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Document And Entity Information (USD $)
 12 Months Ended
Dec. 31, 2011
 Mar. 27, 2012
 Jun. 30, 2011
Document And Entity Information [Abstract]
Document Type 10-K
Amendment Flag false
Document Period End Date Dec 31, 2011
Document Fiscal Period Focus FY
Document Fiscal Year Focus 2011
Entity Registrant Name SPARK NETWORKS INC
Entity Central Index Key 0001314475
Current Fiscal Year End Date --12-31
Entity Filer Category Smaller Reporting Company
Entity Common Stock, Shares Outstanding 20,596,857
Trading Symbol lov
Entity Well-known Seasoned Issuer No
Entity Public Float $ 37,953,387
Entity Current Reporting Status Yes
Entity Voluntary Filers No
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified		 Dec. 31, 2011
 Dec. 31, 2010
Assets
Cash and cash equivalents $ 15,106 $ 13,901
Restricted cash 958 996
Accounts receivable, net of allowance of $1 and $9 1,146 847
Deferred tax asset-current 44 43
Prepaid expenses and other 1,164 911
Total current assets 18,418 16,698
Property and equipment, net 2,839 2,520
Goodwill 8,683 9,156
Intangible assets, net 1,900 3,017
Deferred tax asset-non-current 5,641 4,882
Deposits and other assets 455 295
Total assets 37,936 36,568
Liabilities and Stockholders' Equity
Accounts payable 952 1,371
Accrued liabilities 4,046 3,635
Deferred revenue 5,723 4,331
Deferred tax liability-current portion 203
Total current liabilities 10,924 9,337
Deferred tax liability 1,219 825
Other liabilities-non-current 1,141 1,036
Total liabilities 13,284 11,198
Commitments and contingencies (Note 12)      
Stockholders' equity:
Authorized capital stock consists of 10,000,000 shares of Preferred Stock, $0.001 par value, 450,000 of which are designated as Series C Junior Participating Cumulative Preferred Stock, with no shares of Preferred Stock issued or outstanding and 100,000,000 shares of Common Stock, $0.001 par value, with 20,594,670 and 20,587,336 shares of Common Stock issued and outstanding at December 31, 2011 and 2010, respectively. 21 21
Additional paid-in-capital 53,014 52,020
Accumulated other comprehensive income 672 773
Accumulated deficit (29,055) (27,444)
Total stockholders' equity 24,652 25,370
Total liabilities and stockholders' equity $ 37,936 $ 36,568
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Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified		 Dec. 31, 2011
 Dec. 31, 2010
Accounts receivable, allowance $ 1 $ 9
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, shares authorized 100,000,000 100,000,000
Common stock, par value $ 0.001 $ 0.001
Common stock, shares issued 20,594,670 20,587,336
Common stock, shares outstanding 20,594,670 20,587,336
Designated As Series C Junior Participating Cumulative Preferred Stock [Member]
Preferred stock, shares authorized 450,000 450,000
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Consolidated Statements Of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified		 12 Months Ended
Dec. 31, 2011
 Dec. 31, 2010
 Dec. 31, 2009
Consolidated Statements Of Operations [Abstract]
Revenue $ 48,493 $ 40,851 $ 45,388
Cost and expenses:
Cost of revenue (exclusive of depreciation shown separately below) 28,955 13,749 15,207
Sales and marketing 3,722 3,496 3,507
Customer service 1,980 1,601 1,832
Technical operations 1,367 1,232 1,504
Development 2,710 3,092 3,895
General and administrative 8,068 9,782 9,932
Depreciation 1,320 962 873
Amortization of intangible assets other than goodwill 370 421 663
Impairment of goodwill, long-lived assets and other assets 1,145 308 11,999
Total cost and expenses 49,637 34,643 49,412
Operating (loss) income (1,144) 6,208 (4,024)
Interest expense (income) and other, net 162 (54) (1,099)
(Loss) income before income taxes (1,306) 6,262 (2,925)
Provision for income taxes 305 2,558 3,479
Net (loss) income $ (1,611) $ 3,704 $ (6,404)
Net (loss) income per share-basic and diluted $ (0.08) $ 0.18 $ (0.31)
Weighted average shares outstanding-basic 20,591 20,586 20,570
Weighted average shares outstanding-diluted 20,591 20,590 20,570
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Consolidated Statements Of Operations (Parenthetical) (USD $)
In Thousands, unless otherwise specified		 12 Months Ended
Dec. 31, 2011
 Dec. 31, 2010
 Dec. 31, 2009
Stock-based compensation:
Stock-based compensation $ 906 $ 1,510 $ 1,041
Cost Of Revenue [Member]
Stock-based compensation:
Stock-based compensation 8 11 17
Sales And Marketing [Member]
Stock-based compensation:
Stock-based compensation 80 233 184
Customer Service [Member]
Stock-based compensation:
Stock-based compensation 1 (14)
Technical Operations [Member]
Stock-based compensation:
Stock-based compensation 119 167 158
Development [Member]
Stock-based compensation:
Stock-based compensation 42 54 29
General And Administrative [Member]
Stock-based compensation:
Stock-based compensation $ 657 $ 1,044 $ 667
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Consolidated Statements Of Stockholders' Equity (USD $)
In Thousands		 Ordinary Shares/Common Stock [Member]
 Additional Paid-In Capital [Member]
 Accumulated Other Comprehensive Income (Loss) [Member]
 Accumulated Deficit [Member]
 Total
BALANCE at Dec. 31, 2008 $ 21 $ 45,545 $ 591 $ (24,744) $ 21,413
BALANCE, shares at Dec. 31, 2008 20,542
Issuance of common stock upon exercise of stock options 30 30
Issuance of common stock upon exercise of stock options, shares 40
Excess tax benefits from stock-based comp 2,197 2,197
Foreign currency translation adjustment, net of tax 47 47
Stock-based compensation 1,041 1,041
Net income (loss) (6,404) (6,404)
BALANCE at Dec. 31, 2009 21 48,813 638 (31,148) 18,324
BALANCE, shares at Dec. 31, 2009 20,582
Issuance of common stock upon exercise of stock options 17 17
Issuance of common stock upon exercise of stock options, shares 5
Excess tax benefits from stock-based comp 1,680 1,680
Foreign currency translation adjustment, net of tax 135 135
Stock-based compensation 1,510 1,510
Net income (loss) 3,704 3,704
BALANCE at Dec. 31, 2010 21 52,020 773 (27,444) 25,370
BALANCE, shares at Dec. 31, 2010 20,587
Issuance of common stock upon exercise of stock options 21 21
Issuance of common stock upon exercise of stock options, shares 8
Excess tax benefits from stock-based comp 67 67
Foreign currency translation adjustment, net of tax (101) (101)
Stock-based compensation 906 906
Net income (loss) (1,611) (1,611)
BALANCE at Dec. 31, 2011 $ 21 $ 53,014 $ 672 $ (29,055) $ 24,652
BALANCE, shares at Dec. 31, 2011 20,595
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Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified		 12 Months Ended
Dec. 31, 2011
 Dec. 31, 2010
 Dec. 31, 2009
Cash flows from operating activities:
Net (loss) income $ (1,611) $ 3,704 $ (6,404)
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization 1,690 1,383 1,536
Impairment of goodwill, long-lived assets and other assets 1,145 308 11,999
Stock-based compensation 906 1,510 1,041
Non-current taxes payable and other 96 46 (42)
Foreign exchange gain on intercompany loan 337 (269) (30)
Income from asset received from legal judgment (247) (1,507)
Excess tax benefits from stock-based compensation (67) (1,680) (3,207)
Deferred taxes (96) 1,843 2,232
Changes in operating assets and liabilities:
Accounts receivable (299) (163) 418
Restricted cash 38 (315) 84
Prepaid expenses and other assets (128) (31) 1,089
Accounts payable and accrued liabilities (100) (641) (1,443)
Deferred revenue 1,392 87 151
Net cash provided by operating activities 3,056 5,782 5,917
Cash flows from investing activities:
Sale of property and equipment 1,560
Purchases of property and equipment (1,583) (1,324) (1,440)
Purchases of businesses and intangible assets (356) (37) (32)
Earn out payment for acquisition of business (1,355)
Net cash (used in) provided by investing activities (1,939) 199 (2,827)
Cash flows from financing activities:
Proceeds from issuance of stock 21 17 30
Excess tax benefits from stock-based compensation 67 1,680 3,207
Payment on revolving credit facility borrowing (7,500)
Payment of deferred financing costs (21)
Net cash provided by (used in) financing activities 88 1,697 (4,284)
Net increase (decrease) in cash 1,205 7,678 (1,194)
Cash and cash equivalents at beginning of year 13,901 6,223 7,417
Cash and cash equivalents at end of year 15,106 13,901 6,223
Supplemental disclosure of cash flow information:
Cash paid for interest       159
Cash paid for income taxes 192 874 1,232
Supplemental disclosure of non-cash investing and financing activities:
Hold-back in acquisition of business $ (250)
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The Company And Summary Of Significant Accounting Policies
 12 Months Ended
Dec. 31, 2011
The Company And Summary Of Significant Accounting Policies [Abstract]
The Company And Summary Of Significant Accounting Policies

