LOV Spark Networks Plc

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

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

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)

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*

Securities registered pursuant to Section 12(g) of the Act: None

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 ☐

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

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

The aggregate market value of the registrant’s American Depository Shares held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $65.6 million.

						Page
PART I
Item 1.			Business			6
Item 1A.			Risk Factors			11
Item 1B.			Unresolved Staff Comments			37
Item 2.			Properties			38
Item 3.			Legal Proceedings			38
Item 4.			Mine Safety Disclosures			38
PART II
Item 5.			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			38
Item 6.			[Reserved]			38
Item 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			39
Item 7A.			Quantitative and Qualitative Disclosures About Market Risk			46
Item 8.			Financial Statements and Supplementary Data			47
Item 9.			Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			79
Item 9A.			Controls and Procedures			79
Item 9B.			Other Information			85
Item 9C.			Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			86
PART III
Item 10.			Directors, Executive Officers and Corporate Governance			87
Item 11.			Executive Compensation			91
Item 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			92
Item 13.			Certain Relationships and Related Transactions, and Director Independence			93
Item 14.			Principal Accounting Fees and Services			94
PART IV
Item 15.			Exhibits, Financial Statement Schedules			94
Item 16			Form 10-K Summary			96
			Signatures			97

We are a leader in social dating platforms for meaningful relationships focusing on the 40+ demographic and faith-based affiliations. Since our inception, we have had 112 million users register with our dating platforms (which includes inactive accounts). We currently operate a portfolio of brands accessible to customers across the globe. However, our focus is in five key geographies – the United States of America ("U.S."), Canada, Australia, the United Kingdom ("UK") and France – from which we generate the majority of our revenues.

•We build world’s best dating communities focused on the 40+ age demographic and religious communities: our users are active, committed and sophisticated.

•We excel in customer safety, privacy and social dating features.

•We create engaging brands and innovative products to help our customers find true love seamlessly.

We expect to continue to allocate significant marketing capital towards North America as we look to drive both the organic growth of our existing brand portfolio and expansion through the launch of new or acquired brands.

We supplement our online marketing by employing a variety of offline marketing. These include television, radio and podcasting. We believe a more consistent, targeted marketing message, delivered through an array of available marketing channels, will improve consumer awareness of our brands, drive more traffic to our products, and therefore increase the number of active users and paying subscribers.

Our customer support services aim to ensure an enjoyable, smooth and safe journey for all of our users. Our multi-lingual support teams provide comprehensive support for our users, which includes assisting members with billing questions, helping members complete personal profiles and answering technical questions. Customer support is also engaged in monitoring our products for fraudulent activity. Certain of our customer support services are provided by our third-party commercial partners, and all customer service personnel receive ongoing training in an effort to better personalize the experience for members and paying subscribers who contact us and to capitalize on upselling opportunities.

Value Based Culture

Commitment to Career Development

Attractive Compensation and Benefit program

Diversity and Inclusion

Healthy Work Environment

Available Information

We file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports with the Securities and Exchange Commission (“SEC”). You may obtain copies of these documents by accessing the SEC’s website at www.sec.gov. In addition, as soon as reasonably practicable after such materials are furnished to the SEC, we make copies of these documents available to the public, free of charge, through our website. Our website address is www.spark.net.

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks described below, together with the other information contained in this annual report, including our consolidated financial statements and the related notes and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. We cannot assure you that any of the events discussed below will not occur. These events could have a material and adverse impact on our business, financial condition, results of operations and prospects. If that were to happen, the trading price of our ordinary shares could decline, and you could lose all or part of your investment.

•Establishing and maintaining strong brands;

•The dating industry is competitive with low barriers to entry, low switching costs and new products and entrants;

•Attracting new members, converting members into paying subscribers and retaining our paying subscribers;

•The ability to attract and retain users through cost-effective marketing efforts;

•Distribution and marketing of our products depends on third party publishers, platforms and mobile app stores;

•Access to our products depends on mobile app stores and other third party platforms;

•The possibility that revenue could be adversely affected if subscriptions cannot be automatically renewed;

•Inappropriate actions by certain users may damage our brand reputation;

•Our success depends on our ability to identify, hire, develop, motivate and retain highly skilled individuals;

•Frequent turnover of our top executives;

•Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.”;

•Failure to maintain an effective system of internal control over financial reporting;

•Risks relating to operations in international markets;

•Foreign currency exchange rate fluctuations;

•Risks related to Silicon Valley Bank ("SVB") events occurring in March, 2023

•Risks related to COVID-19; and

•Impairment risk of goodwill, intangible assets and other long-lived assets.

