lov-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 001-38252

Spark Networks SE

(Exact name of Registrant as specified in its Charter)


Germany			N/A
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
Kohlfurter Straße 41/43 Berlin Germany			10999
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (+49) 30 868000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

American Depository Shares each representing one-tenth of an ordinary share

LOV

The Nasdaq Stock Market, LLC

Ordinary shares, €1.00 nominal value per share*

* Not for trading purposes, but only in connection with the registration of American Depository Shares pursuant to the requirements of the Securities and Exchange Commission.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of ordinary shares outstanding as of May 10, 2023 was 2,625,476.

Table of Contents


		Page
PART I
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 202 3 and 202 2	4
	Condensed Consolidated Statements of Shareholders' (Deficit) Equity for the three months ended March 31, 202 3 and 202 2	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 202 3 and 202 2	6
	Notes to Condensed Consolidated Financial Statements	7
	Note 1 - Basis of Presentation and Summary of Significant Accounting Policies	7
	Note 2 - Revenue	8
	Note 3 - Income Taxes	8
	Note 4 - Goodwill and Intangible Assets	9
	Note 5 - Accrued Expenses and Other Liabilities	10
	Note 6 - Debt	11
	Note 7 - Contingencies	12
	Note 8 - Financial Instruments and Fair Value Measurements	13
	Note 9 - Stock-based Compensation	14


	Note 10 - Subsequent Events	16
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

PART II
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
	Signatures	27

PART I

Financial Information

Item 1. Financial Statements

Spark Networks SE

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)


	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	10,282	$	11,438
Accounts receivable, net of allowance of $177 and $85, respectively	5,585		5,154
Prepaid expenses	3,634		3,514
Other current assets	2,200		1,557
Total current assets	21,701		21,663
Property and equipment, net of accumulated depreciation of $5,167 and $4,782, respectively	5,467		4,956
Goodwill	119,287		119,276
Intangible assets, net of accumulated amortization of $17,111 and $16,798, respectively	11,887		13,299

Other assets	5,422		5,183
Total assets	$	163,764	$	164,377
Liabilities and Shareholders' Deficit
Current liabilities:
Debt	$	95,093	$	94,817
Accounts payable	7,553		6,487
Deferred revenue	28,945		28,085
Accrued expenses and other current liabilities	26,848		24,247
Total current liabilities	158,439		153,636

Deferred tax liabilities	408		409
Other liabilities	17,017		17,118
Total liabilities	175,864		171,163
Contingencies (Note 7)
Shareholders' Deficit:
Common stock, €1.00 nominal value; 3,992,078 shares authorized; 2,661,386 shares issued; 2,625,476 shares outstanding as of March 31, 2023 and 2,623,820 shares outstanding as of December 31, 2022	3,064		3,064
Treasury stock, at €1.00 nominal value; 35,910 shares as of March 31, 2023 and 37,566 shares as of December 31, 2022	(40)		(42)
Additional paid-in capital	224,664		224,506
Accumulated deficit	(248,952)		(244,593)
Accumulated other comprehensive income	9,164		10,279
Total shareholders' deficit	(12,100)		(6,786)
Total liabilities and shareholders' deficit	$	163,764	$	164,377

The accompanying notes are an integral part of these condensed consolidated financial statements.

Spark Networks SE

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except share and per share data)


	Three Months Ended March 31,
	2023		2022

Revenue	$	41,339	$	49,907
Operating costs and expenses:
Cost of revenue, exclusive of depreciation and amortization	27,292		34,246
Other operating expenses	13,506		15,435
Depreciation and amortization	618		603
Impairment of intangible assets	1,100		—
Total operating costs and expenses	42,516		50,284
Operating loss	(1,177)		(377)
Other income (expense):

Interest expense	(3,857)		(6,882)
Gain (Loss) on foreign currency transactions	680		(767)
Other income	40		263
Total other expense, net	(3,137)		(7,386)
Loss before income taxes	(4,314)		(7,763)
Income tax benefit (expense)	(45)		292
Net loss	(4,359)		(7,471)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(1,115)		1,093
Comprehensive loss	$	(5,474)	$	(6,378)

Loss per share:
Basic loss per share	$	(1.66)	$	(2.85)
Diluted loss per share	$	(1.66)	$	(2.85)

Weighted average shares outstanding:
Basic	2,624,795		2,617,397
Diluted	2,624,795		2,617,397

The accompanying notes are an integral part of these condensed consolidated financial statements.