1. The Company and Summary of Significant Accounting Policies

The Company

The common stock of Spark Networks, Inc., a Delaware corporation (the "Company") is traded on the NYSE Amex.

On December 31, 2010, Spark Networks Limited ("SNUK") distributed its shareholdings in each of HurryDate, LLC; MingleMatch, Inc.; Kizmeet, Inc.; SN Holdco, LLC; SN Events, Inc.; Reseaux Spark Canada Ltd. and Spark SocialNet, Inc. by transferring its shares in those companies to Spark Networks, Inc. Spark Networks, Inc. subsequently transferred all of its shares in the same companies to LOV USA, LLC, a newly formed and wholly owned subsidiary of Spark Networks, Inc. SNUK continues to hold all of the shares of Spark Networks (Israel) Limited, VAP AG and JDate Limited. In addition, SNUK now holds all of the shares of Spark Networks USA, LLC, a newly formed subsidiary into which SNUK has transferred all of its United States based assets.

The Company and its consolidated subsidiaries provide online personals services in the United States and internationally, whereby adults are able to post information about themselves ("profiles") on the Company's Web sites and search and contact other individuals who have posted profiles.

Membership to the Company's online services, which includes the posting of a personal profile and photos, and access to its database of profiles, is free. The Company typically charges a subscription fee for varying subscription lengths (typically, one, three, six and twelve months) to members, allowing them to initiate communication with other members and subscribers utilizing the Company's onsite communication tools, including anonymous email, Instant Messenger, chat rooms and message boards. For most of the Company's services, two-way communications through the Company's email platform can only take place between paying subscribers.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the parent Company and all of its majority- owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

The financial statements of the Company's foreign subsidiary are prepared using the local currency as the subsidiary's functional currency. The Company translates the assets and liabilities using period-end rates of exchange, and revenue and expenses using average rates of exchange for the year. The resulting translation gain or loss is included in accumulated other comprehensive (loss) income and is excluded from net (loss) income.

The nature of the intercompany loan between the Company and its Israel subsidiary is classified as a loan which the Company expects to be settled. The foreign exchange gains and losses related to this loan are recorded as part of net income and excluded from accumulated other comprehensive income (loss). For the years ended December 31, 2011 and 2010, the Company recorded a foreign exchange loss of approximately $337,000 and a gain of $269,000 related to the intercompany loan, respectively.

The results of the subsidiaries have been incorporated in the financial results of the consolidated entity since the date of acquisition.

 

Revenue Recognition and Deferred Revenue

Substantially all of the Company's revenue is derived from subscription fees. Revenue is presented net of credits and credit card chargebacks. The Company recognizes revenue in accordance with accounting principles generally accepted in the United States. Revenue recognition occurs ratably over the subscription period, beginning when there is persuasive evidence of an arrangement, delivery has occurred (access has been granted), the fees are fixed or determinable, and collection is reasonably assured. Subscribers pay in advance, primarily by using a credit card, and, subject to certain conditions identified in our terms and conditions, all purchases are final and nonrefundable. Fees collected in advance for subscriptions are deferred and recognized as revenue using the straight line method over the term of the subscription.

The Company also earns a small amount of revenue from advertising sales and offline events. The Company records advertising revenue as it is earned and is included in the total revenue of each segment that generates advertising sales. Revenue and the related expenses associated with offline events are recognized at the conclusion of each event.

Fair Value Measurement

Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, the guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

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.

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

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

As of December 31, 2011 and 2010, the Company had financial assets that consisted of cash and cash equivalents, which were measured at fair value using quoted prices for identical assets in an active market (Level 1 fair value hierarchy) in accordance with the latest guidance.

Cash and Cash Equivalents

All highly liquid instruments with an original maturity of three months or less are considered cash and cash equivalents.

Restricted Cash

The Company's credit card processors regularly withhold deposits and maintain balances which the Company records as restricted cash. As of December 31, 2011 and 2010, the Company had $958,000 and $996,000 in restricted cash, respectively.

 

Accounts Receivable

Accounts receivable is primarily composed of credit card payments for subscription fees pending collection from the credit card processors and to a much smaller extent, receivables for advertising sales. The Company records a reserve based on historical chargeback levels experienced over the preceding three-month period and reviews its accounts receivable from advertisers on a monthly basis. The allowance for doubtful accounts as of December 31, 2011 and 2010 is $1,000 and $9,000, respectively.

Prepaid Advertising Expenses

In certain circumstances, the Company pays in advance for advertising, and expenses the prepaid amounts over the contract periods as the vendors deliver on their commitment. The Company evaluates the realization of prepaid amounts at each reporting period, and expenses prepaid amounts upon delivery of services or if it determines that a vendor will be unable to deliver on its commitment and is not willing or able to repay the undelivered prepaid amount.

Web Site and Software Development Costs

The Company capitalizes costs related to developing or obtaining internal-use software. Capitalization of costs begins after the preliminary project stage has been completed. Product development costs are expensed as incurred or capitalized into property and equipment. Costs incurred in the preliminary project and post-implementation stages of an internal use software project are expensed as incurred and certain costs incurred in the application development stage of a project are capitalized.

In accordance with the "Accounting for Web Site Development Costs" guidance, the Company expenses costs related to the planning and post implementation phases of Web site development efforts. Direct costs incurred in the development phase are capitalized. Costs associated with minor enhancements and maintenance for a Web site are included in expenses in the accompanying consolidated statements of operations.

Capitalized Web site and software development costs are included in internal-use software in property and equipment and amortized over the estimated useful life of the products, which is usually three years. The following table summarizes capitalized software development costs for the years ended December 31, (in thousands):

 

     2011     2010     2009  

Capitalized

    $ 1,250      $ 1,100      $ 874   

Expensed

      (850 )      (504 )      (176 ) 

Impairment

     (45 )      (121 )      (110 ) 

Unamortized Balance

    $ 1,976      $ 1,621      $ 1,146   

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation, which is provided using the straight-line method over the estimated useful life of the asset. Amortization of leasehold improvements is calculated using the straight-line method over the estimated useful life of the asset or remaining term of the lease, whichever is shorter. Upon the sale or retirement of property or equipment, the cost and related accumulated depreciation and amortization are removed from the Company's financial statements with the resulting gain or loss, if any, reflected in the Company's results of operations.

 

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired resulting from business acquisitions, specifically allocated to reporting units. The Company determines its reporting unit and operating segment through the use of the management approach. The management approach considers the internal organizational structure used by the Company's chief operating decision maker for making operating decisions and assessing performance. Annually, the Company analyzes the fair value of each reporting unit to assess if the fair value exceeds the carrying value. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. If fair value is below the carrying amount of the reporting unit, the Company assesses what the fair value of the reporting unit is and impairs the excess. The valuation of intangible assets incorporates significant unobservable inputs and requires estimates, including the amount and timing of future cash flows. As of December 31, 2011 and 2010, the Company had unamortized goodwill of approximately $8.7 million and $9.2 million, respectively.