•Failure to adequately protect our intellectual property rights or accusations of infringement of third-party intellectual property rights;

•Failure to keep pace with rapid technological change;

•Communicating with users and erosion of such ability could have an adverse effect;

•The integrity of our systems, infrastructure and ability to enhance, expand and adapt these systems and infrastructure in a timely and cost-effective manner;

•Services are highly technical and may contain undetected bugs or errors;

•Past cybersecurity incidents in the past and anticipation of being the target of future attacks;

•Reliance on third-party providers who may fail to continue to perform;

•Dependence on third parties to drive traffic to our websites;

•Growth and maintenance of the Internet;

•Ability to access, collect and use personal data about our users;

•Risks related to credit card payments;

•Certain open-source software risks;

•Credit card fees and chargeback costs of credit card companies;

•Loss or material modification of our credit card acceptance privileges; and

•User metrics subject to inherent challenges in measurement.

•Level of indebtedness and compliance with our Financing Agreement (as defined below);

•Ability to generate sufficient cash to service all of our indebtedness; and

•The potential replacement of LIBOR with an alternative reference rate.

•Claims relating to the rapidly evolving regulatory framework on privacy, and consumer protection laws across jurisdictions;

•Litigation and legal risks from various U.S. states and government agencies, due to lack of U.S. federal data privacy legislation;

•Publisher liability for information made available on our sites or apps;

•Being subject to complex international laws;

•Litigation risk;

•Risks relating to the United States Foreign Corrupt Practices Act of 1977 ("FCPA");

•Failure to comply with U.S. securities laws;

•Risk associated with operating as a U.S. public company;

•Difficulty enforcing civil liability against Spark Networks or members of its Administrative Board; and

•Changes in tax treatment of companies engaged in e-commerce.

•Dilution of ownership interests and voting power;

•Limited trading volume for Spark Networks’ ADSs which can reduce liquidity and increase volatility;

•Fluctuation in the price of Spark Networks’ ADSs

•Differing rights as a holder of ADSs representing ordinary shares in a German company compared to rights a Stockholder of a U.S. corporation;

•Holders of ADSs do not have the same voting rights as actual stockholders, and holders of ADSs have less access to information and less opportunity to exercise rights as a holder of ADSs compared to a holder of ordinary shares.

•Principal stockholders own a significant percentage of the Company’s ordinary shares;

•Holders of ADSs may be unable to claim tax credits or refunds to reduce German withholding tax on dividends; and

•Adverse tax consequences if Spark Networks is classified as a passive foreign investment company.

•visitors, members and paying subscribers to our products do not perceive our existing services to be of higher quality;

•we introduce new services or enter into new business ventures that are not favorably received by such parties;

•users feel that their experience is diminished as a result of the decisions we make with respect to the frequency, prominence, format, size and quality of advertisements that we display;

•there are decreases in user sentiment due to questions about the quality or usefulness of our products or concerns related to safety, security, well-being of users or other factors;

•users are no longer willing to pay for subscriptions or in-app purchases;

•users have difficulty installing, updating or otherwise accessing our products on mobile devices as a result of actions by us or third parties that we rely on to distribute our products and deliver our services;

•we fail to keep pace with evolving online, market and industry trends (including the introduction of new and enhanced digital services);

•initiatives designed to attract and retain users and engagement are unsuccessful or discontinued, whether as a result of actions by us, third parties or otherwise;

•third-party initiatives that may enable greater use of our products are discontinued;

•we adopt terms, policies or procedures related to areas such as user data and privacy or advertising that are perceived negatively by our users or the general public;

•we, our partners or companies in our industry are the subject of adverse media reports or other negative publicity;

•there is decreased engagement with our products as a result of changes in prevailing social, cultural or political preferences in the markets where we operate.

•brand strength in the marketplace relative to competitors;

•attractiveness to target niches;

•the size and diversity of member and paying subscriber bases;

•efficacy in user acquisition and marketing optimization;

•the timing and market acceptance of our products and services, including developments and enhancements to products and services relative to those offered by our competitors; and

•customer service and support efforts.

•properly value prospective acquisitions, especially those with limited operating histories;

•fully identify potential risks and liabilities associated with acquired businesses;

•successfully integrate the operations, as well as the accounting, financial controls, management information, technology, human resources and other administrative systems of acquired businesses with our existing operations and systems;

•successfully identify and realize potential synergies among acquired and existing businesses;

•retain or hire senior management and other key personnel at acquired businesses; and

•successfully manage acquisition-related strain on our management, operations and financial resources and those of the various brands in our portfolio.

