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FriendFinder Reports Financial Results for Second Quarter

SUNNYVALE, Calif. — FriendFinder Networks Inc., a leading Internet and technology company providing services in the rapidly expanding markets of social networking and web-based video sharing, today announced financial results for the second quarter and six months ended June 30, 2011.

Second Quarter Ended June 30, 2011 Highlights:

Income from operations increased 15.2% year-over-year to $18.0 million;

Adjusted EBITDA increased 14.5% year-over-year to $27.0 million;

Average Lifetime Net Revenue per Subscriber increased 10.6% to $82.55;

Raised $50 million in gross proceeds from Initial Public Offering;

Repaid $58.2 million in outstanding debt since March 31, 2011, including $8.9 million in August 2011.

Six Months Ended June 30, 2011 Highlights:

Income from operations increased 31.8% year-over-year to $37.7 million;

Adjusted EBITDA increased 22.7% year over year to $54.0 million;

Repaid $72.9 million in outstanding debt since December 31, 2010, including $8.9 million in August 2011.

Commenting on FriendFinder Networks Inc.’s financial results, Marc Bell [pictured], Chief Executive Officer of FriendFinder Networks Inc. stated, “We are pleased with our second quarter financial performance and our ability to increase income from operations and adjusted EBITDA.

Additionally, we achieved Free Cash Flow per Common Share of $0.72 in the second quarter. We continued to seek efficiencies in our affiliate spending, which resulted in gross profit margin of 70.0%, an increase from 66.7% in the same period in 2010. We increased the average monthly revenue per user 4.2% and the average lifetime net revenue per user 10.6%. In addition, we have paid down $58.2 million in debt since the end of the first quarter.”

Mr. Bell further stated, “In August, we announced our first acquisition as a public company, PerfectMatch.com, which provides us with an opportunity to increase our presence in the general audience networking arena. We remain committed to focusing our efforts on revenue growth, both organically and through acquisitions. Organically, we are working on solutions that will increase our subscriber base in an economically viable way and continuing to pursue strategic acquisitions that complement our already substantial user base.”

Second Quarter Financial Results:

Gross Profit for the second quarter of 2011 was $58.3 million, an increase of 3.4% compared to $56.4 million in the second quarter of 2010. The increase in gross profit was primarily the result of a reduction in affiliate expenses of $4.1 million in the three months ended June 30, 2011, compared to the same period in 2010.

Income from operations for the second quarter of 2011 was $18.0 million, an increase of 15.2% compared to $15.6 million for the second quarter of 2010. The increase was attributable to a $3.5 million reduction in selling and marketing costs related to a decrease in the Company’s ad buy expenses for its internet segment and a $2.4 million reduction in amortization expense, offset by a $4.3 million increase in general and administrative expense. The increase in general and administrative expense was the result of an increase of $2.6 million in legal expenses, of which $1.4 million was associated with the Broadstream Capital Partners, Inc. arbitration case and $2.3 million of stock compensation expense related to the May 2011 initial public offering.

Net Loss for the second quarter of 2011 was ($11.9 million), or ($0.55) per share, compared to ($4.9 million), or ($0.36) per share, for the second quarter of 2010. Included in the net loss was a $7.3 million loss on extinguishment of debt related to the IPO proceeds that were used to pay down existing debt and $5.0 million related to the final settlement of the Broadstream arbitration case.

Adjusted EBITDA for the second quarter of 2011 was $27.0 million, an increase of 14.5% compared to $23.6 million for the second quarter of 2010.

Six Month Financial Results:

Gross Profit for the six months ended June 30, 2011 was $115.0 million, an increase of 1.8% compared to $113.0 million in the same period in 2010.

Income from operations for the six months ended June 30, 2011 was $37.7 million, an increase of 31.8% compared to $28.6 million for the same period in 2010.

Net Loss for the six months ended June 30, 2011 was ($15.5 million), or ($0.88) per share, compared to ($13.2 million), or ($0.96) per share for the same period in 2010, representing a $2.3 million increase.

Adjusted EBITDA for the six months ended June 30, 2011 was $54.0 million, an increase of 22.7% compared to $44.0 million for the same period in 2010.

The Company presents its results through two reportable segments:

Internet, which consists of social networking, live interactive video and premium content websites; and Entertainment, which consists of studio production and distribution, licensing and publishing. Certain corporate expenses are not allocated to segments.