Intangible Assets

Intangible assets resulting from the acquisitions of entities are recorded using the purchase method of accounting and estimated by management based on the fair value of assets received. Identifiable intangible assets are comprised mainly of purchased member and subscriber databases, domain names and acquired technologies. Domain names were determined to have indefinite useful lives, thus, they are not amortized. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives.

In 2011 and 2010, largely based on the valuation of domain names and capitalized software acquired from prior period acquisitions, the Company recorded an impairment charge of approximately $1.1 million and $187,000, respectively, for intangible assets it deemed to not have substantial value.

Impairment of Long-lived Assets

The Company assesses the impairment of assets, which include property and equipment and identifiable intangible assets, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Events and circumstances that may indicate that an asset is impaired may include significant decreases in the market value of an asset or common stock, a significant decline in actual and projected revenue, a change in the extent or manner in which an asset is used, shifts in technology, loss of key management or personnel, changes in the Company's operating model or strategy and competitive forces as well as other factors.

If events and circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. Fair value measurements utilized for assets under non recurring measurements were measured with Level 3 unobservable inputs.

For the years 2011, 2010 and 2009, the Company impaired approximately $45,000, $121,000 and $110,000, respectively, of capitalized software development costs when management determined that a web-based product failed to perform to Company standards.

 

Income Taxes

The Company accounts for income taxes under the asset and liability method. Accordingly, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred taxes to the amount expected to be realized.

In assessing the potential realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the Company's tax loss carry-forwards remain deductible.

The Company operates in multiple taxing jurisdictions, both within the United States and outside the United States. The Company has filed tax returns with positions that may be challenged by Federal and State tax authorities. These positions relate to, among others, transfer pricing, the deductibility of certain expenses, intercompany transactions as well as other matters. Although the outcome of tax audits is uncertain, the Company regularly assesses its tax position for such matters and, in management's opinion, adequate provisions for income taxes have been made for potential liabilities resulting from such matters. To the extent reserves are recorded, they will be utilized or reversed once the statute of limitations has expired and/or at the conclusion of the tax examination. The Company believes that the ultimate outcome of these matters will not have a material impact on its financial position or liquidity. The Company recognizes the tax effects from an uncertain tax position in our financial statements, only if the position is more-likely-than-not of being sustained on audit, based on the technical merits of the position. Tax positions that meet the recognition threshold are reported at the largest amount that is more-likely-than-not to be realized.

Cost of Revenue

Cost of revenue consists primarily of direct marketing costs, compensation and other employee-related costs (including stock-based compensation) for personnel dedicated to maintaining our data centers, data center expenses and credit card fees. Direct marketing costs are expensed in the period incurred and primarily represent online marketing, including payments to search engines and affiliates, and offline marketing, including radio, billboards, television and print advertising. For the years ended December 31, 2011, 2010 and 2009, the Company incurred direct marketing costs amounting to approximately $25.7 million, $10.7 million and $12.1 million, respectively.

Sales and Marketing

The Company's sales and marketing expenses relate primarily to salaries for sales and marketing personnel and other associated costs such as business development, public relations and expenses related to the Company's travel and events business.

Customer Service

The Company's customer service expenses consist primarily of personnel costs associated with our customer service centers. The members of our customer service team primarily respond to billing questions, detect fraudulent activity and eliminate suspected fraudulent activity, as well as address site usage and dating questions from our members.

 

Technical Operations

The Company's technical operations expenses consist primarily of the personnel and systems necessary to support our corporate technology requirements.

Development

The Company's development expenses relate primarily to salaries and wages for personnel involved in the development, enhancement and maintenance of its Web sites and services.

General and Administrative

The Company's general and administrative expenses relate primarily to salaries and wages for corporate personnel, professional fees, occupancy and other overhead costs.

Stock-based Compensation

The Company adopted the "Stock-Based Payment" guidance in 2005 using the modified prospective approach and accordingly periods prior to 2005 have not been restated to reflect the impact of the guidance.

Prior to our adoption of the guidance, the Company did not record tax benefits of deductions resulting from the exercise of share options because of the uncertainty surrounding the timing of realizing the benefits of our deferred tax assets in future tax returns. The guidance requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. In 2011 and 2010, the Company recognized cash inflows of approximately $67,000 and approximately $1.7 million, respectively, related to a tax benefit from stock-based compensation.

The following is a chart showing variables which were used in the Black-Scholes option-pricing model for the years of:

 

     2011     2010     2009  

Expected life in years

      4.56        4.56        4.56   

Dividend per share

      —          —          —     

Volatility

      35.0-45.0 %      40.0-45.0 %      40.0-45.0 % 

Risk-free interest rate

      1.4-3.0 %      1.0-3.0 %      2.0-3.0 % 

The Company used historical and empirical data to assess different forfeiture rates for three different groups of employees. The Company must reassess forfeiture rates when deemed necessary and it must calibrate actual forfeiture behavior to what has already been recorded. For 2011, 2010 and 2009, there were three groups of employees whose behavior was significantly different from each other. Therefore, the Company estimated different forfeiture rates for each group.

The volatility rate was derived by examining historical stock price behavior and assessing management's expectations of stock price behavior during the term of the option.

Due to the repricing of most options in 2009, the Company is using the "simplified method" calculation to determine the term of the options. The "simplified method" calculation derives the term by averaging the vesting term with the contractual terms. Option awards to date have generally vested and been expensed in equal annual instalments over a four-year period.

 

The risk free interest rates are based on U.S Treasury zero-coupon bonds with similar terms for the periods in which the options were granted.

Comprehensive (Loss) Income

Comprehensive (loss) income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive (loss) income consists of its reported net (loss) income and translation adjustments. Comprehensive (loss) income for each of the periods presented is comprised as follows:

 

     Years Ended December 31,
(in thousands)		  
     2011     2010      2009  

Net (loss) income

    $ (1,611 )    $ 3,704       $ (6,404 ) 

Foreign currency translation adjustment

      (101 )      135         47   
  

 

 

    

 

 

     

 

 

  

Total comprehensive (loss) income

    $ (1,712 )    $ 3,839       $ (6,357 ) 
  

 

 

    

 

 

     

 

 

  

Accumulated other comprehensive (loss) income consists of foreign currency translation as follows:

 

     As of December 31,
(in thousands)		  
     2011      2010      2009  

Foreign currency translation adjustment

    $ 672       $ 773       $ 638   
  

 

 

     

 

 

     

 

 

  

Total accumulated other comprehensive income

    $ 672       $ 773       $ 638   
  

 

 

     

 

 

     

 

 

  

Fair Value of Financial Instruments

The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, notes payable and obligations under capital leases are carried at cost, which approximates their fair value due to the short-term maturity and variable interest rates of these instruments.

Net (Loss) Income Per Share

The Company calculates net (loss) income per share and presents both basic and diluted net (loss) income per share as seen in the chart below. Basic net (loss) income per share is computed by dividing net (loss) income available to common stock holders by the weighted average number of common stock outstanding. Diluted net (loss) income per share includes the effect of potential common stock outstanding, including dilutive stock options and warrants, using the treasury stock method.