The continued contributions of our senior management are especially critical to our success. In particular, the loss of Chelsea Grayson, our Chief Executive Officer ("CEO"), David Clark our Chief Financial Officer, and/or Frederic Beckley, our Chief Administrative Officer and General Counsel, could materially and adversely affect us. For a discussion of our senior management, see Item 10—Directors, Executive Officers and Corporate Governance included in PART III of this report. Our continued ability to compete effectively depends, in part, upon our ability to attract new employees. While we have established programs to provide incentives to retain existing employees, particularly our senior management, we cannot assure that we will be able to attract new employees or retain the services of our senior management or any other key employees in the future. Effective succession planning is important to our future success. If we fail to ensure the effective transfer of senior management knowledge and smooth transitions involving senior management across our various businesses, our ability to execute short and long term strategic, financial and operating goals, as well as our business, financial condition and results of operations generally, could be adversely affected.

We previously identified in prior periods and have continued to identify material weaknesses in our internal control over financial reporting. We are taking steps to remediate these material weaknesses. However, we cannot at this time estimate how long it will take to remediate the material weaknesses, and we may not ever be able to remediate the material weaknesses. For additional information regarding these material weaknesses, see Item 9A—Controls and Procedures included in PART III of this report.

•legal claims and compliance challenges caused by unfamiliarity with foreign laws, language and cultural differences;

•lack of staff experience in international markets;

•differing levels of social and technological acceptance of our dating services or lack of acceptance of them;

•competitive environments that favor local businesses;

•limitations on the level of intellectual property protection and;

•trade sanctions, political unrest, terrorism, war, health and safety epidemics, or the threat of any of these events.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. The Company has deposit accounts at SVB. The standard deposit insurance is up to $250,000 per depositor, per insured bank, for each account ownership category. As of March 10, 2023, the company had approximately $4.9 million in deposit accounts at SVB. On March 12, 2023, the U.S. Federal Reserve, and FDIC announced that SVB depositors will have access to all of their money starting March 13, 2023. The Company withdrew the vast majority of its funds on deposit with SVB with an insignificant amount of funds remaining to settle certain fees. Thus, we do not view the risk as material to our financial condition. However, as the FDIC continues to address the situation with SVB and other similarly situated banking institutions, the risk of loss in excess of insurance limitations has generally increased. Any material loss that we may experience in the future could have an adverse effect on our ability to pay our operational expenses or make other payments and may require us to move our accounts to other banks, which could cause a temporary delay in making payments to our vendors and employees and cause other operational inconveniences.

Our business involves the collection, storage, processing, and transmission of personal data, including certain categories of sensitive personal data. Additionally, we maintain sensitive and proprietary information relating to our business, such as our own proprietary information and personal data relating to our employees and customers. An increasing number of organizations, including large online and off-line businesses, Internet companies, financial institutions, and government institutions, have disclosed breaches of their information security systems and other information security incidents, including cyberattacks, ransomware, computer viruses, worms, hacking, phishing, bot attacks or other destructive or disruptive software, distributed denial of service attacks, other attempts to misappropriate customer information, some of which have involved sophisticated and highly targeted attacks. We have previously experienced a data incident on Zoosk and cannot exclude that we will continue to experience these types of breaches, attacks, and other incidents. See Note 9 Commitments and Contingencies to our "Consolidated Financial Statements".

Because techniques used to obtain unauthorized access to or to sabotage information systems change frequently and may not be known until launched against us, we or our service providers may be unable to anticipate or prevent these attacks, react in a timely manner, or implement adequate preventive measures, and we may face delays in our detection or remediation of, or other responses to, security breaches and other privacy and security-related incidents. Unauthorized parties have in the past gained access, and may in the future gain access, to systems or facilities used in our business through various means, including gaining unauthorized access into our systems or facilities, attempting to fraudulently induce our employees, users or others into disclosing user names, passwords, payment card information, or other sensitive information, which may in turn be used to access our information technology, or "IT", systems, or attempting to fraudulently induce our employees, or others into manipulating payment information, resulting in the fraudulent transfer of funds to bad actors. Unauthorized parties may also seek to disrupt or disable our or our service providers’ services through attacks such as ransomware attacks. In addition, we or our service providers may be unable to identify, or may be significantly delayed in identifying, cyberattacks and incidents due to the increasing use of techniques and tools that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic artifacts.

•increasing our vulnerability to general adverse economic and industry conditions;

•requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, product development efforts, marketing expenditures, and other general corporate purposes;

•making business decisions that we might not otherwise make in order to comply with the covenants in our Financing Agreement (defined below);

•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

•exposing us to the risk of increased interest rates as our borrowings are, and may in the future be, at variable interest rates.