Internet net revenue was $78.0 million for the second quarter of 2011, a decrease of $1.5 million, or 1.9%, compared to $79.6 million for the second quarter of 2010. Entertainment net revenue was $5.3 million for the second quarter of 2011, an increase of $264,000, or 5.2%, compared to $5.1 million for the second quarter of 2010.

Internet cost of revenue was $21.2 million for the second quarter of 2011, a decrease of $4.1 million, or 16.2%, compared to $25.3 million for the second quarter of 2010. Entertainment cost of revenue was $3.9 million for the second quarter of 2011, an increase of $911,000, or 30.8%, compared to $3.0 million for the second quarter of 2010.

Internet gross profit was $56.9 million for the second quarter of 2011, an increase of $2.6 million, or 4.7%, compared to $54.3 million for the second quarter of 2010. Entertainment gross profit was $1.4 million for the second quarter of 2011, a decrease of $732,000, or 34.6%, compared to $2.1 million for the second quarter of 2010.

Internet income from operations was $21.7 million for the second quarter of 2011, an increase of $5.0 million, or 29.6%, compared to $16.8 million for the second quarter of 2010. Entertainment loss from operations was ($110,000) for the second quarter of 2011, a decrease of $254,000 compared to income from operations of $144,000 for the second quarter of 2010. Unallocated corporate expenses were ($3.6 million) for the second quarter of 2011, an increase of $2.3 million, or 180%, compared to ($1.3 million) for the second quarter of 2010.

Operating Data – All Websites:

Average Lifetime Net Revenue per Subscriber for the second quarter of 2011 was $82.55, an increase of $7.91, or 10.6%, compared to $74.64 for the second quarter of 2010.

Average Revenue per Subscriber (ARPU) for the second quarter of 2011 was $20.48, an increase of $1.02, or 5.2%, compared to $19.46 for the second quarter of 2010.

Cost per Gross Addition (CPGA) for the second quarter of 2011 was $43.04, a decrease of $7.56, or 14.9%, compared to $50.60 for the second quarter of 2010.

Churn for the second quarter of 2011 was 16.3%, a 0.8% increase as compared to the second quarter of 2010.

Average subscribers for the second quarter of 2011 were 911,560, a decrease of 113,897, or 11.1%, compared to 1,025,457 for the second quarter of 2010.

Balance Sheet, Cash and Debt

As of June 30, 2011, the Company had cash and cash equivalents of $40.2 million, compared to $42.0 million at December 31, 2010. As of August 15, 2011, the Company had outstanding principal debt of $499.0 million. In the second quarter 2011, the Company paid down $47.1 million of First Lien Notes and $2.2 million of Cash Pay Second Lien Notes. In addition, on August 4, 2011, the Company paid down $8.9 million of New First Lien Notes and Cash Pay Second Lien Notes.

On May 11, 2011, the Company completed its initial public offering issuing 5 million shares of common stock at a price of $10.00 per share. The Company raised gross proceeds of $50.0 million, less underwriting fees and commissions of approximately 7.25% of the gross proceeds, or $3.6 million, and other offering expenses incurred since the new financing of the Company’s debt in October 2010 of $2.9 million, resulting in $43.5 million of net proceeds.

Non-GAAP Financial Measures

Management believes that certain non-GAAP financial measures of earnings before deducting net interest expense, income taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA are helpful financial measures as investors, analysts and others frequently use EBITDA and Adjusted EBITDA in the evaluation of other companies in FriendFinder Networks Inc.’s industry. For example, these measures eliminate one-time adjustments made for accounting purposes in connection with the Company’s Various acquisition in order to provide information that is directly comparable to its historical and current financial statements.

For more information regarding the Company’s acquisition of Various, please refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Our History.” in the Form 10-Q for the second quarter ended June 30, 2011 and the initial public offering Prospectus filed with the Securities and Exchange Commission on August 15, 2011 and May 11, 2011, respectively.

These non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in FriendFinder Networks Inc.’s industry, as other companies in FriendFinder Networks Inc.’s industry may calculate such financial measures differently, particularly as it relates to nonrecurring, unusual items. The Company’s non-GAAP financial measures of EBITDA, Adjusted EBITDA and Free Cash Flow per Common Share are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flow from operating activities or as measures of liquidity or as alternatives to net income or as indications of operating performance or any other measure of performance derived in accordance with GAAP.

Management derived EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2011 and 2010 using the adjustments shown in the attached table. Free Cash Flow per Common Share was derived by subtracting capital expenditures and cash interest from Adjusted EBITDA and dividing the result by the weighted average shares outstanding for the period.

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