 

     For the Year Ended December 31  
     (in thousands except per share amounts)  
     2011     2010      2009  

Net (Loss) Income Per Common Share—Basic

        

Net (loss) income applicable to common stock

    $ (1,611 )    $ 3,704       $ (6,404 ) 

Weighted average shares outstanding-basic

      20,591        20,586         20,570   
  

 

 

    

 

 

     

 

 

  

Basic Net (Loss) Income Per Share

    $ (0.08 )    $ 0.18       $ (0.31 ) 
  

 

 

    

 

 

     

 

 

  

Net (Loss) Income Per Common Share—Diluted

        

Net (loss) income applicable to common stock

    $ (1,611 )    $ 3,704       $ (6,404 ) 

Weighted average shares outstanding-basic

      20,591        20,586         20,570   

Dilutive options using the treasury stock method

      —          4         —     
  

 

 

    

 

 

     

 

 

  

Weighted average shares outstanding-diluted

      20,591        20,590         20,570   
  

 

 

    

 

 

     

 

 

  

Diluted Net (Loss) Income Per Share

    $ (0.08 )    $ 0.18       $ (0.31 ) 
  

 

 

    

 

 

     

 

 

  

Options to purchase 3.5 million, 3.3 million and 3.4 million shares for fiscal years 2011, 2010 and 2009, respectively, were not included in the computation of diluted net income per share because the options were anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The Company estimates the amount of chargebacks that will occur in future periods to offset current revenue. The Company's revenue is collected through online credit card transactions. As such, the Company is subject to revenue reversals or "chargebacks" by consumers generally up to 90 days subsequent to the original sale date. The Company accrues chargebacks based on historical trends relative to sales levels by Web site. Fines are levied by the major credit card companies when chargeback expenses exceed certain thresholds. The Company estimates fines based on discussions with its merchant processing companies combined with standard fine schedules provided by the major credit card companies.

Recent Accounting Developments

In May 2011, the FASB issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. We adopted this standard in the first quarter of 2012 and the adoption will not have a material impact on our financial statements and disclosures.

In June 2011, the Financial Accounting Standards Board issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The new guidance will be effective for the Company beginning January 1, 2012 and will only impact the presentation of financial statements.

In September 2011, the FASB issued an amendment to an existing accounting standard, which provides entities an option to perform a qualitative assessment to determine whether further impairment testing on goodwill is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this standard in the first quarter of 2012 and the adoption will not have a material impact on our financial statements.
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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]
Income Taxes

2. Income Taxes

 

(Loss) income before income taxes    Year Ended December 31,  
(in thousands)    2011     2010     2009  

U.S

    $ (619 )    $ 5,986      $ (2,978 ) 

Foreign

      (687 )      276        53   
  

 

 

    

 

 

    

 

 

  
   $ (1,306 )    $ 6,262      $ (2,925 ) 
  

 

 

    

 

 

    

 

 

  
Provision (benefit) for income taxes    Year Ended December 31,  
(in thousands)    2011     2010     2009  

Current

       

Federal

    $ (326 )    $ 1,920      $ 3,769   

State

      638        518        638   

Foreign

      69        2        52   
  

 

 

    

 

 

    

 

 

  
     381        2,440        4,459   
  

 

 

    

 

 

    

 

 

  

Deferred

       

Federal

      50        60        (1,145 ) 

State

      (160 )      35        210   

Foreign

      477        115        (92 ) 
  

 

 

    

 

 

    

 

 

  
     367        210        (1,027 ) 
  

 

 

    

 

 

    

 

 

  

Valuation Allowance

      (443 )      (92 )      47   
  

 

 

    

 

 

    

 

 

  
   $ 305      $ 2,558      $ 3,479   
  

 

 

    

 

 

    

 

 

  

 

Reconciliation of Effective Income Tax Rate:    Year Ended December 31,  
     2011     2010     2009  

Provision on earnings at federal statutory rate

      34.0 %      34.0 %      34.0 % 

State tax provision, net of federal benefit

      (6.0 )      4.8        5.8   

Goodwill Impairment

      —          —          (126.4 ) 

Nondeductible expenses

      (0.3 )      0.3        (1.9 ) 

Tax reserves

      1.3        0.6        (1.6 ) 

Change in effective tax rates

      (18.6 )      0.3        (6.9 ) 

Foreign tax rate differential

      (9.6 )      (4.3 )      (9.7 ) 

Valuation allowance

      8.9        3.0        (1.6 ) 

Write down of deferred tax asset

      (34.1 )      —          (10.2 ) 

Other

      1.1        2.2        (0.4 ) 
  

 

 

    

 

 

    

 

 

  

Total (benefit) provision for income taxes

      (23.3 )%      40.9 %      (118.9 )% 
  

 

 

    

 

 

    

 

 

  

The Company's effective tax rate was also impacted by income taxes incurred in foreign and state jurisdictions. With respect to the income of its foreign subsidiary, the Company takes the position that the earnings of the foreign subsidiary are permanently invested in that jurisdiction. As a result, no additional income taxes have been provided on the possible repatriation of these earnings to the parent company. The Company has not calculated the amount of the deferred tax liability that would result from such repatriation as such determination is not practicable.

The components of the deferred income tax asset/(liability) for the periods presented are as follows:

 

     Year Ended December 31,  
(in thousands)    2011     2010     2009  

Net operating loss carry-forward

    $ 782      $ 940      $ 691   

Depreciation and amortization

      1,655        1,383        1,546   

Compensation accruals

      2,590        2,234        2,022   

Credits

      913        905        793   

Other

      496        534        776   
  

 

 

    

 

 

    

 

 

  

Total before valuation allowance

      6,436        5,996        5,828   

Less: Valuation allowance

      (649 )      (805 )      (617 ) 
  

 

 

    

 

 

    

 

 

  

Total deferred income tax asset

      5,787        5,191        5,211   
  

 

 

    

 

 

    

 

 

  

Deferred income tax liabilities

       

Foreign Intangible assets

      (1,205 )      (814 )      (649 ) 

Other

      (319 )      (277 )      (297 ) 
  

 

 

    

 

 

    

 

 

  

Total deferred income tax liabilities

      (1,524 )      (1,091 )      (946 ) 
  

 

 

    

 

 

    

 

 

  

Total net deferred income tax assets

    $ 4,263      $ 4,100      $ 4,265   
  

 

 

    

 

 

    

 

 

  

Due to uncertainty with regard to the Company's ability to realize certain deferred tax assets, the Company has maintained a valuation allowance of approximately $649,000 against its deferred tax assets as of December 31, 2011.

Although realization is not assured, the Company has concluded that it is more likely than not that the deferred tax assets at December 31, 2011 for which a valuation allowance was determined to be unnecessary will be realized in the ordinary course of operations based on the available positive and negative evidence, primarily the Company's projected earnings. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future earnings or income tax rates are lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.

At December 31, 2011, the Company has gross net operating loss carry-forwards ("NOL") for income tax purposes of approximately $8.5 million and $36.4 million available to reduce future federal and state taxable income, respectively, which expire beginning in the years 2025 for federal purposes and 2018 for state purposes. Under Section 382 of the Internal Revenue Code, the utilization of the net operating loss carry-forwards can be limited based on changes in the percentage ownership of the Company.

At December 31, 2011, the Company also has net operating loss carryovers for Israeli tax purposes of approximately $2.3 million.

At December 31, 2011, the Company has federal income tax credit carry-forwards for income tax purposes of approximately $900,000 available to reduce future federal income tax.

The Company recognizes excess tax benefits associated with the exercise of stock options directly to stockholders' equity only when realized. Accordingly, deferred tax assets are not recognized for NOL resulting from excess tax benefits. As of December 31, 2011, deferred tax assets do not include approximately $4.8 million of these excess tax benefits from employee stock option exercises that are a component of the Company's net operating loss carry forwards. Accordingly, additional paid-in-capital will be increased up to an additional $4.8 million if and when such excess tax benefits are realized. During 2011, approximately $67,000 related to net excess tax benefits were realized.

The Company adopted the accounting guidance for uncertain tax positions on January 1, 2007. The guidance clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The guidance also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Upon adoption, the Company recognized no adjustment in the amount of unrecognized tax positions. As of the date of adoption, the Company had no unrecognized tax positions.

The following table summarizes the activity related to our unrecognized tax positions:

 

(in thousands)    2011     2010      2009  

Balance at January 1,

    $ 839      $ 839       $ 839   

Additions based on tax positions related to the current year

      —          —           —     

Additions for tax positions of prior years

      463        —           —     

Reductions for tax positions of prior years

      (327 )      —           —     

Settlements

      —          —           —     
  

 

 

    

 

 

     

 

 

  

Balance at December 31,

   $ 975      $ 839       $ 839   
  

 

 

    

 

 

     

 

 

  

Included in the unrecognized tax benefits of $1.0 million at December 31, 2011 was $800,000 of tax benefits that, if recognized, would reduce our annual effective tax rate.