On March 11, 2022, the Company entered into a Financing Agreement ( the "Financing Agreement" ) with Zoosk, Inc. and Spark Networks, Inc., the subsidiary guarantor party thereto, the lender party thereto, and MGG Investment Group LP ("MGG"), as administrative agent and collateral agent. The Financing Agreement provides for senior secured term loans with an aggregate principal amount of $100.0 million (collectively, the "Term Loan"). Substantially all of the Company's assets are pledged as collateral. The Financing Agreement was amended on August 5, 2022 and the amendment was further amended and restated on August 19, 2022. The Financing Agreement contains certain financial covenants including quarterly testing of a maximum leverage ratio and a minimum marketing efficiency ratio, an all-times testing of a minimum liquidity ratio, as well as a minimum marketing spending requirement. Additional covenants, among other things, limit our and our subsidiaries' abilities to:

•incur additional indebtedness;

•create or incur additional liens;

•engage in mergers or consolidations;

•sell or transfer assets;

•pay dividends and distributions on our and our subsidiaries’ capital stock;

•make share repurchases;

•make certain acquisitions and;

•engage in certain transactions with affiliates and change lines of business.

•our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory, and other factors, many of which are beyond our control; and

In 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published and will no longer be representative after June 30, 2023. This coincides with an announcement made by the ICE Benchmark Administration Limited indicating that it would have to cease publication of LIBOR tenors immediately after the last publication on June 30, 2023, as a result of not having access to necessary input data to calculate such LIBOR tenors. Therefore, the Federal Reserve, along with the Federal Deposit Insurance Corporation (“FDIC”) and Office of the Comptroller of the Currency issued supervisory guidance encouraging financial institutions to cease entering into new contracts that are indexed off U.S. dollar LIBOR by December 31, 2021. The Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, announced replacement of U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing Rate (“SOFR”). As of December 31, 2022, we have a Term Loan with a LIBOR-based variable interest rate and a maturity date on March 11, 2027. The Term Loan provides for alternate interest rate calculations if LIBOR is no longer widely available, including the SOFR. There can be no assurances as to what alternative interest rates may be and whether such interest rates, such as SOFR, will be more or less favorable than LIBOR and any other unforeseen impacts of the discontinuation of LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR and work with our lenders to ensure any transition away from LIBOR will have minimal impact on our financial condition.

•significant volatility in the market price and trading volume of securities of companies in the sector within which we operate, which is not necessarily related to the operating performance of these companies;

•the mix of services that we provide, during any period, delays between our expenditures to develop and market new services and the generation of sales from those services and the related risk of obsolete services;

•changes in the amount that we spend to develop, acquire or license new services, technologies or businesses;

•changes in our expenditures to promote our services;

•success or failure of our research and development projects or our competitors;

•announcements of acquisitions by us or those of our competitors;

•the general tendency towards volatility in the market prices of shares of companies that rely on technology and innovation;

•changes in regulatory policies or tax guidelines;

•changes or perceived changes in earnings or variations in operating results;

•any shortfall in revenue or net income from levels expected by investors or securities analysts; and

•general economic trends and other factors.

•Under German law, certain important resolutions, including, for example, capital decreases, measures under the German Transformation Act (Umwandlungsgesetz), such as mergers, conversions and spin-offs, the issuance of convertible bonds or bonds with warrants attached, and the dissolution of the German stock corporation apart from insolvency and certain other proceedings, require the vote of a 75% majority of the capital present or represented at the relevant stockholders’ meeting. Therefore, the holder or holders of a blocking minority of 25% or, depending on the attendance level at the stockholders’ meeting, the holder or holders of a smaller percentage of the shares in a German stock corporation may be able to block any such votes, possibly to our detriment or the detriment of other stockholders.

•As a general rule under German law, in the case of a one-tier European stock corporation a stockholder has no direct recourse against the members of the administrative board and managing directors, in the event that it is alleged that they have breached their fiduciary duty of loyalty or duty of care to the corporation. Apart from insolvency or other special circumstances, only the European stock corporation itself has the right to claim damages from members of the board and executive officers. A European stock corporation may waive or settle these damages claims only if at least three years have passed and the stockholders approve the waiver or settlement at the stockholders’ meeting with a simple majority of the votes cast, provided that a minority holding, in the aggregate, 10% or more of the European stock corporation’s share capital does not have its opposition formally noted in the minutes maintained by a German civil law notary. For more information, we have provided summaries of relevant German corporation law and of our articles of association, which are available on our website.

•you may not be able to participate in rights offerings or dividend alternatives;

•the Deposit Agreement may be amended by us and our ADS Depositary, or may be terminated by us or our ADS Depositary, without your consent in a manner that could prejudice your rights; and

•the Deposit Agreement limits our obligations and liabilities and those of our ADS Depositary.