Spark Networks SE

Condensed Consolidated Statements of Shareholders' (Deficit) Equity (Unaudited)

(in thousands, except share data)


	Three Months Ended March 31, 2023
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total shareholders' deficit
Balance at January 1, 2023	2,661,386	$	3,064	(37,566)	$	(42)	$	224,506	$	(244,593)	$	10,279	$	(6,786)
Stock-based compensation	—	—		—	—		173		—		—		173
Treasury stock issued pursuant to equity-based plans	—	—		1,656	2		(15)		—		—		(13)
Net loss	—	—		—	—		—		(4,359)		—		(4,359)
Foreign currency translation adjustments	—	—		—	—		—		—		(1,115)		(1,115)
Balance at March 31, 2023	2,661,386	$	3,064	(35,910)	$	(40)	$	224,664	$	(248,952)	$	9,164	$	(12,100)


	Three Months Ended March 31, 2022
	Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total shareholders' equity
Balance at January 1, 2022	2,661,386	$	3,064	(43,989)	$	(48)	$	223,103	$	(200,403)	$	6,977	$	32,693
Stock-based compensation	—	—		—	—		502		—		—		502
Net loss	—	—		—	—		—		(7,471)		—		(7,471)
Foreign currency translation adjustments	—	—		—	—		—		—		1,093		1,093
Balance at March 31, 2022	2,661,386	$	3,064	(43,989)	$	(48)	$	223,605	$	(207,874)	$	8,070	$	26,817

The accompanying notes are an integral part of these condensed consolidated financial statements.

Spark Networks SE

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Three Months Ended March 31,
	2023		2022

Net loss	$	(4,359)	$	(7,471)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	618		603
Impairment of intangible assets	1,100		—
Loss on tangible and intangible assets	—		15
Unrealized (gain) loss on foreign currency transactions	(337)		1,078
Stock-based compensation expense	173		502
Amortization of debt issuance costs and accretion of debt discounts	564		805
Loss on extinguishment of debt	—		3,964
Deferred tax expense	—		(79)
Provision for credit losses	197		142
Non-cash lease expense	562		546
Change in operating assets and liabilities:
Accounts receivable	(626)		261
Prepaid expenses and other current assets	(728)		(1,053)
Other assets	(775)		(31)
Accounts payable, accrued expenses, and other current liabilities	3,499		(10,282)
Other liabilities	(505)		(599)
Deferred revenue	595		1,124
Net cash used in operating activities	(22)		(10,475)

Capital expenditures	(840)		(490)

Net cash used in investing activities	(840)		(490)

Proceeds from debt, net of discount and issuance costs	—		97,750
Repayment of debt	—		(85,552)
Debt issuance costs paid to third parties	—		(3,531)
Payment of early extinguishment of debt charge	—		(893)





Net cash provided by financing activities	—		7,774

Net change in cash and cash equivalents and restricted cash	(862)		(3,191)
Effects of exchange rate fluctuations on cash and cash equivalents and restricted cash	(291)		55
Net decrease in cash and cash equivalents and restricted cash	(1,153)		(3,136)
Cash and cash equivalents and restricted cash at beginning of period	11,569		16,279
Cash and cash equivalents and restricted cash at end of period	$	10,416	$	13,143

Supplemental disclosure of cash flow information:
Cash paid for interest including payment of early extinguishment of debt charges of $— and $893, respectively	$	3,295	$	2,953
Cash paid for income taxes	$	—	$	29
Non-cash investing and financing activities:
Property and equipment in accounts payable and accrued liabilities	$	75	$	—

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets	Mar-23		Dec-22
Cash and cash equivalents	$	10,282	$	11,438
Restricted cash included in other current assets	$	134	$	131
Total cash and cash equivalents and restricted cash as shown on the condensed consolidated statements of cash flows	$	10,416	$	11,569

The accompanying notes are an integral part of these condensed consolidated financial statements.

Spark Networks SE

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1. Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Spark Networks SE (the "Company") is a leader in social dating platforms for meaningful relationships focusing on the 40+ age demographic and faith-based affiliations, including Zoosk, EliteSingles, SilverSingles, Christian Mingle, Jdate, and JSwipe, among others. The Company's brands are tailored to quality dating with real users looking for love and companionship in a safe and comfortable environment. The Company is domiciled in Germany with significant corporate operations, including executive leadership, accounting and finance, located in the United States. Except where the context clearly indicates otherwise, the terms the "Company,” “Spark Networks,” “we,” “us” or “our” refer to Spark Networks SE and its consolidated subsidiaries.