The Company's policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense.

 

As of December 31, 2011 and 2010, the Company had recorded a $165,000 and $196,000 accrual for interest and penalties on unrecognized tax benefits, respectively. Interest expenses of ($31,000), $58,000 and $72,000 were recognized in the years ended December 31, 2011, 2010 and 2009, respectively. The Company does not expect any significant decreases to its unrecognized tax benefit within the next 12 months.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for years before 2008; state and local income tax examinations before 2007; and foreign income tax examinations before 2007. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carry forward amount.
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Property And Equipment
 12 Months Ended
Dec. 31, 2011
Property And Equipment [Abstract]
Property And Equipment

4. Property and Equipment

Property and equipment consists of the following:

 

     As of December 31,  
(in thousands)    2011     2010  

Computer equipment

    $ 1,868      $ 3,258   

Computer software

      4,831        3,992   

Furniture, fixtures and equipment

      592        665   

Leasehold Improvements

      691        697   
  

 

 

    

 

 

  
     7,982        8,612   

Less: Accumulated depreciation

      (5,143 )      (6,092 ) 
  

 

 

    

 

 

  
   $ 2,839      $ 2,520   
  

 

 

    

 

 

  

Depreciation expense, for the years ended December 31, 2011 and 2010, was $1.3 million and $962,000, respectively, and is calculated on the straight-line basis over three years.
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Goodwill And Other Intangible Assets
 12 Months Ended
Dec. 31, 2011
Goodwill And Other Intangible Assets [Abstract]
Goodwill And Other Intangible Assets

5. Goodwill and Other Intangible Assets

Jewish Networks and Other Affinity Networks are the only reporting units with goodwill balances. Jewish Networks goodwill balance at December 31, 2011 and 2010 was $6.8 million and $7.3 million, respectively. Other Affinity Networks goodwill balance at December 31, 2011 and 2010 was $1.9 million. The following table shows the activity and balances related to goodwill from January 1, 2010 to December 31, 2011:

 

(in thousands)    Gross
Goodwill		     Accumulated
Impairments		     Net
Goodwill		  

Balance at January 1, 2010

    $ 22,492      $ (13,734 )    $ 8,758   

Foreign currency

      398 (1)      —          398   
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2010

    $ 22,890      $ (13,734 )    $ 9,156   

Foreign currency

      (473 )(1)      —          (473 ) 
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2011

    $ 22,417      $ (13,734 )    $ 8,683   
  

 

 

    

 

 

    

 

 

  

(1) Represents foreign currency translation adjustments related to the Jewish Networks reporting unit.

 

In 2011 and 2010, the Company performed its annual impairment analysis and determined the fair value of each reporting unit and compared it to the carrying amount of the reporting unit. Fair value of the reporting unit was based on the market approach and income approach. The income approach relies upon discounted future cash flows which are derived from various assumptions including; projected cash flows, discount rates, projected long-term growth rates and terminal values. The Company used a discount rate which reflects the risks and uncertainty related to each reporting unit. The analysis concluded that the estimated fair value of the Jewish Networks business was higher than its carrying value and the estimated fair value of the Other Affinity Networks business was higher than its carrying value. At the conclusion of the analysis, it was determined that impairment was not warranted.

In 2009, we performed our annual impairment analysis and determined the fair value of each reporting unit and compared it to the carrying amount of the reporting unit. The fair value of the Jewish Networks reporting unit was higher than the carrying value as of December 31, 2009 and thus did not require any impairment. Based upon several valuation assumptions, including lower expected performance and lower industry multiples, the analysis concluded that the carrying value of the Other Affinity Networks business was higher than its estimated fair value. As a result, the Company performed the second step under the guidance to assess the fair value of the assets and liabilities of Other Affinity Networks. The analysis resulted in impairment to goodwill and domain names of $9.3 million and $1.3 million, respectively. In 2009, we paid the final $1.4 million in earn-out payments for the acquisition of the HurryDate business in 2007. The earn-out payments were recorded as impairment expense based on business performance. There were no additional impairments as a result of the assessment.

Goodwill of $8.7 million and $9.2 million, as of December 31, 2011 and 2010 respectively, is mainly related to the purchase of Pointmatch in January 2004, MingleMatch, Inc. in May 2005, and LDSSingles in May 2006. Finite-lived intangible assets consist of purchased databases and technologies, and are amortized over the expected periods of benefits (three years for member databases, three months for subscriber databases and five years for technologies). Indefinite-lived intangible assets, consisting of purchased domain names, are not amortized. Intangible assets consist of the following:

 

     As of
December 31, 2011		     As of
December 31, 2010		  
(in thousands)    Gross
Amount		      Accumulated
Amortization		     Gross
Amount		      Accumulated
Amortization		  

Member databases

    $ 3,040       $ (3,040 )    $ 3,448       $ (3,448 ) 

Purchased technologies

      1,200         (1,187 )      2,332         (1,568 ) 

Domain names

      1,887         —          2,253         —     
  

 

 

     

 

 

    

 

 

     

 

 

  
   $ 6,127       $ (4,227 )    $ 8,033       $ (5,016 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Amortization expense for finite-lived intangible assets for the year ended December 31, 2011 and 2010 was $370,000 and $421,000, respectively. Amortization expense is expected to be $13,000 for the year ending December 31, 2012. In 2011 and 2010, the Company determined that certain domain names and computer software acquired from prior period acquisitions had no value based upon the expected future cash flows generated from the businesses associated with these assets, resulting in impairment charges of approximately $1.1 million and $187,000 respectively.
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Accrued Liabilities
 12 Months Ended
Dec. 31, 2011
Accrued Liabilities [Abstract]
Accrued Liabilities

6. Accrued Liabilities

 

Accrued liabilities consist of the following:    December 31,  
     2011      2010  
     (in thousands)  

Advertising

    $ 1,452       $ 866   

Accrued compensation

      1,905         1,586   

Other accrued liabilities

      689         1,183   
  

 

 

     

 

 

  

Total

    $ 4,046       $ 3,635   
  

 

 

     

 

 

  
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Income On Possession Of Assets
 12 Months Ended
Dec. 31, 2011
Income On Possession Of Assets [Abstract]
Income On Possession Of Assets

 

7. Income on Possession of Assets

In the third quarter of 2011, the Company became the record title owner of real property purchased in a sheriff's sale to partially satisfy the Company's outstanding judgment against Will Knedlik. The Company recorded other income of $247,000 in the Interest expense (income) and other, net line item on the Consolidated Statements of Operations and recorded the asset as Deposits and Other Assets on the Consolidated Balance Sheets. The Company plans to sell the property and has recorded it at fair value less the anticipated cost of sale.

In the year ended December 31, 2009, the Company became the record title owner of real property purchased in a sheriff's sale to partially satisfy the Company's outstanding judgment against Will Knedlik and recorded other income of $1.5 million in Interest expense (income) and other, net on the Consolidated Statements of Operations. On February 1, 2010, the Company entered into a purchase agreement to sell such real property. The Company closed the transaction in the second quarter of 2010.
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Notes Payable
 12 Months Ended
Dec. 31, 2011
Notes Payable [Abstract]
Notes Payable

8. Notes Payable

Revolving Credit Facility

The Company and its wholly-owned subsidiary, Spark Networks USA, LLC, have a $15.0 million revolving credit facility with Bank of America, which was entered into on February 14, 2008 with subsequent amendments (the "Credit Agreement"). The Credit Agreement matures on February 14, 2014. The per annum interest rate under the Credit Agreement is LIBOR, or the Eurodollar rate under certain circumstances, plus 1.75%, 2.00% and 2.50% based upon a financial leverage ratio of less than 1.00, 1.00 to 1.49 and 1.50 and greater, respectively. In the event the Company elects to borrow under a base rate loan, the corresponding interest rates are increased to the prime rate plus, 0.75%, 1.00% and 1.50%, respectively. The Company pays a 0.250% to 0.375% per annum commitment fee on all funds not utilized under the facility, measured on a daily basis. The Company is required to maintain a consolidated leverage ratio of no greater than 2.00 to 1.00, and a fixed charge coverage ratio of no less than 1.50 to 1.00. The Company is permitted to repurchase or redeem equity interests or issue dividends of up to $15 million during the first 365 days following February 7, 2011, the date of a subsequent amendment to the Credit Agreement.