Item 1B. Unresolved Staff Comments

Our principal administrative activities are located in our approximately 2,620 square meter leased facility in Berlin, Germany. We also lease additional office space in New York, Utah, and California in the U.S. We believe that our facilities are adequate for our current needs and suitable additional or substitute space will be available in the future to replace our existing facilities, if necessary, or accommodate expansion of our operations. The leases for our facilities vary in dates and terms, with the main facility’s lease expiring on January 31, 2024.

Refer to Note 9. Commitments and Contingencies to our “Consolidated Financial Statements,” which is incorporated herein by reference.

No securities were authorized for issuance during 2022. Information pertaining to our outstanding Stock-based Compensation plan is in Note 11. Stock-based Compensation of the "Consolidated Financial Statements", and is incorporated by reference herein.

						Year Ended December 31,
						2022						2021						Change						% Change
Registrations						12,050,537						13,146,834						(1,096,297)						(8.3)		%
Average Paying Subscribers						811,268						874,922						(63,654)						(7.3)		%
Total Monthly ARPU						$	19.29					$	20.66					$	(1.37)					(6.6)		%
						Year Ended December 31,
(in thousands)						2022						2021						Change						% Change
Net Revenue						$	187,763					$	216,905					$	(29,142)					(13.4)		%
Direct Marketing						93,447						105,805						(12,358)						(11.7)		%
Contribution						$	94,316					$	111,100					$	(16,784)					(15.1)		%

						Year Ended December 31,
(in thousands)						2022						2021						$ Change						% Change
Revenue						$	187,763					$	216,905					$	(29,142)					(13.4)		%
Operating costs and expenses:
Cost of revenue, exclusive of depreciation and amortization						117,907						131,974						(14,067)						(10.7)		%
Other operating expenses						56,536						59,408						(2,872)						(4.8)		%
Depreciation and amortization						2,387						6,593						(4,206)						(63.8)		%
Impairment of goodwill, intangible assets, and capitalized software						30,269						52,950						(22,681)						(42.8)		%
Total operating costs and expenses						207,099						250,925						(43,826)						(17.5)		%
Operating loss						(19,336)						(34,020)						14,684						(43.2)		%
Other income (expense):
Interest expense						(16,432)						(13,453)						(2,979)						22.1		%
Loss on foreign currency transactions						(2,031)						(2,918)						887						(30.4)		%
Other income						601						634						(33)						(5.2)		%
Total other expense, net						(17,862)						(15,737)						(2,125)						13.5		%
Loss before income taxes						(37,198)						(49,757)						12,559						(25.2)		%
Income tax expense						(6,992)						(18,398)						11,406						(62.0)		%
Net loss						(44,190)						(68,155)						23,965						(35.2)		%

Revenue in 2022 decreased by $29.1 million, or 13.4%, compared to 2021. The decrease in revenue was attributable to the decrease in the number of average paying subscribers of 7.3%, as well as the fluctuations of foreign exchange rate as the U.S. dollar strengthened against all major currencies. In 2022, the Company recognized $2.5 million of revenue that had been included in the Company's deferred revenue balance related to the virtual currency that is held for longer than 12 months due to a change in accounting estimate. See Note 1. Basis of Presentation and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further discussion of change in accounting estimate.

In 2022, the Company recorded a goodwill impairment charge of $15.4 million for the Zoosk reporting unit and an impairment charge of $14.8 million for the Zoosk trade name. In 2021, the Company recorded a goodwill impairment charge of $21.8 million for the Zoosk reporting unit and recognized a Zoosk trade name impairment charge of $25.4 million. See Note 5. Goodwill and Intangible Assets in the Notes to the Consolidated Financial Statements for further discussion of impairment.

Other expense, net, consist primarily of interest expense, foreign exchange gains and losses, and other related finance costs. Other expense, net, in 2022 increased by $2.1 million, or 13.5%, compared to 2021, primarily due to higher interest expense. The increase in interest expense was primarily related to the $4.0 million loss on extinguishment of debt in connection with the Blue Torch Term Loan Facility and Blue Torch Revolving Credit Facility during the quarter ended March 31, 2022. See Note 8. Debt in the Notes to the Consolidated Financial Statements for further discussion of the debt extinguishment. The increase in interest expense was partially offset by a $0.9 million decrease in losses on foreign currency transactions compared to 2021.

Income tax expense in 2022 was $7.0 million compared to $18.4 million in 2021, which reflects an effective tax rate of (18.8)% and (37.0)%, respectively. The income tax provision in 2022 was primarily driven by change in the valuation allowance on German and U.S. Federal and State deferred tax assets, impairment of goodwill and the foreign tax rate differential. The provision for income taxes in 2021 was primarily driven by U.S. Federal and state taxes, change in the valuation allowance on Federal and state deferred tax assets and German net operating losses and interest carryforwards, and non-deductible German share-based compensation arrangements. See Note 3. Income Taxes in the Notes to the Consolidated Financial Statements for further discussion of income taxes.

