-quality products and services that people will use. If Spark Networks is unable to predict user preferences or industry changes, or if it is unable to modify its products and services on a timely basis, it may lose existing members and paying subscribers and may fail to attract new members and paying subscribers. For example, one of Spark Networks’ strategies is to target single people with high socio-economic status who are looking for a serious and long-term relationship. If its user preferences change, or the market for this niche otherwise decreases, or this strategy is otherwise unsuccessful, Spark Networks could lose users, including paying subscribers, and its market share and revenues could decrease. Spark Networks’ revenue and expenses will also be adversely affected if its innovations are not responsive to the needs of its members and paying subscribers or are not brought to market in an effective or timely manner.

Spark Networks revenues could be adversely affected if subscriptions cannot be automatically renewed.

Spark Networks generally provides its premium memberships pursuant to 1-month, 3-months, 6-months, 12-months and 24-months subscriptions, which are generally automatically renewed unless cancelled by the subscriber. In each of the years ended December 31, 2017, 2016 and 2015, subscription revenue accounted for over 99% of Spark Networks’ total revenue. Although Spark Networks has historically experienced a high percentage of subscribers that choose an auto-renewal payment option, a significant portion of Spark Networks’ members may choose not to do so in the future or Spark Networks may encounter difficulties during the technical processing of the renewal of credit card processing due to, for instance, the expiration or blocking of the applicable credit card. Spark Networks has successfully taken steps to increase renewal rates by, for example, improving the auto-renewal success, but there can be no assurance that these efforts will remain successful in maintaining, and even increasing renewal rates in the future.

The EU has introduced the EU Consumer Rights Directive (the “Directive”), enforced in EU member states since June 2014, that restricts the use of auto-renewals, and Spark Networks has implemented a membership subscription model which is compliant with the Directive. Numerous U.S. states also have laws regulating auto-renewal clauses in contracts, and proposals to restrict auto-renewals are also under consideration in the United States. To the extent that Spark Networks must reduce or eliminate use of auto-renewals in these or other markets, renewal rates may fall, potentially reducing the number of membership subscription users. Consequently, the growth of subscription revenue will depend significantly on attracting new subscription users, and this dependence could increase due to regulations concerning auto-renewal that are outside of Spark Networks’ control. Any failure to maintain or improve the renewal rates of membership subscription users or to attract new subscription users could have a material adverse effect on results of operations.

Moreover, some credit card processors have announced the application of more stringent rules for credit card processing in the EU, which will likely require users to take additional steps when paying online. This may have an adverse effect on the authorization levels of Spark Networks’ users.

Spark Networks’ growth strategy includes acquisitions that entail significant execution, integration and operational risks.

Spark Networks pursues a growth strategy based in part on acquisitions, with the objective of creating a combined company that Spark Networks believes can achieve increased cost savings and operating efficiencies through economies of scale, especially in the integration of administrative services. Spark Networks will seek to make additional acquisitions in the future to increase its scale and profitability. For instance, on November 2, 2017, Spark Networks consummated the Affinitas / Spark Merger to form Spark Networks, and is currently in the process of integrating the operations of the two businesses. This growth strategy involves significant risks. Spark Networks exposes itself to operational and financial risks in connection with historical and future acquisitions if it is unable to:

Furthermore, Spark Networks may not be successful in addressing other challenges encountered in connection with its acquisitions. The anticipated benefits of one or more of its acquisitions may not be realized or the value of goodwill and other intangible assets acquired could be impacted by one or more continuing unfavorable events or trends, which could result in significant impairment charges. The occurrence of any these events could have an adverse effect on its business, financial condition and results of operations. While Spark Networks has successfully integrated acquisitions in the past, such as Attractive World (through Samadhi SAS), no assurance can be provided that Spark Networks will experience similar success with future acquisitions.

Acquisitions also involve operational risks and uncertainties, such as unknown or contingent liabilities with no available manner of recourse, exposure to unexpected problems, the retention of key employees and customers, and other issues that could negatively affect our business. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business.

Spark Networks faces significant competition for acquisition opportunities.

There is significant competition for acquisition targets in the markets within which Spark Networks operates.

Consequently, Spark Networks may not be able to identify suitable acquisitions or may have difficulty finding attractive businesses for acquisition at reasonable prices. If Spark Networks is unable to identify future acquisition opportunities, reach agreement with such third parties or obtain the financing necessary to make such acquisitions, Spark Networks could lose scale relative to competitors who are able to make such acquisitions. This loss of relative scale in the industry could negatively impact Spark Networks’ capacity to compete and reduce future growth potential.

In addition, current and potential competitors are making, and are expected to continue to make, strategic acquisitions, or establishing cooperatives and, in some cases, establishing exclusive relationships with significant companies or competitors to expand their businesses or to offer more comprehensive products and services. To the extent these competitors or potential competitors establish exclusive relationships with major portals, search engines and Internet Service Providers (“ISPs”), our ability to reach potential members through online advertising may be restricted. Any of these competitors could cause difficulty in attracting and retaining members and converting members into paying subscribers.

Spark Networks may fail to adequately protect its intellectual property rights or may be accused of infringing the intellectual property rights of third parties.

Spark Networks relies heavily upon its trademarks and related domain names and logos to market its brands and to build and maintain brand loyalty and recognition, as well as upon trade secrets.

In addition, Spark Networks relies on a combination of laws, and contractual restrictions with employees, customers, suppliers, affiliates and others, to establish and protect its various intellectual property rights. For example, Spark Networks has generally registered, and continues to apply to register and renew, or secure by contract where appropriate, trademarks and service marks as they are developed and used, and reserve, register and renew domain names as it deems appropriate. Effective trademark protection may not be available or may not be sought in every country in which Spark Networks’ products are made available, and contractual disputes may affect the use of marks governed by private contract. Similarly, not every variation of a domain name may be available or be registered, even if available.

Despite these measures, Spark Networks’ intellectual property rights may still not be protected in a meaningful manner, challenges to contractual rights could arise or third parties could copy or otherwise obtain and use its intellectual property without authorization. In addition, litigation may be necessary in the future to enforce its intellectual property rights, protect its trade secrets or to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources.

For instance, Spark Networks is currently in a dispute with a competitor related to its attempted registration of its figurative trademark for EliteRencontre, one of its French brands. While the European Trademark Authority has initially ruled in favor of Spark Networks, Spark Networks’ competitor has appealed the ruling. Although Spark Networks believes it will ultimately prevail and intends to prosecute and defend its interest vigorously, if Spark Networks were to lose the dispute, it may be required to rebrand EliteRencontre, which may have an adverse effect on the performance of EliteRencontre. For the twelve months ended December 31, 2017, EliteRencontre’s average paying members constituted approximately 8.0% of Spark Networks’ overall average paying member count.

The occurrence of any of these events could result in the erosion of Spark Networks’ brands and limit its ability to market its brands using its various domain names, as well as impede its ability to effectively compete against competitors with similar technologies, any of which could adversely affect its business, financial condition and results of operations.

If Spark Networks fails to keep pace with rapid technological change, its competitive position will suffer.