On May 11, 2011, the parties executed a Third Amendment to the Credit Agreement (the "Amendment"). The Amendment requires the Company to maintain a consolidated adjusted EBITDA for each fiscal quarter ending on March 31, 2011 through September 30, 2011 of $400,000; for the quarter ending on December 31, 2011 of $750,000; for each quarter ending on March 31, 2012 through June 30, 2012 of $1,000,000; for each quarter ending on September 30, 2012 through December 31, 2012 of $1,500,000; and for each quarter ending on or after March 31, 2013 of $2,000,000. In addition, the Amendment requires the Company to maintain a trailing twelve month contribution level of $20,000,000 from its Jewish Networks segment for each fiscal quarter ending on or after March 31, 2011.

The Company was compliant with the Credit Agreement's customary affirmative and negative covenants, as of December 31, 2011.

As of December 31, 2011, there was no outstanding amount under the Credit Agreement. In connection with the original Credit Agreement and the Amendment, the Company paid deferred financing costs of approximately $446,000 and $80,000, respectively. Costs associated with both the original Credit Agreement and the Amendment were included in prepaid expenses and other, and deposits and other assets. The deferred financing costs are amortized to interest expense in the Consolidated Statements of Operations over the full term of the Credit Agreement. Amortization expense for the deferred financing costs for the year ended December 31, 2011 and December 31, 2010 were $56,000 and $141,000, respectively.
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Stockholders' Equity
 12 Months Ended
Dec. 31, 2011
Stockholders' Equity [Abstract]
Stockholders' Equity

9. Stockholders' Equity

Employee Stock Option Plans

On July 9, 2007, pursuant to the completion of the Scheme of Arrangement, the Company adopted the Spark Networks, Inc. 2007 Omnibus Incentive Plan (the "2007 Plan") authorizing and reserving 2.5 million options. In connection with the Company's Scheme of Arrangement, the 2004 Share Option Plan was frozen; however, all outstanding options previously granted thereunder continue in full force and effect.

Awards under the 2007 Plan may include incentive stock options, nonqualified stock options, stock appreciation rights ("SARs"), restricted shares of common stock, restricted stock units, performance stock or unit awards, other stock-based awards and cash-based incentive awards.

The Compensation Committee may grant to a participant an award. The terms and conditions of the award, including the quantity, price, vesting periods and other conditions on exercise will be determined by the Compensation Committee.

The exercise price for stock options will be determined by the Compensation Committee in its discretion, but may not be less than 100% of the closing sale price of one share of the Company's common stock on the NYSE Amex (or any other applicable exchange on which the stock is listed) on the date when the stock option is granted. Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of stock of the Company on the date of grant, the exercise price may not be less than 110% of the closing sale price of one share of common stock on the date the stock option is granted.

As of December 31, 2011, total unrecognized compensation cost related to non-vested stock options was $1.2 million. This cost is expected to be recognized over a weighted-average period of 3 years. The following table describes option activity for the years ended December 31, 2011, 2010 and 2009:

 

     Years Ended December 31,  
         2011              2010              2009      

Granted, weighted average fair value per share

    $ 1.02       $ 1.07       $ 0.79   

Exercised, weighted average intrinsic value per share

    $ 0.32       $ 0.46       $ 1.63   

Aggregate intrinsic value of options outstanding and exercisable (in thousands)

    $ 1,571       $ 371       $ 0   

Information relating to outstanding stock options is as follows, (in thousands, except Average Price per Share):

 

     Number of
Shares		     Weighted
Average
Price  per
Share		  

Outstanding at December 31, 2009

      3,387      $ 3.28   

Granted

      210        2.99   

Exercised

      (5 )      3.00   

Expired

      (124 )      4.50   

Forfeited

      (104 )      3.22   
  

 

 

    

Outstanding at December 31, 2010

      3,364      $ 3.12   

Granted

      700        3.19   

Exercised

      (8 )      2.96   

Expired

      (10 )      3.30   

Forfeited

      (463 )      2.99   
  

 

 

    

Outstanding at December 31, 2011

      3,583        3.14   
  

 

 

    

 

Option Range Summary

As of December 31, 2011

 

      Options Outstanding      Options Exercisable  

Range of Exercise Prices

    Number of
Shares		      Weighted
Average
Remaining
Life		      Weighted
Average
Exercise
Price		      Number of
Shares		      Weighted
Average
Remaining
Life		      Weighted
Average
Exercise
Price		  

$3.18 - $7.77

      893         5       $ 3.62         304         4       $ 4.45   

$3.00

      2,551         6       $ 3.00         2,082         6       $ 3.00   

$2.18 - $2.99

      139         5       $ 2.53         82         4       $ 2.57   
  

 

 

           

 

 

        
     3,583         6       $ 3.14         2,468         6       $ 3.16   
  

 

 

           

 

 

        

As of December 31, 2010

 

     Options Outstanding      Options Exercisable  

Range of Exercise Prices

    Number of
Shares		      Weighted
Average
Remaining
Life		      Weighted
Average
Exercise
Price		      Number of
Shares		      Weighted
Average
Remaining
Life		      Weighted
Average
Exercise
Price		  

$3.91 - $8.60

      193         3       $ 5.19         172         3       $ 5.27   

$3.00

      3,019         7       $ 3.00         1,664         7       $ 3.00   

$2.18 - $2.99

      152         5       $ 2.55         47         5       $ 2.60   
  

 

 

           

 

 

        
     3,364         7       $ 3.12         1,883         7       $ 3.20   
  

 

 

           

 

 

        

Options granted prior to 2006, were priced in foreign currency, weighted average price per share calculations are impacted by foreign currency exchange fluctuations.

Re-Pricing of Employees Options

In 2009, the Company offered to re-price options for certain employees. These employees could surrender their existing options in exchange for a like number of options with a new grant date, a lower exercise price, a lower number of vested options and a modified vesting schedule. The exchange of options was treated as a synthetic re-pricing, which includes a cancellation and replacement of equity instruments. The incremental expense was approximately $1 million and is being recognized over the four year vesting term of the newly issued options. The incremental expenses recognized for the years ended December 31, 2011, 2010 and 2009 were $172,000, $339,000 and $286,000, respectively.

Stockholder Rights Plan

In July 2007, the Company adopted a stockholder rights plan. The rights accompany each share of common stock of the Company and are evidenced by ownership of common stock. The rights are not exercisable except upon the occurrence of certain takeover-related events. Once triggered, the rights would entitle the stockholders, other than a person qualifying as an "Acquiring Person" pursuant to the rights plan, to purchase additional common stock at a 50% discount to their fair market value. The rights issued under the Rights Plan may be redeemed by the board of directors at a nominal redemption price of $0.001 per right, and the board of directors may amend the rights in any respect until the rights are triggered.
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Employee Benefit Plan
 12 Months Ended
Dec. 31, 2011
Employee Benefit Plan [Abstract]
Employee Benefit Plan

 

10. Employee Benefit Plan

The Company has a defined contribution plan under Section 401(k) of the Internal Revenue Code covering all full-time employees, and providing for matching contributions by the Company, as defined in the plan. Participants in the plan may direct the investment of their personal accounts to a choice of mutual funds consisting of various portfolios of stocks, bonds, or cash instruments. Contributions made by the Company to the plan for the years ended December 31, 2011, 2010 and 2009 were approximately $338,000, $333,000 and $343,000, respectively.
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Segment Information
 12 Months Ended
Dec. 31, 2011
Segment Information [Abstract]
Segment Information

11. Segment Information

Segment reporting requires the use of the management approach in determining the reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance. The Company's financial reporting includes detailed data on four separate reportable segments which were principally determined based on similarity of economic characteristics. For the periods covered by the financial statements in this report, the Company's financial reporting data consists of four operating segments: (1) Jewish Networks, which consists of JDate.com, JDate.co.il, JDate.co.uk, JDate.fr, Cupid.co.il and their respective co-branded and private label websites; (2) General Market Networks, which consists of AmericanSingles.com and Date.ca, which were both rebranded as Spark.com in December of 2009 and Date.co.uk which was rebranded as Spark.com in February 2010 and their respective co-branded and private label websites; (3) Other Affinity Networks, which consists of the Company's Provo, Utah-based properties which are primarily made up of sites targeted towards various religious, ethnic, geographic and special interest groups; and (4) Offline & Other Businesses, which consists of revenue generated from offline activities, HurryDate events and subscriptions, and other websites and businesses.