•Adjusted EBITDA does not reflect the cash capital expenditures during the measurement period;

•Adjusted EBITDA does not reflect any changes in working capital requirements during the measurement period;

•Adjusted EBITDA does not reflect the cash tax payments during the measurement period;

•Adjusted EBITDA may be calculated differently by other companies in our industry, thus limiting its value as a comparative measure;

						Year Ended December 31,
(in thousands)						2022						2021						$ Change						% Change
Net loss						$	(44,190)					$	(68,155)					$	23,965					(35.2)		%
Net interest expense						16,377						13,453						2,924						21.7		%
Loss on foreign currency transactions						2,031						2,918						(887)						(30.4)		%
Income tax expense						6,992						18,398						(11,406)						(62.0)		%
Depreciation and amortization						2,387						6,593						(4,206)						(63.8)		%
Impairment of goodwill, intangible assets, and capitalized software						30,269						52,950						(22,681)						(42.8)		%
Stock-based compensation expense						1,536						2,725						(1,189)						(43.6)		%
Other costs(1)						3,146						4,155						(1,009)						(24.3)		%
Adjusted EBITDA						$	18,548					$	33,037					$	(14,489)					(43.9)		%

(1) Includes primarily consulting and advisory fees related to special projects, as well as non-cash acquisition related expenses, post-merger integration activities and long-term debt transaction and advisory fees.

As of December 31, 2022, we had cash and cash equivalents of $11.4 million. The Company has generated losses from operations, incurred impairment charges to its Zoosk goodwill and intangible assets, and has a working capital deficiency. We have received a Forbearance Letter from our lender, MGG Investment Group LP, due to an Event of Default under our Financing Agreement. See Note 8. Debt in the Notes to the Consolidated Financial Statements for further discussion regarding the financing agreement with MGG. Management’s plans in regards to these matters are discussed in Note 1. Basis of Presentation and Summary of Significant Accounting Policies to the Consolidated Financial Statements.

						Year Ended December 31,
(in thousands)						2022						2021						$ Change						% Change
Net cash provided by (used in):
Operating activities						$	(9,571)					$	16,663					$	(26,234)					(157.4)		%
Investing activities						(2,502)						(1,086)						$	(1,416)					130.4		%
Financing activities						7,524						(19,920)						$	27,444					(137.8)		%
Net change in cash and cash equivalents and restricted cash						$	(4,549)					$	(4,343)					$	(206)					4.7		%

Net cash provided by financing activities in 2022 was $7.5 million, an increase of $27.4 million compared to $19.9 million of net cash used in financing activities in 2021. Net cash provided by financing activities in 2022 included $97.8 million of net cash proceeds from the Term Loan, partially offset by the $85.6 million repayment of debt and the $0.9 million prepayment penalty under the then existing Blue Torch Term Loan Facility, as well as $3.5 million of transaction costs paid to third parties in connection with the Term Loan, and $0.3 million amendment fee paid in connection with the Amended and Restated Amendment No. 1 to the Financing Agreement dated August 19, 2022 (the "Amendment"). See Note 8. Debt in the Notes to the Consolidated Financial Statements for detail information. Net cash used in financing activities in 2021 included $19.4 million principal payments made on the Blue Torch Term Loan Facility and a $0.5 million fee paid in connection with the execution of the Limited Waiver under Loan Agreement in March 2021.

See Note 1. Basis of Presentation and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report for a discussion of recently issued and adopted accounting standards.

The Company’s accounting policies are more fully described in Note 1. Basis of Presentation and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. Our determinations regarding the recognition of income tax benefits are made in consultation with outside tax and legal counsel, where appropriate, and are based upon the technical merits of our tax positions in consideration of applicable tax statutes and related interpretations and precedents and upon the expected outcome of proceedings (or negotiations) with taxing and legal authorities. The tax benefits ultimately realized may differ from those recognized in our future financial statements based on a number of factors, including our decision to settle rather than litigate a matter, relevant legal precedent related to similar matters and our success in supporting our filing positions with taxing authorities.

			Page
Report of Independent Registered Public Accounting Firm (BDO USA, LLP; New York, NY; PCAOB ID: 243)			48
Consolidated Balance Sheets as of December 31, 2022 and 2021			50
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2022 and 2021			51
Consolidated Statements of Shareholders' (Deficit) Equity for the Years Ended December 31, 2022 and 2021			52
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021			53
Notes to Consolidated Financial Statements			54

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 31, 2023 expressed an adverse opinion thereon.