Spark Networks operates in a market characterized by rapidly changing technologies, evolving industry standards, frequent new product and service announcements, enhancements and changing customer demands. Accordingly, its performance depends on its ability to adapt to rapidly changing technologies and industry standards, and the ability to continually improve the speed, performance, features, ease of use and reliability of services in response to both evolving demands of the marketplace and competitive service and product offerings. Spark Networks’ industry has been subject to constant innovation and competition. When one competitor introduces new features perceived as attractive to users, other competitors replicate such new features. Over the last few years, such new feature introductions in the industry have included instant messaging, message boards, E-cards, personality profiles, the delivery of content through cell phones and linking of profiles to social media accounts. There have also been subsequent enhancements on new features such as the ability to send videos and photos through instant messaging or customize user experience based on machine learning and artificial intelligence. Integration of new technologies into systems involves numerous technical challenges, substantial amounts of capital and personnel resources, and often takes many months to complete. Spark Networks intends to continue to devote efforts and funds toward the development of additional technologies and services so that it can both innovate and stay competitive in the competitive landscape in which it operates. For example, in 2015, 2016 and 2017, Spark Networks introduced a number of new features such as an open search functionality and a new personality test, and it anticipates the introduction of additional features in 2018 and beyond. Spark Networks may not be able to effectively integrate new technologies into its websites on a timely basis or at all, which may degrade the responsiveness and speed of its websites. Such technologies, even if integrated, may not function as expected.

Spark Networks needs to maintain or increase its number of paying subscribers to maintain or increase its current level of revenue.

The vast majority of Spark Networks’ revenue is generated by users that pay it a subscription fee. Internet and app users in general, and users of online personals services specifically, freely navigate and use the services offered by a variety of providers. Spark Networks cannot assure that it will be able to grow or even maintain the current size of its subscriber base. If it does not constantly attract new paying subscribers at a faster rate than subscription terminations, it will not be able to maintain or increase its current level of revenue.

Spark Networks’ growth and profitability rely, in part, on its ability to attract and retain users through cost-effective marketing efforts. Any failure in these efforts could adversely affect its business, financial condition and results of operations.

Costs for Spark Networks to acquire paying subscribers are dependent, in part, upon its ability to purchase advertising at a reasonable cost. Its advertising costs vary over time, depending upon a number of factors, many of which are beyond its control. Historically, Spark Networks has used online and offline advertising as the primary means of marketing its services. During both 2016 and 2017, its cost of revenue substantially increased compared to the prior year, primarily as a result of growing its newly established North American business under the brand EliteSingles, which was launched in May 2015.

Evolving consumer behavior can affect the availability of profitable marketing opportunities. For example, as traditional television viewership declines and as consumers spend more time on mobile devices rather than desktop computers, the reach of many traditional advertising channels is contracting. To continue to reach potential users and grow its businesses, Spark Networks must identify and devote more of its overall marketing expenditures to newer advertising channels, such as mobile and online video platforms, as well as targeted campaigns in which it communicates directly with potential, former and current users via new virtual means. Positive user experiences can provide gratuitous promotional opportunities for Spark Networks, as satisfied subscribers can encourage others to join; Spark Networks can also capitalize on such success stories in its marketing. Many of its competitors have also engaged in live marketing efforts such as organized social events for its members, an area that Spark Networks has not yet tried at scale. Generally, the opportunities in and sophistication of newer advertising channels are relatively undeveloped and unproven, and there can be no assurance that Spark Networks will be able to continue to appropriately manage and fine-tune its marketing efforts in response to these and other trends in the advertising industry. Any failure to do so could adversely affect its business, financial condition and results of operations.

In addition, the cost of online and/or offline advertising has historically increased over time. If Spark Networks is not able to reduce its other operating costs, increase its paying subscriber base or increase revenue per paying subscriber to offset increased marketing costs, its profitability will be adversely affected.

Communicating with Spark Networks’ users is critical to its success, and any erosion in Spark Networks’ ability to communicate with its users could adversely affect its business, financial condition and results of operations.

To be successful, Spark Networks must communicate with its subscribers and other users to, among other things, update them on their profile and related activity and to introduce them to new products and services. As a result, Spark Networks must ensure that its methodology for communication with its subscribers and other users evolves in step with the communication habits of its consumers. For instance, most of Spark Networks’ communications currently take the form of email and push notifications.

Any failure to effectively communicate with current users or develop or take advantage of new means of communication could have an adverse effect on its business, financial condition and results of operations.

Distribution and use of Spark Networks’ dating products depends, in significant part, on a variety of third-party publishers, platforms and mobile app stores. If these third parties limit, prohibit or otherwise interfere with the distribution or use of Spark Networks’ dating products in any material way, it could adversely affect its business, financial condition and results of operations.

Spark Networks markets and distributes its dating products (including related mobile applications) through a variety of third-party publishers and distribution channels. Its ability to market its brands on any given property or channel is subject to the policies of the relevant third party. Certain publishers and channels have, from time to time, limited or prohibited advertisements for dating products for a variety of reasons, including as a result of poor behavior by other industry participants. There is no assurance that Spark Networks will not be limited or prohibited from using certain current or prospective marketing channels in the future. If this were to happen in the case of a significant marketing channel and/or for a significant period of time, Spark Networks’ business, financial condition and results of operations could be adversely affected.

Additionally, Spark Networks’ mobile applications are accessed through the Apple App Store and the Google Play Store, among other platforms. Both Apple and Google have broad discretion to change their respective terms and conditions applicable to the distribution of Spark Networks’ applications as well as to the pricing of Spark Networks’ services, and to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with Spark Networks’ ability to distribute its applications through their stores. There is no assurance that Apple or Google will not limit or eliminate or otherwise interfere with the distribution of our applications. If either or both entities were to do so, Spark Networks’ business, financial condition and results of operations could be adversely affected.

As the distribution of Spark Networks’ dating products through app stores increases, Spark Networks will need to offset increasing app store fees.

As Spark Networks’ user base continues to shift to mobile solutions, it increasingly relies on the Apple App Store and the Google Play Store to distribute its mobile applications and related in-app products. While its mobile applications are generally free to download from these stores, it offers its users the opportunity to purchase paid memberships through these applications. Spark Networks determines the prices at which these memberships and features are sold and, in exchange for facilitating the purchase of these memberships and features through these applications to users who download its applications from these stores, it pays Apple and Google, as applicable, a share (generally 30%) of the revenue it receives from these transactions. As the distribution of its dating products through app stores increases, Spark Networks will need to offset these increased app store fees by decreasing traditional marketing costs, or by engaging in other efforts to increase revenue or decrease costs generally, or its business, financial condition and results of operations could be adversely affected.

Spark Networks’ success depends, in part, on the integrity of its systems and infrastructure and on its ability to enhance, expand and adapt these systems and infrastructure in a timely and cost-effective manner.

In order for Spark Networks to succeed, its systems and infrastructure must perform well on a consistent basis. From time to time, it may experience system interruptions that make some or all of its systems or data unavailable and prevent its products from functioning properly for its users; any such interruption could arise for any number of reasons, including human errors. Further, its systems and infrastructure are vulnerable to damage from fire, power loss, hardware and operating software errors, telecommunications failures and similar events. While it has backup systems in place for certain aspects of its operations, its systems and infrastructure are not fully redundant, disaster recovery planning is not sufficient for all eventualities and its property and business interruption insurance coverage may not be adequate to compensate it fully for any losses that it may suffer. Any interruptions or outages, regardless of the cause, could negatively impact its users’ experiences with its products, tarnish its brands’ reputation and decrease demand for its products, any or all of which could adversely affect its business, financial condition and results of operations. Moreover, even if detected, the resolution of such interruptions may take a long time, during which customers will not be able to access, or will have limited access to, the service.

Spark Networks also continually works to expand and enhance the efficiency and scalability of its technology and network systems to improve the experience of its users, accommodate substantial increases in the volume of traffic to its various dating products, ensure acceptable page load times or general accessibility for its dating products and keep up with changes in technology and user preferences. Any failure to do so in a timely and cost-effective manner could adversely affect its users’ experience with its various products and thereby negatively impact the demand for its products, and could increase its costs, either of which could adversely affect its business, financial condition and results of operations.

Spark Networks’ services are highly technical and may contain undetected bugs or errors, which could manifest in ways that could seriously harm its reputation and its business.