 

     Years Ended December 31  
(in thousands)    2011     2010      2009  

Revenue

        

Jewish Networks

    $ 27,054      $ 27,440       $ 28,842   

Other Affinity Networks

      20,089        11,279         12,771   

General Market Networks

      578        1,168         2,692   

Offline and Other Businesses

      772        964         1,083   
  

 

 

    

 

 

     

 

 

  

Total Revenue

    $ 48,493      $ 40,851       $ 45,388   
  

 

 

    

 

 

     

 

 

  

Direct Marketing Expenses

        

Jewish Networks

    $ 3,389      $ 2,321       $ 2,346   

Other Affinity Networks

      21,459        7,292         8,502   

General Market Networks

      364        582         676   

Offline and Other Businesses

      512        535         541   
  

 

 

    

 

 

     

 

 

  

Total Direct Marketing Expenses

    $ 25,724      $ 10,730       $ 12,065   
  

 

 

    

 

 

     

 

 

  

Unallocated Operating Expense

      23,913        23,913         37,347   
  

 

 

    

 

 

     

 

 

  

Operating (Loss) Income

    $ (1,144 )    $ 6,208       $ (4,024 ) 
  

 

 

    

 

 

     

 

 

  

 

Due to the Company's integrated business structure, cost and expenses, other than direct marketing expenses, are not allocated to the individual reporting segments. As such, the Company does not measure operating profit or loss by segment for internal reporting purposes. Assets are not allocated to the different business segments for internal reporting purposes.

The Company operates several international Web sites, however, many of them are operated and managed by the Company's U.S. operations. Foreign revenue represents sales generated outside the U.S. where the Company has its principal operations. Revenue and identifiable assets (excluding deferred tax assets) by geographical area are as follows:

 

     Years Ended December 31  
(in thousands)    2011      2010      2009  

Revenue

         

United States

    $ 44,358       $ 36,849       $ 41,413   

Israel

      4,135         4,002         3,975   
  

 

 

     

 

 

     

 

 

  

Total Revenue

    $ 48,493       $ 40,851       $ 45,388   
  

 

 

     

 

 

     

 

 

  

 

     As of December 31,  
      2011      2010  

Non-Current Assets

      

United States

    $ 3,117       $ 2,583   

Israel

      177         232   
  

 

 

     

 

 

  

Total

    $ 3,294       $ 2,815   
  

 

 

     

 

 

  

Segment Reclassification

During the first quarter of 2012, the Company changed management's internal reporting to include data on four newly-defined operating segments: Jewish Networks, which consists of JDate.com, JDate.co.il, Cupid.co.il, and their respective co-branded Web sites; Christian Networks, which consists of ChristianMingle.com, ChristianMingle.co.uk, ChristianMingle.com.au and Believe.com;; Other Networks, which consists of Spark.com and properties which are primarily made up of sites targeted towards various religious, ethnic, geographic and special interest groups; and Offline & Other Businesses, which consists of revenue generated from offline activities and HurryDate events and subscriptions. The Company believes the new segments will provide investors with greater transparency into the performance of the business.
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Commitments And Contingencies
 12 Months Ended
Dec. 31, 2011
Commitments And Contingencies [Abstract]
Commitments And Contingencies

12. Commitments and Contingencies

Operating Leases

The Company leases its office facilities under operating lease agreements effective through July 2017, providing for annual minimum lease payments as follows (amounts in thousands):

 

Year Ending

       

2012

    $ 623   

2013

      378   

2014

      188   

2015

      194   

2016

      200   

2017

      120   
  

 

 

  

Total

    $ 1,703   
  

 

 

  

 

Rental expense under non-cancelable operating leases with scheduled rent increases or free rent is accounted for on a straight-line basis over the lease term. Leasehold improvement incentives are recorded as deferred credits and are amortized on a straight-line basis as a reduction of rent expense through terms of the lease.

The Company recognized rent expense under operating leases of $1.0 million, $1.3 million and $1.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Other Commitments and Obligations

The Company has other commitments and obligations consisting of contracts with software licensing, communications, computer hosting and marketing service providers. These amounts totaled $321,000 for less than one year and $321,000 between one and three years. Contracts with other service providers are for 30 day terms or less.

 

Year Ending (amounts in thousands)

       

2012

    $ 321   

2013

      321   
  

 

 

  

Total

    $ 642   
  

 

 

  

Legal Proceedings

ISYSTEMS v. Spark Networks, Inc. et al.

On July 11, 2008, ISYSTEMS initiated a lawsuit against Spark Networks, Inc. and Spark Networks Limited (collectively, "Spark Networks") and other parties in the United States District Court, Northern District of Texas, Dallas Division. The lawsuit was filed in response to an arbitration award ordering the transfer of the domain name, JDATE.NET, to Spark Networks Limited from ISYSTEMS. Spark Networks was apprised of the lawsuit after ISYSTEMS unsuccessfully attempted to utilize the filing of the lawsuit to prevent the domain transfer to Spark Networks Limited. On December 1, 2008, Spark Networks filed a Motion to Dismiss the Complaint, or, Alternatively, for Summary Judgment. On September 10, 2009, the Court granted Spark Networks' motion and dismissed the case with prejudice. On September 22, 2009, ISYSTEMS filed a motion to vacate the order dismissing the action and requesting leave to amend its complaint. On October 26, 2009, the Court granted ISYSTEMS' motion and ISYSTEMS filed its Amended Complaint on November 25, 2009. On January 19, 2010, Spark Networks filed a Motion to Dismiss the Amended Complaint, or Alternatively, for Summary Judgment. The court granted Spark Networks' Motion to Dismiss on June 28, 2010 and entered a judgment in favor of Spark Networks. On July 25, 2010, ISYSTEMS filed a motion to vacate the order granting the motion to dismiss, which was denied by the court on August 11, 2010. On September 10, 2010, ISYSTEMS filed a notice of appeal of the district court's order and judgment to the United States Court of Appeals for the Fifth Circuit. On June 13, 2011, the United States Court of Appeals for the Fifth Circuit issued its opinion affirming the District Court's judgment. On June 29, 2011, ISYSTEMS filed a Petition for Rehearing with the United States Court of Appeals for the Fifth Circuit, which was granted. Oral argument was held on December 8, 2011. Per the Fifth Circuit's request, the parties submitted supplemental briefs on December 16, 2011. On March 21, 2012, the Fifth Circuit issued its opinion affirming the District Court's dismissal of certain claims and reversing the dismissal of certain other claims.

L.I.S.T. Incorporated v. Spark Networks, Inc. et al

On March 11, 2010, L.I.S.T. Incorporated initiated a class action lawsuit against Spark Networks, Inc., Adam S. Berger, Jonathan B. Bulkeley, Benjamin Derhy, Thomas G. Stockham, Michael A. Kumin, Great Hill Equity Partners III, LP and Great Hill Partners, LLC in the Court of Chancery of the State of Delaware, alleging breach of fiduciary duty. The action arises out of the proposal by Great Hill Partners III, LP to purchase all of the shares of Spark Networks, Inc. that it does not already own. On September 10, 2010, the Company announced that the Board of Directors had disbanded the Special Committee of independent directors which had been formed to consider the proposal made by Great Hill to purchase all of the outstanding shares of common stock of the Company not owned by Great Hill and other strategic alternatives available to the Company. The action initiated by L.I.S.T. was dismissed by plaintiff without prejudice on March 4, 2011.