•Evaluating the reasonableness of management’s revenue growth rate assumptions used in the cash flows projections by i) comparing revenue projections to prior period forecasts, historical revenues, internal and external communications made by the Company, and ii) obtaining publicly available industry and market information and comparing to the revenue projections, and considering whether these assumptions were consistent with evidence obtained in other areas of the audit.

•Utilizing personnel with specialized knowledge and skill in valuation to assist in i) evaluating the appropriateness of the valuation methodologies used by management in these impairment assessments, ii) testing the source information underlying the determination of the discount rates, and iii) developing a range of independent estimates of discount rates and comparing those to the discount rates selected by management.

												December 31, 2022						December 31, 2021
Assets
Current assets:
Cash and cash equivalents												$	11,438					$	16,141
Accounts receivable, net of allowance of $85 and $368, respectively												5,154						6,261
Prepaid expenses												3,514						3,201
Other current assets												1,557						1,085
Total current assets												21,663						26,688
Property and equipment, net												4,956						3,613
Goodwill												119,276						134,744
Intangible assets, net												13,299						29,369
Deferred tax assets												—						7,623
Other assets												5,183						7,764
Total assets												$	164,377					$	209,801
Liabilities and Shareholders' (Deficit) Equity
Current liabilities:
Current portion of long-term debt												94,817						17,593
Accounts payable												6,487						11,474
Deferred revenue												28,085						36,973
Accrued expenses and other current liabilities												24,247						27,042
Total current liabilities												153,636						93,082
Long-term debt, net of current portion												—						64,531
Deferred tax liabilities												409						1,077
Other liabilities												17,118						18,418
Total liabilities												171,163						177,108
Commitments and Contingencies (Note 9)
Shareholders' (Deficit) Equity:
Common stock, €1.00 nominal value; 3,992,078 and 3,521,005 shares authorized as of December 31, 2022 and 2021, respectively; 2,661,386 shares issued; 2,623,820 and 2,617,397 shares outstanding as of December 31, 2022 and 2021, respectively												3,064						3,064
Treasury stock, at €1.00 nominal value; 37,566 and 43,989 shares as of December 31, 2022 and 2021, respectively												(42)						(48)
Additional paid-in capital												224,506						223,103
Accumulated deficit												(244,593)						(200,403)
Accumulated other comprehensive income												10,279						6,977
Total shareholders' (deficit) equity												(6,786)						32,693
Total liabilities and shareholders' (deficit) equity												$	164,377					$	209,801

												Year Ended December 31,
												2022						2021
Revenue												$	187,763					$	216,905
Operating costs and expenses:
Cost of revenue, exclusive of depreciation and amortization												117,907						131,974
Other operating expenses												56,536						59,408
Depreciation and amortization												2,387						6,593
Impairment of goodwill, intangible assets, and capitalized software												30,269						52,950
Total operating costs and expenses												207,099						250,925
Operating loss												(19,336)						(34,020)
Other income (expense):
Interest expense												(16,432)						(13,453)
Loss on foreign currency transactions												(2,031)						(2,918)
Other income												601						634
Total other expense, net												(17,862)						(15,737)
Loss before income taxes												(37,198)						(49,757)
Income tax expense												(6,992)						(18,398)
Net loss												(44,190)						(68,155)
Other comprehensive income:
Foreign currency translation adjustment												3,302						3,681
Comprehensive loss												$	(40,888)					$	(64,474)
Loss per share:
Basic loss per share												$	(16.87)					$	(26.10)
Diluted loss per share												$	(16.87)					$	(26.10)
Weighted average shares outstanding:
Basic												2,619,174						2,610,873
Diluted												2,619,174						2,610,873

												Common Stock												Treasury Stock
												Shares						Amount						Shares						Amount						Additional Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Income						Total shareholders' (deficit) equity
Balance at January 1, 2021												2,661,386						3,064						(55,697)						(61)						220,852						(132,248)						3,296						94,903
Stock-based compensation												—						—						—						—						2,725						—						—						2,725
Treasury stock issued pursuant to equity-based plans												—						—						11,708						13						(474)						—						—						(461)
Net loss												—						—						—						—						—						(68,155)						—						(68,155)
Foreign currency translation adjustments												—						—						—						—						—						—						3,681						3,681
Balance at December 31, 2021												2,661,386						3,064						(43,989)						(48)						223,103						(200,403)						6,977						32,693
Stock-based compensation												—						—						—						—						1,536						—						—						1,536
Treasury stock issued pursuant to equity-based plans												—						—						6,423						6						(133)						—						—						(127)
Net loss												—						—						—						—						—						(44,190)						—						(44,190)
Foreign currency translation adjustments												—						—						—						—						—						—						3,302						3,302
Balance at December 31, 2022												2,661,386						3,064						(37,566)						(42)						224,506						(244,593)						10,279						(6,786)