Spark Networks’ services are highly technical and complex, and any services Spark Networks may introduce in the future may contain undetected bugs, errors, and other vulnerabilities. These bugs and errors can manifest in any number of ways in its services, including through diminished performance, security vulnerabilities, malfunctions, or even permanently disabled services. Spark Networks has a practice of rapidly updating its services, but some errors in its services may be discovered only after its service is used by users, and may in some cases be detected only under certain circumstances or after extended use. Any such defects discovered in Spark Networks’ services after commercial release could result in a loss of sales and users, which could seriously harm its business. Any errors, bugs, or vulnerabilities discovered in its code after release could damage its reputation, drive away users, lower revenue, and expose us to damages claims, any of which could seriously harm its business.

Spark Networks may not be able to protect its systems and infrastructure from cyberattacks and may be adversely affected by cyberattacks experienced by third parties.

Like any other business, there is a risk that Spark Networks will experience cyberattacks, computer viruses, worms, hacking, phishing, bot attacks or other destructive or disruptive software, distributed denial of service attacks, and attempts to misappropriate customer information. While Spark Networks has invested (and continues to invest) heavily in the protection of its systems and infrastructure and in related training, there can be no assurance that its efforts will prevent significant breaches in its systems or other such events from occurring. Any cyber or similar attack it is unable to protect itself against could damage its systems and infrastructure, prevent it from providing its products and services, erode its reputation and brands, result in the disclosure of confidential information of its users and/or be costly to remedy, as well as subject it to investigations by regulatory authorities and/or litigation that could result in liability to third parties. In light of the nature of its business, the unintended disclosure of personal information, whether as a result of a cyber attack or not, would be particularly damaging to Spark Networks’ reputation.

Similarly, online scammers and other similar groups may use Spark Networks’ services and products to engage in illegal activities and it is likely that as more people use Spark Networks’ services, these groups will increasingly seek to misuse Spark Networks’ products. Although Spark Networks invests resources to combat these activities, including by suspending or terminating accounts it believes violate its guidelines, Spark Networks believes these groups will continue to seek ways to act inappropriately and illegally on its services. Combating these groups requires Spark Networks’ engineering and customer service teams to divert significant time and focus from improving its services.

Further, the impact of cyber security events experienced by third parties with whom Spark Networks does business (or upon whom it otherwise relies in connection with its day-to-day operations such as credit card processors) could have a similar effect on Spark Networks. If breaches, scamming and other similar activities increase at third-parties with whom Spark Networks does business, Spark Networks’ reputation, business and results of operations could be materially adversely affected.

Spark Networks relies on a number of third-party providers and their failure or unwillingness to continue to perform could harm us.

Spark Networks relies on third parties to provide important services and technologies to it, including third parties that manage and monitor its offsite data center, ISPs, search engine marketing providers and credit card processors, among others. In addition, it licenses technologies from third parties to facilitate its ability to provide its services. Any failure on its part to comply with the terms of these licenses could result in the loss of its rights to continue using the licensed technology, and it could experience difficulties obtaining licenses for alternative technologies. Furthermore, any failure of these third parties to provide these and other services, or errors, failures, interruptions or delays associated with licensed technologies, could significantly harm its business. Any financial or other difficulties its providers face may have negative effects on its business, the nature and extent of which it cannot predict. Except to the extent of the terms of its contracts with such third party providers, Spark Networks exercises little or no control over them, which increases its vulnerability to problems with the services and technologies they provide and license to it. In addition, if any fees charged by third-party providers were to substantially increase, Spark Networks could incur significant additional losses.

Spark Networks depends, in part, upon arrangements with third parties to drive traffic to its various websites.

Spark Networks engages in a variety of activities designed to attract traffic to its various websites and convert visitors into members and paying subscribers. How successful it is in these efforts depends, in part, upon its continued ability to enter into arrangements with third parties to drive traffic to its various websites and its oversight of such third parties to ensure that they are appropriately communicating with online users. Pursuant to these arrangements, third parties generally promote Spark Networks’ services on their websites or through email campaigns and it pays them based upon a variety of arrangements (cost per registration, cost per one thousand impressions, a percentage of sales, etc.). Depending on how a third party communicates with online users via email, third-party email service providers could treat such email campaign as spam, and ultimately limit Spark Networks’ ability to communicate with its members and paying subscribers via email.

These arrangements are generally not exclusive, are short-term in nature and are generally terminable by either party given notice. If existing arrangements with third parties are terminated (or are not renewed upon their expiration) and Spark Networks fails to replace this traffic and related revenues, or if it is unable to enter into new arrangements with existing and/or new third parties in response to industry trends, or if such third parties improperly manage email campaigns, its business, financial condition and results of operations could be adversely affected.

If the security of personal and confidential user information that Spark Networks maintains and stores is breached or otherwise accessed by unauthorized persons, it may be costly to mitigate the impact of such an event and Spark Networks’ reputation could be harmed.

Spark Networks receives, processes, stores and transmits a significant amount of personal user and other confidential information, including credit card information, and enables its users to share their personal information with each other. In some cases, it retains third party vendors to store this information. Spark Networks continuously develops and maintains systems to protect the security, integrity and confidentiality of this information, but cannot guarantee that inadvertent or unauthorized, including as a result of cyber attacks, use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite its efforts. Some advertisers and partners may store information that Spark Networks Shares with them. If these third parties fail to implement adequate data-security practices or fail to comply with Spark Networks’ terms and policies, its users’ data may be improperly accessed or disclosed. Even if these third parties take all these steps, their networks may still suffer a breach, which could compromise Spark Networks’ users’ data. In addition, third parties may attempt to fraudulently induce employees or users to disclose information to gain access to Spark Networks’ data or its users’ data. If any such event were to occur, it may not be able to remedy the event, and it may have to expend significant capital and resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. If a breach of its security (or the security of its vendors and partners) occurs, the perception of the effectiveness of its security measures and its reputation may be harmed, it could lose current and potential users and the recognition of its various brands and their competitive positions could be diminished, any or all of which could adversely affect its business, financial condition and results of operations. In addition, affected users or government authorities could initiate legal or regulatory action against Spark Networks over those incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices.

Unauthorized access of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.

Security breaches or other unauthorized access to, or the use or transmission of, personal user information could result in a variety of claims against Spark Networks, including privacy-related claims.

In 2016 the European Commission adopted the General Data Protection Act, a comprehensive European Union privacy and data protection reform that becomes effective in May 2018 in all countries of the European Union. Pursuant to Sec. 3 of the European Data Protection Directive and Sec. 3 of the German Telecommunication and Media Act, Spark Networks has to comply with the European and German data protection laws regarding all countries in the European Union and with the laws of countries outside of the European Union where Spark Networks operates. These rules include rules related to the storage, sharing, use, processing, disclosure and protection of personal data.

In addition, legislation concerning data protection has been enacted or is pending enactment in many other jurisdictions, including the United States and Russia. It is possible that these laws may conflict with Spark Networks’ data practices. If so, in addition to the possibility of fines, this could result in an order requiring that Spark Networks change its data practices, which could have an adverse effect on its business. Complying with these laws as they evolve could cause it to incur substantial costs or require it to change its business practices in a manner adverse to its business. These laws and regulations are constantly changing, may in some instances be inconsistent with or conflict with each other, and can be subject to differing interpretations.

While Spark Networks believes that it complies with industry standards and applicable laws and industry codes of conduct relating to privacy and data protection in all material respects, there is no assurance that it will not be subject to claims that it has violated applicable laws or codes of conduct, that it will be able to successfully defend against such claims or that it will not be subject to significant fines and penalties in the event of non-compliance.