Ness Interactive v. Spark Networks Limited

On January 22, 2010, Spark Networks Limited was served with a complaint from Ness Interactive alleging that Spark Networks engaged in unfair competition by bidding on certain online advertising keywords in France. Spark Networks Limited filed its initial response on October 15, 2010 and counterclaimed that Ness engaged in unfair competition. The parties settled the case and it was dismissed by the court on May 6, 2011.

Spark Networks USA, LLC v. Humor Rainbow, Inc. and Zoosk, Inc.

On February 16, 2011, Spark Networks, Inc.'s indirect subsidiary, Spark Networks USA, LLC, filed a complaint against Humor Rainbow, Inc., in the United States District Court for the Central District of California, Southern Division. On March 4, 2011, Spark Networks USA, LLC filed an amended complaint with the Court adding defendants Zoosk, Inc. and Embrace, Inc. The complaint alleges that, among other things, the defendants have infringed and continue to infringe on a patent owned by Spark Networks USA, LLC. On May 6, 2011, Spark Networks USA, LLC filed a Notice Of Dismissal Without Prejudice with the court in regards to the claim against Embrace, Inc. On September 13, 2011, Humor Rainbow was dismissed from the case following a settlement. On November 9, 2011, Zoosk was dismissed from the case following a settlement.

The Company strongly disputes the merits of the claims asserted against it in each of these lawsuits and shall vigorously defend against them.

The Company has additional existing legal claims and may encounter future legal claims in the normal course of business. In the Company's opinion, the resolutions of the existing legal claims are not expected to have a material impact on its financial position or results of operations. The Company believes it has accrued appropriate amounts where necessary in connection with the above litigation.
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Related Party Transactions
 12 Months Ended
Dec. 31, 2011
Related Party Transactions [Abstract]
Related Party Transactions

13. Related Party Transactions

The Company had entered into a confidentiality agreement dated October 14, 2005 with Great Hill Equity Partners II (the "Stockholder") that contained a provision (the "Standstill Provision") pursuant to which the Stockholder agreed not to, among other things, directly or indirectly acquire, offer to acquire, or propose to acquire more than 2% of any class of the Company's securities or rights to acquire more than 2% of any class of the Company's securities for a period of one year from the date of the confidentiality agreement without the Company's prior written consent. On December 1, 2005, the Company and the Stockholder entered into a standstill agreement (the "Standstill Agreement") pursuant to which the Company waived the Standstill Provision and the Stockholder agreed that its ability to increase its beneficial ownership of the Company's securities would be subject to the terms and conditions of the Standstill Agreement, which had a term of five years. Pursuant to the Standstill Agreement, Great Hill Equity Partners II agreed that it would not, other than through bona fide all cash offers made in accordance with the terms of the Standstill Agreement to all of the Company's stockholders or share repurchases or other actions initiated by the Company, acquire or seek to acquire beneficial ownership of any of our voting securities (or rights to acquire any class of our securities or any subsidiary thereof) or participate in any tender, takeover or exchange offer or other business combination, or any recapitalization, restructuring, dissolution or other extraordinary transaction if (1) prior to giving effect thereto, the Great Hill group beneficially owns less than 60% of Total Voting Power and (2) after giving effect, the Great Hill Group would beneficially own more than 29.9% of Total Voting Power.

On March 2, 2010, the Company granted a partial waiver of the Standstill Agreement to the extent necessary to allow the Special Committee of the Board of Directors to receive, discuss and negotiate a proposal by the Great Hill Group to purchase all of the outstanding shares of common stock of the Company not owned by the Great Hill Group, at a cash purchase price of $3.10 per share. The waiver automatically (but not retroactively) terminated when, on September 10, 2010, the Company announced that the Board of Directors had disbanded the Special Committee of independent directors which had been formed to consider the proposal made by Great Hill to purchase all of the outstanding shares of common stock of the Company not owned by Great Hill and other strategic alternatives available to the Company.

In December 2011, the Company entered into an agreement with Latisys-Irvine, Inc., a collocation and data center provider to provide collocation, cages, connectivity and other related equipment and services. Great Hill Partners, an owner of more than 5% of the Company's stock, has informed the Company that it has an ownership position in Latisys-Irvine, Inc.

In January 2012, the Company entered into an agreement with Ultra Unlimited Corp., a software development firm, to provide the Company with certain software. The Chief Executive Officer of Ultra UnlimitedCorp. is the brother of Michael Kumin, a director of the Company, and Michael Kumin and Jonathan Bulkeley, also a director of the Company, have informed the Company that they are individual investors in Ultra Unlimited Corp.
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Quarterly Results Of Operations
 12 Months Ended
Dec. 31, 2011
Quarterly Results Of Operations [Abstract]
Quarterly Results Of Operations

14. Quarterly Results of Operations (unaudited)

The following tables present the Company's quarterly results of operations and should be read in conjunction with the consolidated financial statements and related notes. The Company has prepared the unaudited information on substantially the same basis as our audited consolidated financial statements which, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, except as otherwise indicated, necessary for the presentation of the results of operations for such periods. Operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year.

 

    Three Months Ended  
(in thousands, except per share amount)   Dec.  31,
2011		     Sept.  30,
2011		     June  30,
2011		     March  31,
2011		     Dec.  31,
2010		     Sept.  30,
2010		     June  30,
2010		     March  31,
2010		  
               

Consolidated Statement of

Operations Data:

                

Revenue

   $ 12,861      $ 12,677      $ 11,995      $ 10,960      $ 10,109      $ 9,916      $ 10,289      $ 10,537   

Cost of revenue

     8,420        7,373        7,347        5,815        4,002        3,206        3,384        3,157   

Sales and marketing

     1,062        923        837        900        788        774        851        1,083   

Customer service

     539        531        449        461        420        403        382        396   

Technical operations

     281        336        336        414        302        252        315        363   

Development

     643        643        679        745        760        773        778        781   

General and administrative

     1,071        2,435        2,199        2,363        2,141        2,316        2,538        2,787   

Depreciation

     343        341        346        290        263        242        222        235   

Amortization

     89        90        93        98        97        98        104        122   

Impairment of goodwill and other assets

     1,100        45        —          —          187        —          —          121   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total operating expenses

     13,548        12,717        12,286        11,086        8,960        8,064        8,574        9,045   

(Loss) income from operations

     (687 )      (40 )      (291 )      (126 )      1,149        1,852        1,715        1,492   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Interest expense (income) and other, net

     144        120        (45 )      (57 )      (72 )      (182 )      241        (41 ) 

(Loss) income before income taxes

     (831 )      (160 )      (246 )      (69 )      1,221        2,034        1,474        1,533   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Provision for income taxes

     277        78        (165 )      115        595        808        551        604   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net (loss) income

   $ (1,108 )    $ (238 )    $ (81 )    $ (184 )    $ 626      $ 1, 226      $ 923      $ 929   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Basic and diluted net (loss) income per share

   $ (0.05 )    $ (0.01 )    $ (0.00 )    $ (0.01 )    $ 0.03      $ 0.06      $ 0.04      $ 0.05   

Shares used in computation of basic net (loss) income per share

     20,595        20,595        20,589        20,587        20,587        20,587        20,587        20,582   

Shares used in computation of diluted net (loss) income per share

     20,595        20,595        20,589        20,587        20,588        20,590        20,598        20,582   
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Subsequent Events
 12 Months Ended
Dec. 31, 2011
Subsequent Events [Abstract]
Subsequent Events

15. Subsequent Events

The Company evaluated subsequent events through the date we filed this Annual Report on Form 10-K with the Securities and Exchange Commission (SEC).
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