						Year Ended December 31,
						2022						2021
Net loss						$	(44,190)					$	(68,155)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization						2,387						6,593
Impairment of goodwill, intangible assets, and capitalized software						30,269						52,950
Unrealized loss on foreign currency transactions						2,166						2,835
Stock-based compensation expense						1,536						2,725
Amortization of debt issuance costs and accretion of debt discounts						2,477						4,125
Loss on extinguishment of debt						3,964						—
Deferred tax expense						6,233						15,341
Provision for credit losses						318						458
Non-cash lease expense						2,183						1,971
Change in operating assets and liabilities:
Accounts receivable						622						(1,381)
Prepaid expenses and other current assets						(952)						547
Other assets						287						337
Accounts payable, accrued expenses, and other current liabilities						(6,769)						(61)
Other liabilities						(2,407)						(1,877)
Deferred revenue						(7,695)						255
Net cash (used in) provided by operating activities						(9,571)						16,663
Capital expenditures						(2,502)						(1,086)
Net cash used in investing activities						(2,502)						(1,086)
Proceeds from debt, net of discount and issuance costs						97,750						—
Repayment of debt						(85,552)						(19,397)
Debt issuance costs paid to third parties						(3,531)						—
Payment of early extinguishment of debt charge						(893)						—
Payments directly related to debt						(250)						(523)
Net cash provided by (used in) financing activities						7,524						(19,920)
Net change in cash and cash equivalents and restricted cash						(4,549)						(4,343)
Effects of exchange rate fluctuations on cash and cash equivalents and restricted cash						(161)						(495)
Net decrease in cash and cash equivalents and restricted cash						(4,710)						(4,838)
Cash and cash equivalents and restricted cash at beginning of period						16,279						21,117
Cash and cash equivalents and restricted cash at end of period						$	11,569					$	16,279
Supplemental disclosure of cash flow information:
Cash paid for interest including payment of early extinguishment of debt charges of $893 and $0, respectively						$	10,814					$	9,251
Cash paid for income taxes						$	3,029					$	114
Non-cash investing and financing activities:
Property and equipment in accounts payable and accrued liabilities						$	169					$	—

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, continued decline in revenues, incurred impairment charges to its Zoosk goodwill and intangible assets, 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 the MGG Term Loan Agreement (see Note 8. 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.

Revenue is also earned from virtual currency and advertising. Virtual currency may be redeemed by members and subscribers for certain premium features, delivery confirmation of messages, and virtual gifts. Virtual currency is paid upfront and is initially recorded as deferred revenue, and the Company records virtual currency revenue as it is redeemed. Effective September 30, 2022, the unredeemed virtual currency is now recognized into revenue when it is held for longer than 12 months. See Change in Accounting Estimate in this section for a detail discussion. Advertising revenues are derived primarily from sponsored links and display advertisements and is recognized when the ad is displayed, based on the number of clicks. For advertising revenue arrangements, we are the agent and recognize revenue on a net basis. Advertising and virtual currency revenues were each less than 4% of total revenues for all periods presented.

						December 31,
(in thousands)						2022						2021
Cash and cash equivalents						$	11,438					$	16,141
Restricted cash included in other current assets						131						138
Total cash and cash equivalents and restricted cash as shown on the consolidated statements of cash flows						$	11,569					$	16,279

•Office and other equipment: 3 - 5 years

•Leasehold improvements: the shorter of the lease term or 5 years

•Brands and trademarks: 10 years

•Other intangible assets: 2 - 5 years

•Level 1— Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2— Other inputs that are directly or indirectly observable in the marketplace for similar assets or liabilities.

•Level 3— Unobservable inputs which are supported by little or no market activity.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent amendment to the initial guidance: ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, “Topic 848”). Topic 848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In December 2022, the FASB issued ASU 2022-06 "Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848" ("ASU 2022-06"), which defers the expiration of ASC 848 from December 31, 2022, to December 31, 2024. The Company currently has a Term Loan that accrues interest at a rate equal to LIBOR plus an applicable margin. The Term Loan agreement provides the Company an option to convert from LIBOR rate to an alternate reference rate. We will monitor the LIBOR deadline and work with lender on the conversion to an alternative reference rate. It is not expected that the adoption of this standard will have a material effect on our financial statements.

						Year Ended December 31,
(in thousands)						2022						2021
Subscription revenue						$	177,435					$	208,796
Virtual currency revenue						7,333						4,885
Advertising revenue						2,995						3,224
Total Revenue						$	187,763					$	216,905