If Spark Networks or its affiliates are found to be in violation of these laws and regulations, it may become subject to administrative fines or litigation or be required to change its data practices, which could materially increase its expenses, adversely affect its results of operations and cause the value of Spark Networks’ ADSs to decline.

Any failure or perceived failure by Spark Networks (or the third parties with whom it has contracted to store such information) to comply with applicable privacy and security laws, policies or related contractual obligations, or any compromise of security that results in unauthorized access to personal information, may result in governmental enforcement actions, significant fines and litigation. In the case of such an event, Spark Networks’ reputation may be harmed, it could lose current and potential users and the competitive positions of its various brands could be diminished, any or all of which could adversely affect its business, financial condition and results of operations.

Spark Networks is subject to a number of risks related to credit card payments, including data security breaches and fraud that it or third parties experience or additional regulation, any of which could adversely affect its business, financial condition and results of operations.

Spark Networks accepts payment from its users primarily through credit card transactions and online payment service providers. While Spark Networks uses third-parties to handle and process credit card transactions, it still faces risks related to security breaches involving these third-party providers. For instance, a large breach at a third-party credit card processor could cause people to cancel their credit cards, which could affect Spark Networks’ ability to process auto-renewals. In addition, breaches at third-party processors could affect consumer confidence in Spark Networks because consumers may not distinguish between Spark Networks and the third-party when informed of the breach. The occurrence of this or similar events could have a material adverse effect on Spark Networks’ business, results of operations, and financial conditions.

Inappropriate actions by certain of Spark Networks’ users could be attributed to Spark Networks and damage our brands’ reputations, which in turn could adversely affect our business.

The reputation of Spark Networks’ brands may be adversely affected by the actions of its users that are deemed to be hostile, offensive, defamatory, inappropriate or unlawful. While Spark Networks monitors and reviews the appropriateness of the content accessible through its dating products and has adopted policies and technical solutions to address and prevent illegal, offensive or inappropriate use of its dating services, its users could nonetheless engage in activities that violate its policies or circumvent the solutions. These safeguards may not be sufficient to avoid harm to Spark Networks’ reputation and brands, especially if such hostile, offensive or inappropriate use is well-publicized.

In addition, it is possible that a user of Spark Networks’ services could be physically, financially, emotionally or otherwise harmed by an individual that such user met through the use of one of Spark Networks’ services. While Spark Networks manually checks every new profile, and certain of its services only allow new members who are peer-approved, it is not certain that every harm posed by other individuals can be eliminated. If one or more of Spark Networks’ users suffers or alleges to have suffered any such harm, it could experience negative publicity or legal action that could damage its reputation and its brands. Similar events affecting users of Spark Networks’ competitors’ dating services could result in negative publicity for the dating industry, which could in turn negatively affect Spark Networks’ business. Concerns about such harms and the use of dating services and social networking platforms for illegal conduct, such as romance scams and financial fraud, could produce future legislation or other governmental action that could require changes to Spark Networks’ dating services, restrict or impose additional costs upon the conduct of its business generally, subject it to liability for user conduct or cause users to abandon its dating services.

Spark Networks may be liable as a result of information retrieved from or transmitted over the Internet.

Spark Networks may be sued for defamation, civil rights infringement, negligence, copyright or trademark infringement, invasion of privacy, personal injury, product liability or under other legal theories relating to information that is published or made available on its websites and the other sites linked to it. These types of claims have been brought, sometimes successfully, against online services in the past. Spark Networks could incur significant costs in investigating and defending such claims, even if it ultimately is not held liable. If any of these events occurs, its revenue could be materially adversely affected or it could incur significant additional expense.

Increases in credit card processing fees and high chargeback costs could increase operating expenses and adversely affect results of operations, and an adverse change in, or the termination of, Spark Networks’ relationship with any major credit card company would have a severe, negative impact on our business.

A significant portion of Spark Networks’ customers purchase its products using credit or debit cards. The major credit card companies or the issuing banks may increase the fees that they charge for transactions using their cards. An increase in those fees would require Spark Networks to either increase the prices it charges for its products, or suffer a negative impact on its profitability, either of which could adversely affect its business, financial condition and results of operations.

In addition, Spark Networks has potential liability for chargebacks associated with the transactions processed on its behalf. If a customer claims that a subscription to one of Spark Networks’ products was purchased fraudulently, the subscription price is “charged back” to Spark Networks or its bank, as applicable. If Spark Networks or its sponsoring banks are unable to collect the chargeback from the persons processing transactions on its behalf, or, if the credit card processor refuses or is financially unable, to reimburse for the chargeback, Spark Networks bears the loss for the amount of the refund paid.

Spark Networks is also vulnerable to credit card fraud. Card fraud occurs when a customer uses a stolen card (or a stolen card number in a card-not-present-transaction) to purchase merchandise or services. In a traditional card-present transaction, if the merchant swipes the card, receives authorization for the transaction from the card issuing bank and verifies the signature on the back of the card against the paper receipt signed by the customer, the card issuing bank remains liable for any loss. In a fraudulent card-not-present transaction, even if the processor receives authorization for the transaction, the Spark Networks or the card processor are liable for any loss arising from the transaction. Because all of Spark Networks’ sales via credit card are card-not-present transactions, Spark Networks is more vulnerable to customer fraud.

Spark Networks operates in various international markets, including certain markets in which it has limited experience. As a result, it faces additional risks in connection with certain of its international operations.

Spark Networks’ brands are available in 29 countries. Operating internationally exposes it to a number of additional risks, including:

While Spark Networks employs people from over 50 nationalities that help to build and maintain knowledge about the geographies, countries and cultures the company operates in, the occurrence of any or all of the events described above could adversely affect Spark Networks’ international operations, which could in turn adversely affect its business, financial condition and results of operations.

Spark Networks is subject to litigation and adverse outcomes in such litigation could have an adverse effect on its financial condition.

Spark Networks is, and from time to time may become, subject to litigation and various legal proceedings, including litigation and proceedings related to intellectual property matters, privacy and consumer protection laws and other matters that involve claims for substantial amounts of money or for other relief or that might necessitate changes to its business or operations. For example, Spark Networks is currently in a dispute with one of its competitors related to the attempted registration of its figurative trademark for one of its French brands, EliteRencontre. In addition, Spark Networks, might be subject to potential class action suits in the United States, Canada, UK or Australia for possible violations of the consumer protections laws. The defense of these actions may be both time consuming and expensive. Spark Networks evaluates 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, it may establish reserves and/or disclose the relevant litigation claims or legal proceedings, as and when required or appropriate. These assessments and estimates are based on information available to management at the time of such assessment or estimation and involve a significant amount of judgment. As a result, actual outcomes or losses could differ materially from those envisioned by Spark Networks’ current assessments and estimates. Spark Networks’ failure to successfully defend or settle any such legal proceedings could result in liability that, to the extent not covered by applicable insurance, could have an adverse effect on its business, financial condition and results of operations.

Spark Networks’ business depends, in part, on the growth and maintenance of the Internet, and its ability to provide services to its members and paying subscribers may be limited by outages, interruptions and diminished capacity of the Internet.