Basis of Presentation and Consolidation

The Company prepares its consolidated financial statements in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), regarding interim financial reporting. The unaudited condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

In management's opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in management’s opinion, all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company's balance sheets, statement of operations and comprehensive loss, statement of shareholders' (deficit) equity and statement of cash flows for the periods presented. Interim results are not necessarily indicative of the results that may be expected for the Company's entire fiscal year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2022. The balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including certain notes required by U.S. GAAP on an annual reporting basis. We have condensed or omitted certain information and notes normally included in complete financial statements prepared in accordance with U.S. GAAP. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2022, which are included in our 2022 Form 10-K.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Significant estimates and assumptions are required in the determination of: deferred tax asset valuation allowances, unrecognized tax benefits, and annual impairment testing of goodwill and indefinite-lived intangible assets. The Company evaluates its estimates and judgments on an ongoing basis based on historical experience, expectations of future events and various other factors that it believes to be reasonable under the circumstances and revises them when necessary. Actual results may differ from the original or revised estimates.

Liquidity and Capital Resources

Going Concern

The Company's financial statements are prepared in accordance with U.S. GAAP, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of the date of the financial statements, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Principal conditions and events leading to this conclusion are that the Company has generated losses from operations, continues to have declines in revenues, incurred impairment charges to its Zoosk goodwill and intangible assets, has cash outflows from operations and has a working capital deficiency. Based on these conditions and events, we may not be able to comply with the covenants under our Financing Agreement (see Note 6. Debt) over the next 12 months, specifically related to the maximum leverage ratio covenant. The Company plans to alleviate these conditions and events by implementing additional cost reduction measures to reduce our operating expenses and optimize our net working capital and profit.

On March 29, 2023, we entered into an Amendment and Forbearance Agreement with our lender, MGG Investment Group LP, due to not delivering financial statements accompanied by a report and an opinion that does not include any qualification, exception or explanatory paragraph expressing substantial doubt about the ability to continue as a going concern (“Event of Default”). Among other terms, this agreement contains terms that state during the forbearance period, defined as the date of the Agreement through the earlier of May 15, 2023 or the occurrence of a Termination Event (as defined in the Amendment and Forbearance Agreement), our lender agrees to forbear from exercising any of its remedies with respect to this Event of Default. Based on these facts and circumstances, we have reclassified the debt from long-term to current within the Unaudited Condensed Consolidated Balance Sheets. On May 15, 2023, we entered into Amendment No. 1 to Forbearance Agreement with MGG, pursuant to which the forbearance period was extended through the earlier of May 25, 2023 or the occurrence of a Termination Event. We intend to renegotiate certain terms of our Financing Agreement (including possibly an additional extension of the forbearance period) during this additional forbearance period.

If we are not able to extend the forbearance period or renegotiate certain terms of the Financing Agreement, our lender could declare all or any portion of the loans then outstanding to be accelerated and due and payable, including the aggregate principal of loans outstanding, accrued and unpaid interest thereon, and all fees, premiums and other amounts payable under the Financing Agreement. Our lender could also require that we and our subsidiaries that have guaranteed our indebtedness pay the obligations in full, and exercise all of its available remedies as a secured party following an event of default with respect to all of our and our subsidiary guarantors’ assets that serve as collateral securing our indebtedness, including foreclosing on, and disposing of, our and our subsidiary guarantors’ assets. If any such demand was to be made, there can be no assurance that our assets would be sufficient to repay the indebtedness in full; if our assets were insufficient to repay the indebtedness in full following such a demand, and if we were not able to come to a satisfactory arrangement with our lender to restructure our indebtedness, possible outcomes for the Company would include filing for bankruptcy or being forced into bankruptcy. If any of these events were to occur, our ability to fund our operations could be materially impaired.

Recently Adopted Accounting Pronouncements

There were no new accounting pronouncements issued by the Financial Accounting Standards Board during the three months ended March 31, 2023 and through the date of filing of this report that had or are expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Note 2. Revenue

For the three months ended March 31, 2023 and 2022, revenue was as follows:


	Three Months Ended March 31, 2023
(in thousands)	2023		2022

Subscription revenue	$	39,361	$	47,542
Virtual currency revenue	1,332		1,525
Advertising revenue	646		840
Total Revenue	$	41,339	$	49,907

Revenue disaggregated by geography, based on where the revenue is generated, consists of the following:


	Three Months Ended March 31, 2023
(in thousands)	2023	2022

United States	$

SEC Form 10-Q filed by Spark Networks SE