Spark Networks’ performance will depend, in part, on the continued growth and maintenance of the Internet. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable Internet services. Internet infrastructure may be unable to support the demands placed on it if the number of Internet users continues to increase or if existing or future Internet users access the Internet more often or increase their bandwidth requirements. In addition, viruses, worms and similar programs may harm the performance of the Internet. Spark Networks has no control over the third-party telecommunications, cable or other providers of access services to the Internet that its members and paying subscribers rely upon. There have been instances where regional and national telecommunications outages have caused it to experience service interruptions during which its members and paying subscribers could not access its services. Any additional interruptions, delays or capacity problems experienced with any points of access between the Internet and its members could adversely affect its ability to provide services reliably to its members and paying subscribers. The temporary or permanent loss of all, or a portion, of its services on the Internet, the Internet infrastructure generally, or its members’ and paying subscribers’ ability to access the Internet could disrupt its business activities, harm its business reputation and result in a loss of revenue. Additionally, the Internet, electronic communications and telecommunications industries are subject to federal, state and foreign governmental regulation, including those related to privacy, rights of publicity, data protection, content regulation, intellectual property, health and safety, competition, protection of minors, consumer protection, employment, and taxation. New laws and regulations governing such matters could be enacted or amendments may be made to existing regulations at any time that could adversely impact Spark Networks’ services. Any such new laws, regulations or amendments to existing regulations could disrupt or adversely affect the profitability of its business.

Loss or material modification of Spark Networks’ credit card acceptance privileges would have a material adverse effect on its business and operating results.

A significant percentage of Spark Networks’ users pay for its services by credit card. The loss of credit card acceptance privileges would significantly limit Spark Networks’ ability to renew paying subscribers or secure new paying subscribers.

Most of Spark Networks’ users purchase a membership, for which payment is made at the beginning of the term. In addition, almost all membership renewals are paid by auto-renewal, charging the renewal fee to the client’s credit card. There is a risk that, if Spark Networks fails to fully perform its obligations under the terms of service or the client objects to the auto-renewal payment made by credit card, the credit card companies could be obligated to reimburse these clients for all or a portion of the membership fee. Spark Networks might be obligated to pay all such amounts under its agreements under which it has obtained its credit card acceptance privileges. As a result of this risk, credit card companies may require Spark Networks to set aside additional cash reserves, may not renew acceptance privileges or may increase the transaction fees they charge for these privileges.

The card networks, such as Visa, MasterCard, and American Express, have adopted rules and regulations that apply to all merchants who process and accept credit cards and include the Payment Card Industry Data Security Standards (“PCI DSS”). Under the PCI DSS, Spark Networks is required to adopt and implement internal controls over the use, storage and security of card data to help prevent credit card fraud. Spark Networks assesses its compliance with the PCI DSS on a periodic basis and makes necessary improvements to its internal controls. If Spark Networks fails to comply with the rules and regulations adopted by the card networks, including the PCI DSS, it would be in breach of its contractual obligations to payment processors and merchant banks. Such failure to comply may subject it to fines, penalties, damages and civil liability and could eventually prevent it from processing or accepting credit cards. Further, there is no guarantee that, even if it complies with the rules and regulations adopted by the card networks, it will be able to maintain its compliance. It also cannot guarantee that such compliance will prevent illegal or improper use of its payments systems or the theft, loss or misuse of the credit card data of customers or participants.

The loss of, or the significant modification of, the terms under which Spark Networks obtains credit card acceptance privileges would have a material adverse effect on its business, revenue and operating results.

Risks Relating to an Investment in Spark Networks

The dating industry is competitive, with low barriers to entry, low switching costs and new products and entrants constantly entering the market.

The dating industry is competitive, with new products and entrants constantly being developed and released. Some of Spark Networks’ competitors may enjoy better competitive positions in certain geographical regions or user demographics that Spark Networks will currently serve or may serve in the future. These advantages could enable these competitors to offer products that are more appealing to users and potential users than Spark Networks’ products, or to respond more quickly and/or cost-effectively than Spark Networks to new or changing opportunities. The attractiveness of these products could also allow these companies to sell their products at higher prices and with higher margins.

Spark Networks competes with traditional personals services, as well as newspapers, magazines and other traditional media companies that provide personals services. It also competes with a number of large and small companies, including Internet portals and specialty-focused media companies that provide online and offline products and services to the markets served. Principal online personals services competitors include eHarmony, Parship, Zoosk and various Match Group brands, including Match, Meetic, Tinder, OkCupid, OurTime and PlentyOfFish. In addition, it faces competition from mobile-based apps and social networking sites. Many of Spark Networks’ current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources and larger customer bases than they currently have. These factors may allow competitors to respond more quickly to new or emerging technologies and changes in customer preferences. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies that may allow them to build larger member and paying subscriber bases. Spark Networks’ competitors may develop products or services that are equal or superior to its products and services or that achieve greater market acceptance than its products and services. These activities could attract members and paying subscribers away from its websites and reduce its market share. Customers may utilize multiple dating services simultaneously, and cease using a particular service that comparatively lags behind or is duplicative of another service.

In addition, Spark Networks currently competes with other companies that direct all or portions of their websites toward each of their respective targeted and actual subscribers. For example, Spark Networks currently competes with generalist personals services platforms, some of which have substantially greater resources and brand recognition than they do, which, unlike more targeted or segmented personal services platforms, permit customers access to a broad array of people with a wide variety of backgrounds and interests, as well as personal services platforms focused specifically on the type of clients serviced by them, which tend to be highly educated and desirous of finding a longer term relationship.

In addition, within the dating industry generally, costs to develop new products are comparatively low and costs for consumers to switch between products are low as well, resulting in significant customer churn and low brand loyalty. As a result, new products, entrants and business models are likely to continue to emerge. It is possible that a new product could gain rapid scale at the expense of existing brands through harnessing a new technology or distribution channel, creating a new approach to connecting people or some other means. If Spark Networks is not able to compete effectively against its current or future competitors, whether or not such competitors operate traditional or non-traditional platforms, the size and level of engagement of its user base may decrease, which could have an adverse effect on its business, financial condition and results of operations.

Spark Networks believes that its ability to compete depends upon many factors both within and beyond its control, including the following:

Spark Networks’ future results may suffer if it does not effectively manage its expanded operations following the completion of the Affinitas / Spark Merger.

Following the completion of the Affinitas / Spark Merger, the size of Spark Networks’ business has increased significantly beyond the previous size of either Affinitas’s or Spark’s business. Spark Networks’ future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that Spark Networks will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the completion of the Affinitas / Spark Merger.

Spark Networks has no present intention to pay dividends on its ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of Spark Networks’ ADSs appreciates.

Spark Networks has no present intention to pay dividends on Spark Networks ADSs in the foreseeable future. Any recommendation by the Administrative Board to pay dividends will depend on many factors, including financial condition, results of operations, legal requirements and other factors. Accordingly, if the price of Spark Networks ADSs declines in the foreseeable future, you will incur a loss on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.

You may experience dilution of your ownership interests because of the future issuance of additional ordinary shares, preferred stock or other securities that are convertible into or exercisable for such securities.

In the future, Spark Networks may issue authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of direct or indirect holders of Spark Networks ordinary shares, including Spark Networks ADSs. Spark Networks may issue additional Spark Networks ordinary shares or other securities that are convertible into or exercisable for Spark Networks ordinary shares in connection with hiring or retaining employees, future acquisitions, future sales of securities for capital raising purposes, or for other business purposes. The future issuance of any such additional Spark Networks ordinary shares may create downward pressure on the trading price of the Spark Networks ADSs. Spark Networks may need to raise additional capital in the near future to meet working capital needs, and there can be no assurance that Spark Networks will not be required to issue additional Spark Networks ordinary shares in the future in conjunction with these capital raising efforts. While stockholder approval will be needed to issue additional Spark Networks ordinary shares beyond those currently authorized, the approval does not have to authorize a specific use of the shares and management will have broad discretion in determining how, when and for what purpose the shares should be issued.

Spark Networks will depend on its key personnel.

Spark Networks’ future success will depend upon its continued ability to identify, hire, develop, motivate and retain highly skilled individuals, with the continued contributions of its senior management being especially critical to its success. In particular, the loss of Jeronimo Folgueira, Robert O’Hare, and Michael Schrezenmaier, current managing directors of Spark Networks, and Herbert Sablotny, the current Chief Strategy Officer and Benjamin Hoskins, the current Chief Technology Officer of Spark Networks, could materially and adversely affect Spark Networks. For a discussion of Spark Networks’ senior management, see ‘‘Directors and senior management.’’ Its continued ability to compete effectively depends, in part, upon its ability to attract new employees. While it has established programs to provide incentives to retain existing employees, particularly its senior management, it cannot assure you that it will be able to attract new employees or retain the services of its senior management or any other key employees in the future. Effective succession planning is also important to Spark Networks’ future success. If Spark Networks fails to ensure the effective transfer of senior management knowledge and smooth transitions involving senior management across its various businesses, its ability to execute short and long term strategic, financial and operating goals, as well as its business, financial condition and results of operations generally, could be adversely affected.

Changes in tax treatment of companies engaged in e-commerce could materially adversely affect the commercial use of Spark Networks’ platforms and its business, financial condition and operating results.

Due to the global nature of the Internet, it is possible that various countries and local jurisdictions might attempt to impose additional or new regulation on Spark Networks’ business or levy additional or new sales, income or other taxes relating to its activities. Tax authorities at the national and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce. New or revised tax regulations may subject Spark Networks or its customers to additional sales, income and other taxes. For example, certain jurisdictions have considered various approaches to legislation that would require companies engaged in e-commerce to collect sales tax on Internet revenue. In January 2015, new regulations entered into effect in the European Union with respect to the collection of value-added tax (a form of sales tax), and the U.S. Congress has in the past considered, and may again consider, similar legislation. Spark Networks cannot predict the effect of current attempts to impose sales, income or other taxes on e-commerce. New or revised taxes and, in particular, sales taxes, value-added taxes and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of our services.

Adverse capital and credit market conditions could limit Spark Networks’ access to capital and increase its cost of capital, which may significantly affect its ability to meet liquidity needs.

The capital and credit markets have been experiencing extreme volatility over the last few years. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers.

While on December 31, 2017, Spark Networks had cash and cash equivalents of €8.2 million, and Spark Networks expects to have positive operating cash flow, Spark Networks may in the future be in need of liquidity to implement its growth strategy, including to raise capital to finance acquisitions. In such a scenario, Spark Networks may be forced to curtail certain operations and may be unable to operate its business as Spark Networks deems appropriate. Disruptions, uncertainty or volatility in the capital and credit markets may also limit Spark Networks’ access to capital required to operate its business. Such market conditions may limit its ability to replace, in a timely manner, maturing liabilities and access the capital necessary to operate and grow its business. As such, Spark Networks may be forced to delay raising capital or bear an unattractive cost of capital which could decrease its profitability and significantly reduce our financial flexibility. Spark Networks’ results of operations, financial condition, cash flows and capital position could be materially adversely affected by disruptions in the financial markets.

Goodwill, intangible assets and other long-lived assets are subject to impairment risk.

Spark Networks had €23.2 million of goodwill, €4.9 million of brands and trademarks and €7.0 million of other intangible assets, as of December 31, 2017. Spark Networks reviews the potential impairment of goodwill and indefinite-lived intangible assets at least annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable and test property, plant and equipment and other intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Indicators that may signal that an asset has become impaired include a significant decline in actual or projected revenue, a significant decline in the market value of the Spark Networks ADSs, a significant decline in performance of certain acquired companies relative to its original projections, an excess of its net book value over its market value, a significant decline in its operating results relative to its operating forecasts, a significant change in the manner of its use of acquired assets or the strategy for its overall business, a significant decrease in the fair value of an asset, a shift in technology demands and development, or a significant turnover in key management or other personnel.

The assessment for potential impairment of goodwill, intangible assets or other long-term assets requires management to make judgments on a number of significant estimates and assumptions, including projected cash flows, discount rates, projected long-term growth rates and terminal values. Spark Networks may be required to record a significant charge in its consolidated financial statements during the period in which any impairment of its goodwill, intangible assets or other long-term assets is identified and this could negatively impact its financial condition and results of operations. Changes in management estimates and assumptions as they relate to valuation of goodwill, intangible assets or other long-lived assets could affect its financial condition or results of operations in the future.

Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on Spark Networks’ business.

Spark Networks will operate in a number of countries throughout the world, including countries known to have a reputation for corruption. Spark Networks is committed to doing business in accordance with applicable anti-corruption laws. Spark Networks is subject, however, to the risk that its officers, board members, employees, agents and collaborators may take action determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010 and the European Union Anti-Corruption Act, as well as trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect results of operations. In addition, actual or alleged violations could damage its reputation and ability to do business.

Spark Networks has not previously operated as a public company, and fulfilling its obligations as a U.S. reporting company after the Affinitas / Spark Merger may be expensive and time consuming.

As a U.S. reporting company, Spark Networks will incur significant legal, accounting and other expenses. While the Chief Financial Officer of Spark Networks has previously served as an officer of an SEC reporting company, Spark Networks has not previously been required to prepare or file periodic and other reports with the SEC or to comply with the other requirements of U.S. federal securities laws applicable to public companies, such as Section 404 of the Sarbanes-Oxley Act of 2002 (SOX 404). In addition, Spark Networks has not previously been required to establish and maintain disclosure controls and procedures and internal controls over financial reporting as will be required with respect to a public company with securities registered with the SEC. Compliance with reporting and corporate governance obligations from which foreign private issuers and emerging growth companies (“EGCs”) are not exempt may require members of Spark Networks’ management and finance and accounting staff to divert time and resources from other responsibilities to ensure these additional regulatory requirements are fulfilled and may increase legal, insurance and financial compliance costs. Spark Networks cannot predict or estimate the amount of additional costs Spark Networks may incur or the timing of such costs. In addition, if Spark Networks fails to comply with any significant rule or requirement associated with being a public company, such failure could result in the loss of investor confidence and could harm Spark Networks’ reputation and cause the market price of the Spark Networks ADSs to decline.

As a “foreign private issuer” under the rules and regulations of the SEC, Spark Networks is permitted to, and will, file less information with the SEC than a U.S. issuer.

Spark Networks is considered a “foreign private issuer” under the Exchange Act and therefore exempt from certain rules under the Exchange Act, including the proxy rules, which impose disclosure and procedural requirements for proxy solicitations for U.S. and other issuers. Moreover, Spark Networks will not be required to file periodic reports and financial statements with the SEC as frequently or within the same time frames as U.S. companies with securities registered under the Exchange Act and will be permitted to cease filing quarterly reports. Spark Networks currently prepares financial statements in accordance with IFRS and will not be required to file financial statements prepared in accordance with or reconciled to U.S. GAAP so long as its financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards Board. Spark Networks is not required to comply with Regulation FD, which imposes restrictions on the selective disclosure of material information to stockholders. In addition, officers, board members and principal stockholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Spark Networks ordinary shares or ADSs.

In addition, as a “foreign private issuer” whose ADSs are listed on the NYSE American, Spark Networks is permitted to follow certain home country corporate governance practices in lieu of certain NYSE American requirements. Such German home country practices may afford less protection to holders of the Spark Networks ADSs. A foreign private issuer listed on the NYSE American must disclose in its Annual Reports filed with the SEC or on its website significant ways in which its corporate governance practices differ from those followed by domestic companies pursuant to the NYSE American’s standards. Spark Networks intends to comply with NYSE American requirements applicable to U.S. issuers. However, as a foreign private issuer incorporated in Germany and listed on the NYSE American, in the future, it may choose to follow home country corporate governance practices in lieu of certain NYSE American requirements.

Spark Networks could lose its status as a “foreign private issuer” under current SEC rules and regulations if more than 50% of its outstanding voting securities become directly or indirectly held of record by U.S. holders and one of the following is true: (i) the majority of board members or executive officers are U.S. citizens or residents; (ii) more than 50% of assets are located in the United States; or (iii) its business is administered principally in the United States. If Spark Networks loses its status as a foreign private issuer in the future, it will no longer be exempt from the rules described above and, among other things, will be required to file periodic reports and annual and quarterly financial statements as if it were a company incorporated in the United States, and such financial statements will need to be prepared in accordance with U.S. GAAP. If this were to happen, Spark Networks would likely incur substantial costs in fulfilling these additional regulatory requirements, and members of management would likely have to divert time and resources from other responsibilities to ensure these additional regulatory requirements are fulfilled.

Spark Networks is an EGC within the meaning of the Securities Act, and Spark Networks intends to take advantage of certain exemptions from disclosure requirements available to EGCs, which may make it more difficult to compare Spark Networks’ performance with other public companies.

Spark Networks is an EGC within the meaning of the Securities Act, as modified by the JOBS Act, and Spark Networks intends to advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs, including, but not limited to, not being required to include in SEC filings detailed information with respect to executive compensation or to comply with the auditor attestation requirements of SOX 404. As a result, holders of Spark Networks ADSs may not have access to certain information they may deem important. Spark Networks could be an EGC for up to five years, although circumstances could cause Spark Networks to lose that status earlier, including if Spark Networks is deemed to be a large accelerated filer (as defined in Rule 12b-2 under the Exchange Act), in which case Spark Networks would no longer be an EGC as of the following December 31. Spark Networks cannot predict whether investors will find the Spark Networks ADSs less attractive because Spark Networks will rely on these exemptions. If some investors find the Spark Networks ADSs less attractive as a result of Spark Networks’ reliance on these exemptions, the trading prices of the Spark Networks ADSs may be lower than they otherwise would be, there may be a less active trading market for its securities, including the Spark Networks ADSs, and the trading prices of Spark Networks’ securities, including the Spark Networks ADSs, may be more volatile.

Foreign currency exchange rate fluctuations could adversely affect Spark Networks’ results of operations.

Spark Networks operates in various international markets, primarily in various jurisdictions within the EU, and as a result, is exposed to foreign exchange risk for the euro, U.S. dollar and Great British Pound (“GBP”). On a pro forma basis, during the fiscal year ended December 31, 2017, approximately 70% of Spark Networks’ total revenue would have been derived from local currencies other than the euro. Spark Networks will translate international revenues into euro-denominated operating results, so during periods of a strengthening euro, Spark Networks’ international revenues will be reduced when translated into euro. In addition, as foreign currency exchange rates fluctuate, the translation of international revenues into euro-denominated operating results affects the period-over-period comparability of such results. Spark Networks faces similar risks as a result of revenue earned in other currencies.

Spark Networks will report in euro going forward. Spark Networks’ primary exposure to foreign currency exchange risk relates to investments in non-EU subsidiaries that transact business in a functional currency other than the euro, primarily the U.S. dollar. To the extent that the U.S. dollar continues to weaken relative to the euro, the translation of international revenues into euro will reduce Spark Networks’ euro-denominated operating results and will affect period-over-period comparability.

Fluctuating foreign exchange rates can also result in foreign currency exchange gains and losses. Spark Networks does not intend to hedge any foreign currency exposures. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.” The continued growth and expansion of international operations into new countries increases its exposure to foreign exchange rate fluctuations. Significant foreign exchange rate fluctuations, in the case of one currency or collectively with other currencies, could adversely affect future results of operations.

U.S. investors may have difficulty enforcing civil liabilities against Spark Networks or members of its Administrative Board.

Certain of the members of the Administrative Board are non-residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible, or may be very difficult, to serve process on such persons or Spark Networks in the United States or to enforce judgments obtained in U.S. courts against them or Spark Networks based on civil liability provisions of the securities laws of the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Germany. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of any judgment in Germany will depend on the particular facts of the case as well as the laws and treaties in effect at the time. Litigation in Germany is also subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. Proceedings in Germany would have to be conducted in the German language, and all documents submitted to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor to bring an original action in a German court predicated upon the civil liability provisions of the U.S. federal securities laws against Spark Networks and the members of its Administrative Board. The United States and Germany do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters, though recognition and enforcement of foreign judgments in Germany is possible in accordance with applicable German laws.

If Spark Networks fails to maintain an effective system of internal control over financial reporting in the future, it may not be able to accurately report its financial condition, results of operations or cash flows, which may adversely affect investor confidence.

The Sarbanes-Oxley Act requires, among other things, that Spark Networks maintain effective internal control over financial reporting and disclosure controls and procedures. Spark Networks is required, under SOX 404, to perform system and process evaluations and testing of internal controls over financial reporting to allow management to report annually (beginning with the filing of the second Annual Report) on the effectiveness of internal control over financial reporting. This assessment requires disclosure of any material weaknesses in Spark Networks’ internal control over financial reporting identified by management. SOX 404 also generally requires an attestation from Spark Networks’ independent registered public accounting firm on the effectiveness of internal control over financial reporting. However, for as long as Spark Networks remains an EGC, it intends to take advantage of the exemption permitting it not to comply with the independent registered public accounting firm attestation requirement. At the time when Spark Networks is no longer an EGC, its independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which Spark Networks’ controls are documented, designed or operating. Remediation efforts may not enable Spark Networks to avoid a material weakness in the future.

Compliance with SOX 404 will require the incurrence of substantial accounting expense and consume significant management efforts. Spark Networks may not be able to complete evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if Spark Networks identifies one or more material weaknesses in internal control over financial reporting, it will be unable to assert that its internal control over financial reporting is effective. Spark Networks cannot assure you that there will not be material weaknesses or significant deficiencies in its internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit its ability to accurately report financial condition, results of operations or cash flows. If Spark Networks is unable to conclude that internal control over financial reporting is effective, or if its independent registered public accounting firm determines Spark Networks has a material weakness or significant deficiency in internal control over financial reporting, it could lose investor confidence in the accuracy and completeness of its financial reports, the market price of the Spark Networks ADSs could decline, and Spark Networks could be subject to sanctions or investigations by the NYSE American, the SEC or other regulatory authorities. Failure to remedy any material weakness in internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict future access to the capital markets.

U.S. investors could suffer adverse tax consequences if Spark Networks is characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.

Generally, if, for any taxable year, at least 75% of Spark Networks’ gross income is passive income, or at least 50% of the gross average quarterly value of Spark Networks’ assets is attributable to assets that produce passive income or are held for the production of passive income, Spark Networks would be characterized as a PFIC for U.S. federal income tax purposes. If Spark Networks is characterized as a PFIC, U.S. holders of Spark Networks ordinary shares or ADSs may suffer adverse tax consequences, including having gains realized on the sale of Spark Networks ordinary shares or ADSs treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends paid by Spark Networks to individuals who are U.S. holders, and having interest charges apply to distributions by Spark Networks and the proceeds of sales of Spark Networks ADSs or shares.

Risks Relating to the Spark Networks ADSs

There may be limited trading volume for Spark Networks’ ADSs, which could reduce liquidity for the holders of Spark Networks ADSs, and may cause the price of Spark Networks ADSs to be volatile, all of which may lead to losses by investors.

There may be limited trading volume for Spark Networks ADSs on the NYSE American, such that trading does not reach the level that enables holders of Spark Networks ADSs to freely sell their Spark Networks ADSs in substantial quantities on an ongoing basis and thereby readily achieve liquidity for their investment. In addition, if there is limited trading volume, the Spark Networks ADSs may experience significant market price and volume fluctuations in the future, in response to factors such as announcements of developments related to Spark Networks and its subsidiaries, announcements by competitors of Spark Networks and its subsidiaries, fluctuations in financial results and general conditions in the dating services industry.

Future sales of Spark Networks ADSs or Spark Networks ordinary shares or securities convertible or exchangeable for Spark Networks ADSs or Spark Networks ordinary shares, or the perception that such sales might occur, may cause the price of Spark Networks ADSs to decline and may dilute your voting power and your ownership interest in Spark Networks.

If existing stockholders or option holders sell, or indicate an intention to sell, substantial amounts of Spark Networks ADSs (or Spark Networks ordinary shares that can be deposited with the Spark Networks ADS Depositary in exchange for Spark Networks ADSs) in the public market, the price of Spark Networks ADSs could decline. The perception in the market that these sales may occur could also cause the price of Spark Networks ADSs to decline.

The price of Spark Networks ADSs may fluctuate significantly.

The stock market generally has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. Broad market and industry factors may negatively affect the market price of Spark Networks ADSs, regardless of Spark Networks’ actual operating performance. The market price and liquidity of the market for Spark Networks ADSs may fluctuate and may be significantly affected by numerous factors, some of which are beyond Spark Networks’ control.

These factors include:

Your rights as a holder of ADSs representing ordinary shares of a German company organized as a European stock corporation may differ from your rights as a stockholder in a U.S. corporation.

Spark Networks is organized as a European stock corporation (Societas Europaea, SE) under the laws of Germany. You should be aware that the rights of stockholders under German law differ in important respects from those of stockholders in a U.S. corporation. These differences include, in particular:

Holders of Spark Networks ADSs will not have the same voting rights as Spark Networks stockholders, which may affect the value of Spark Networks ADSs.

Holders of Spark Networks ADSs will not be able to directly vote underlying Spark Networks ordinary shares. Holders of Spark Networks ADSs may instruct the Spark Networks ADS Depositary how to vote the Spark Networks ordinary shares underlying their ADSs. If Spark Networks asks it to, the Spark Networks ADS Depositary will send out information about stockholder meetings and solicit voting instructions and will try to carry out voting instructions it receives. However, Spark Networks is not required to instruct the Spark Networks ADS Depositary to take action with respect to stockholder meetings. If it does not do so, holders of Spark Networks ADSs can still send voting instructions to the Spark Networks ADS Depositary, and the Spark Networks ADS Depositary may try to carry out those instructions, but it is not required to do so. However, holders of Spark Networks ADSs may not become aware of stockholder meetings if the Spark Networks ADS Depositary does not send out information. Even if the Spark Networks ADS Depositary does solicit voting instructions, holders of Spark Networks ADSs may not receive the information in time. Because of these factors, holders of Spark Networks ADSs may not be able to effectively exercise voting rights that they would have if they held Spark Networks ordinary shares directly.

The principal stockholders and management of Spark Networks own a significant percentage of Spark Networks Ordinary Shares and will be able to exert significant influence over matters subject to stockholder approval.

Members of the Administrative Board and holders of 5% or more of Spark Networks ordinary shares beneficially own a majority of Spark Networks ordinary shares (including Spark Networks ordinary shares represented by Spark Networks ADSs). Currently, the principal stockholders (those stockholders owning at least 5% of Spark Networks ordinary shares) and management of Spark Networks hold approximately 65% (excluding any shares underlying options or RSUs) of the Spark Networks ordinary shares (which may be held in the form of Spark Networks ADSs). These stockholders have significant influence over the outcome of all matters requiring stockholder approval. For example, these stockholders may be able to influence the outcome of elections of members of Administrative Board, amendments of Spark Networks’ organizational documents, or approval of any merger, sale of assets, or other major corporate transactions. This may prevent or discourage unsolicited acquisition proposals or offers for Spark Networks ADSs that you may feel are in your best interest as a holder of Spark Networks ADSs. The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their Spark Networks ordinary shares, which might affect the prevailing market price for Spark Networks ADSs.

You might not receive distributions on Spark Networks ordinary shares represented by the Spark Networks ADSs or any value for them.

Under the terms of the Spark Networks Deposit Agreement, the Spark Networks ADS Depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on the Spark Networks ordinary shares after deducting fees and expenses. You will receive these distributions in proportion to the number of Spark Networks ordinary shares represented by your Spark Networks ADSs. However, in accordance with the limitations set forth in the Spark Networks Deposit Agreement, the Spark Networks ADS Depositary is not required to make a distribution if it decides it may be unlawful or impractical to make a distribution available to holders of Spark Networks ADSs.

Certain or all of the holders of Spark Networks ADSs may be unable to claim tax credits with respect to, or tax refunds to reduce German withholding tax applicable to the payment of dividends, or a dividend may be effectively taxed twice.

Spark Networks does not anticipate paying dividends on its Spark Networks ADSs for the foreseeable future. As a German tax resident company, however, if Spark Networks pays dividends, such dividends will be subject to German withholding tax. Currently, the applicable German withholding tax rate is 26.375% of the gross dividend. This German tax can be reduced to the applicable U.S.-Germany income tax treaty (“Treaty”) rate, which is generally 15%, if the applicable taxpayer is eligible for such Treaty rate and files an application containing a specific German tax certificate with the German Federal Central Tax Office (Bundeszentralamt für Steuern). If such a tax certificate cannot be delivered to the Spark Networks ADS holder due to applicable settlement mechanics or lack of information regarding the Spark Networks ADS holder, holders of the New Spark ADSs may be unable to benefit from the double tax treaty relief (including “Eligible U.S. Holders” as defined under the Treaty) and may be unable to file for a credit of such withholding tax in its jurisdiction of residence. Further, the payment made to the Spark Networks ADS holder equal to the net dividend may, under the tax law applicable to the Spark Networks ADS holder, qualify as taxable income that is in turn subject to withholding, which could mean that a dividend is effectively taxed twice. There can be no guarantee that the information delivery requirement can be satisfied in all cases, which could result in adverse tax consequences for affected Spark Networks ADS holders. Spark Networks ADS holders should note that the applicable interpretation circular (Besteuerung von American Depositary Receipts (ADR) auf inländische Aktien) issued by the German Federal Ministry of Finance (Bundesministerium der Finanzen), dated May 24, 2013 (reference number IV C 1-S2204/12/10003) (the “ADR Tax Circular”), is not binding on German courts, and there is no certainty as to whether a German tax court will follow the ADR Tax Circular in determining the German tax treatment of the Spark Networks ADSs. In addition, the ADR Tax Circular does not include details on how an ADR program should be designed. If the Spark Networks ADSs are determined not to fall within the scope of application of the ADR Tax Circular, or a German tax court does not follow the ADR Tax Circular, and profit distributions made with respect to the Spark Networks ADSs were not treated as a dividend for German tax purposes, the Spark Networks ADS holder would not be entitled to a refund of any taxes withheld on the dividends under German tax law and profit distributions made with respect to the Spark Networks ADSs may be effectively taxed twice.

You may have less access to information about Spark Networks and less opportunity to exercise your rights as a security holder if you hold Spark Networks ADSs instead of Spark Networks ordinary shares.

The rights and terms of the Spark Networks ADSs are designed to replicate, to the extent reasonably practicable, the rights attendant to Spark Networks ordinary shares, for which there is no active trading market in the United States. However, because of aspects of German law, Spark Networks’ Articles of Association and the terms of the Spark Networks Deposit Agreement under which the Spark Networks ADSs are issued, your rights as a holder of Spark Networks ADSs will differ in various ways from a stockholder’s rights, and you may be affected in other ways, including: