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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-51195
 SPARK NETWORKS PLC
 (Exact name of registrant as specified in its charter)
 ENGLAND AND WALES(State or other jurisdiction of
incorporation or organization)
    
    98-0200628(I.R.S. Employer
Identification No.)8383 Wilshire Boulevard, Suite 800, Beverly
Hills, California(Address of principal executive offices)
    
    90211(Zip Code)
 (323) 836-3000  (Registrants telephone number, including area code)
 N/A  (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o þ
  o þ
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##### Table of Contents



SPARK NETWORKS, PLC
 
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets at March 31, 2006 (unaudited) and December 31, 2005Unaudited Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2006, and 2005Unaudited Notes to Consolidated Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
    
    Quantitative and Qualitative Disclosures About Market RiskItem 4.
    
    Controls and ProceduresPART II. OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 1A.
    
    Risk FactorsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.
    
    Defaults Upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    ExhibitsSignaturesEX-31.1EX-31.02EX-32.01
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Item 1. Financial Statements
 SPARK NETWORKS PLC
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,640
    
    
    $
    17,096Marketable securities
    
    
    193
    
    
    
    196Restricted cash
    
    
    1,998
    
    
    
    1,085Accounts receivable, net of allowance of $13 for
March 31, 2006 and December 31, 2005
    
    
    475
    
    
    
    932Prepaid expenses and other
    
    
    1,294
    
    
    
    1,493Total current assets
    
    
    19,600
    
    
    
    20,802Property and equipment, net
    
    
    4,064
    
    
    
    4,453Goodwill, net
    
    
    17,277
    
    
    
    17,344Intangible assets, net
    
    
    4,683
    
    
    
    4,627Investment in noncontrolled affiliate
    
    
    1,092
    
    
    
    1,099Deposits and other assets
    
    
    460
    
    
    
    295Total assets
    
    $
    47,176
    
    
    $
    48,620Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    2,383
    
    
    $
    2,267Accrued liabilities
    
    
    4,268
    
    
    
    3,632Deferred revenue
    
    
    5,676
    
    
    
    4,991Notes payable  current portion
    
    
    4,697
    
    
    
    9,930Current portion of obligations under capital leases
    
    
    39
    
    
    
    Total current liabilities
    
    
    17,063
    
    
    
    20,820Deferred tax liabilities
    
    
    1,746
    
    
    
    1,717Notes payable  long term
    
    
    900
    
    
    
    900Obligations under capital leases
    
    
    92
    
    
    
    Total liabilities
    
    
    19,801
    
    
    
    23,437Shares subject to rescission (Note 6)
    
    
    6,089
    
    
    
    6,089Commitments and contingencies (Note 8)
    
    
    
    
    
    
    Shareholders equity:Authorized capital £800,000 divided into
80,000,000 ordinary shares of 1p each; issued
and outstanding 30,296,396 shares as of March
31, 2006 and 30,241,496 shares as of December
31, 2005, at a stated value of:
    
    
    488
    
    
    
    487Additional paid-in-capital
    
    
    65,547
    
    
    
    64,064Accumulated other comprehensive (loss)
    
    
    (386
    )
    
    
    (302
    )Notes receivable from employees
    
    
    
    
    
    
    (82
    )Accumulated deficit
    
    
    (44,363
    )
    
    
    (45,073
    )Total shareholders equity
    
    
    21,286
    
    
    
    19,094Total liabilities and shareholders equity
    
    $
    47,176
    
    
    $
    48,620
 See accompanying notes
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SPARK NETWORKS PLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
 Three Months Ended March 31,2006
    
    
    2005Net revenues
    
    $
    16,805
    
    
    $
    16,526Direct marketing expenses
    
    
    5,657
    
    
    
    5,228Contribution margin
    
    
    11,148
    
    
    
    11,298Operating expenses:Indirect marketing (including share-based compensation of $13 and $0)
    
    
    366
    
    
    
    265Customer service (including share-based compensation of $23 and $0)
    
    
    908
    
    
    
    577Technical operations(including share-based compensation of $174 and $0)
    
    
    2,230
    
    
    
    1,402Product development(including share-based compensation of $118 and $0)
    
    
    845
    
    
    
    830General and administrative (including share-based compensation of $1,043
and $87)
    
    
    5,632
    
    
    
    6,079Amortization of intangible assets other than goodwill
    
    
    239
    
    
    
    110Total operating expenses
    
    
    10,220
    
    
    
    9,263Operating income
    
    
    928
    
    
    
    2,035Interest (income), loss and other expenses, net
    
    
    39
    
    
    
    (24
    )Income before income taxes
    
    
    889
    
    
    
    2,059Provision for income taxes
    
    
    179
    
    
    
    72Net income
    
    $
    710
    
    
    $
    1,987Net income per share  basic
    
    $
    0.02
    
    
    $
    0.08Net income per share  diluted
    
    $
    0.02
    
    
    $
    0.07Weighted average shares outstanding  basic
    
    
    30,266
    
    
    
    25,117Weighted average shares outstanding  diluted
    
    
    31,258
    
    
    
    29,236
 See accompanying notes.
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SPARK NETWORKS PLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Three Months Ended March 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    710
    
    
    $
    1,987Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    1,056
    
    
    
    958Share-based compensation
    
    
    1,371
    
    
    
    87Deferred tax liability
    
    
    55
    
    
    
    175Imputed interest on notes payable
    
    
    52
    
    
    
    Impairment of employee loan
    
    
    82
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    457
    
    
    
    207Restricted cash
    
    
    (913
    )
    
    
    49Prepaid expenses and other assets
    
    
    6
    
    
    
    (960
    )Accounts payable and accrued liabilities
    
    
    752
    
    
    
    (1,385
    )Deferred revenue
    
    
    685
    
    
    
    (46
    )Net cash provided by operating activities
    
    
    4,313
    
    
    
    1,072Cash flows from investing activities:Purchases of property and equipment
    
    
    (293
    )
    
    
    (831
    )Purchases of businesses and intangible assets
    
    
    (300
    )
    
    
    65Net cash used in investing activities
    
    
    (593
    )
    
    
    (766
    )Cash flows from financing activities:Proceeds from issuance of ordinary shares
    
    
    113
    
    
    
    2,312Principal payments of capital lease obligations
    
    
    (4
    )
    
    
    (97
    )Payment on notes payable for acquisition
    
    
    (5,000
    )
    
    
    Notes Payable
    
    
    (285
    )
    
    
    Net cash (used in), provided by financing activities
    
    
    (5,176
    )
    
    
    2,215Net (decrease) increase in cash
    
    
    (1,456
    )
    
    
    2,521Cash and cash equivalents at beginning of period
    
    
    17,096
    
    
    
    4,265Cash and cash equivalents at end of period
    
    $
    15,640
    
    
    $
    6,786Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    25Cash paid for income taxes
    
    $
    76
    
    
    $
    11Assets acquired through a capital lease
    
    $
    135
    
    
    $
    
 See accompanying notes
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SPARK NETWORKS PLC
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. The Company and Summary of Significant Accounting Policies
 The Company
   Principles of Consolidation
   Interim Financial Information
   Share-Based Compensation
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Accounting for Stock Issued to
Employees, Accounting for
Stock-Based Compensation
   Three Months EndedMarch 31, 2005Net income as reported
    
    $
    1,987Add: SFAS 123 (R) share based employee compensation expense included in
reported net income, net of related tax effects
    
    
    Add: share based employee compensation expense recorded in the
accompanying consolidated statements of operations Pre-SFAS 123 (R)
    
    
    219Deduct: Total share based employee compensation expense determined
under fair value based method for all awards, net of related tax effects
    
    
    (1,864
    )Pro forma net income
    
    $
    342Income Per ShareAs reported  basic
    
    $
    0.08As reported  diluted
    
    $
    0.07Pro forma  basic
    
    $
    0.01Pro forma  diluted
    
    $
    0.01
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Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods and Services.
 Earnings Per Share
  Comprehensive Income (Loss)
  Three Months Ended March 31,2006
    
    
    2005Net income
    
    $
    710
    
    
    $
    1,987Changes in unrealized gains/losses in
available for sale securities
    
    
    10
    
    
    
    (30
    )Foreign currency translation adjustment
    
    
    (94
    )
    
    
    (72
    )Total comprehensive income
    
    $
    626
    
    
    $
    1,885
 Use of Estimates
  2. Net Income (Loss) Per Share
  8




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3. Acquisitions of Businesses and Intangibles
 Domain Names
  MingleMatch, Inc.
  Playahead AB (formerly Duplo AB)
      4. Obligations Under Capital Leases
  9




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5. Notes Payable
  Paid on October 31, 2005
    
    $
    1,000,000Paid on January 10, 2006
    
    $
    2,000,000Paid on March 31, 2006
    
    $
    3,000,000Due on May 31, 2006
    
    $
    2,650,000Due on May 31, 2006
    
    $
    1,350,000$
    10,000,000
  6. Shareholders Equity
 Warrants
  Employee Share Option Plans
  10




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WeightedNumber of
    
    
    AverageShares
    
    
    Price Per Share(in thousands)Outstanding at December 31, 2005
    
    
    4,703
    
    
    $
    5.57Granted
    
    
    226
    
    
    
    7.34Exercised
    
    
    (55
    )
    
    
    2.04Cancelled
    
    
    (152
    )
    
    
    7.18Outstanding at March 31, 2006
    
    
    4,722
    
    
    $
    5.76
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Shares Subject to Rescission
       12




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7. Segment Information
  Three Months Ended March 31,(in thousands)
    
    2006
    
    
    2005RevenuesJDate
    
    $
    6,996
    
    
    $
    6,468AmericanSingles
    
    
    6,343
    
    
    
    8,097Other Businesses
    
    
    3,466
    
    
    
    1,961Total
    
    $
    16,805
    
    
    $
    16,526Direct MarketingJDate
    
    $
    796
    
    
    $
    503AmericanSingles
    
    
    3,360
    
    
    
    3,258Other Businesses
    
    
    1,501
    
    
    
    1,467Total
    
    $
    5,657
    
    
    $
    5,228ContributionJDate
    
    $
    6,200
    
    
    $
    5,965AmericanSingles
    
    
    2,983
    
    
    
    4,839Other Businesses
    
    
    1,965
    
    
    
    494Total
    
    $
    11,148
    
    
    $
    11,298Unallocated operating expenses
    
    
    10,220
    
    
    
    9,263Operating income
    
    $
    928
    
    
    $
    2,035
  8. Commitments and Contingencies
  13




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Legal Proceedings
  Huebner v. InterActiveCorp. Adelman, Adelman, Huebner Adelman Huebner
 Adelman
 Adelman
  14




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(JetPay JetPay,
  JetPay JetPay JetPay
   15




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9. Related Party Transactions
   10.
Subsequent Events
   
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 The following discussion of our financial condition and results of operations should be read
in conjunction with our unaudited consolidated financial statements and the related notes that are
included in this Quarterly Report and the audited consolidated financial statements and related
notes and Managements Discussion and Analysis of Financial Condition and Results of Operations
contained in our Annual Report on Form 10-K for the year ended December 31, 2005.
 Some of the statements contained in this Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report are forward-looking
statements that involve substantial risks and uncertainties. All statements other than historical
facts contained in this report, including statements regarding our future financial position,
business strategy and plans and objectives of management for future operations, are forward-looking
statements. In some cases, you can identify forward-looking statements by terminology such as
believes, expects, anticipates, intends, estimates, may, will, continue, should,
plan, predict, potential and other similar expressions. We have based these forward-looking
statements on our current expectations and projections about future events and financial trends
that we believe may affect our financial condition, results of operations, business strategy and
financial needs. Our actual results could differ materially from those anticipated in these
forward-looking statements, which are subject to a number of risks, uncertainties and assumptions
including, but not limited to, our potential liability for issuing securities to certain employees,
directors and consultants that may not have been exempt from registration; pending lawsuits against
us; and other factors described in the Risk Factors section and elsewhere in this report and in
the Risk Factors section of our 2005 Annual Report.
 General
  16




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Segment Reporting
  (in thousands)
    
    2006
    
    
    2005RevenuesJDate
    
    $
    6,996
    
    
    $
    6,468AmericanSingles
    
    
    6,343
    
    
    
    8,097Other Businesses
    
    
    3,466
    
    
    
    1,961Total
    
    $
    16,805
    
    
    $
    16,526Direct MarketingJDate
    
    $
    796
    
    
    $
    503AmericanSingles
    
    
    3,360
    
    
    
    3,258Other Businesses
    
    
    1,501
    
    
    
    1,467Total
    
    $
    5,657
    
    
    $
    5,228ContributionJDate
    
    $
    6,200
    
    
    $
    5,965AmericanSingles
    
    
    2,983
    
    
    
    4,839Other Businesses
    
    
    1,965
    
    
    
    494Total
    
    $
    11,148
    
    
    $
    11,298Unallocated operating expenses
    
    
    10,220
    
    
    
    9,263Operating income
    
    $
    928
    
    
    $
    2,035
 Key Business Metrics
  
    
    Average Paying Subscribers:Paying subscribers are defined as individuals who have paid a
monthly fee for access to communication and Website features beyond those provided to our
non-paying members. Average paying subscribers for each month are calculated as the sum of
the paying subscribers at the beginning and end of the month, divided by two. Average paying
subscribers for periods longer than one month are calculated as the sum of the average paying
subscribers for each month, divided by the number of months in such period.
    
    Average Monthly Net Revenue per Paying Subscriber:Average monthly net revenue per paying
subscriber represents the total net subscriber revenue for the period divided by the number
of average paying subscribers for the period, divided by the number of months in the period.
    
    Direct Subscriber Acquisition Costs:Direct subscriber acquisition cost is defined as
total direct marketing costs divided by the number of new gross paying subscribers during the
period. This represents our average cost of acquiring a new paying subscriber during the
period.
    
    Monthly Subscriber Churn:Monthly subscriber churn represents the ratio expressed as a
percentage of (1) the number of paying subscriber cancellations during the period divided by
the number of average paying subscribers during the period and (2) the number of months in
the period.
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Three Months EndedMarch 31,2006
    
    
    2005Average Paying Subscribers (in thousands):JDate
    
    
    79.5
    
    
    
    70.4AmericanSingles
    
    
    98.8
    
    
    
    121.6Other Businesses
    
    
    66.0
    
    
    
    30.6Total
    
    
    244.3
    
    
    
    222.6Average Monthly Net Revenue per Paying Subscriber:JDate
    
    $
    29.33
    
    
    $
    30.61AmericanSingles
    
    
    21.40
    
    
    
    22.19Other Businesses
    
    
    17.52
    
    
    
    18.33All Segments
    
    
    22.93
    
    
    
    24.32Direct Subscriber Acquisition Cost:JDate
    
    $
    13.20
    
    
    $
    9.01AmericanSingles
    
    
    35.19
    
    
    
    25.61Other Businesses
    
    
    24.68
    
    
    
    46.97All Segments
    
    
    26.11
    
    
    
    23.84Monthly Subscriber Churn:JDate
    
    
    24.5
    %
    
    
    26.0
    %AmericanSingles
    
    
    30.1
    
    
    
    35.8Other Businesses
    
    
    27.1
    
    
    
    28.6All Segments
    
    
    27.5
    
    
    
    31.7
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Results of Operations
  Three Months EndedMarch 31,2006
    
    
    2005Net revenues
    
    
    100.0
    %
    
    
    100.0
    %Direct marketing
    
    
    33.7
    
    
    
    31.6Contribution margin
    
    
    66.3
    
    
    
    68.4Operating expenses:Indirect marketing
    
    
    2.2
    
    
    
    1.6Customer service
    
    
    5.4
    
    
    
    3.5Technical operations
    
    
    13.3
    
    
    
    8.5Product development
    
    
    5.0
    
    
    
    5.0General and administrative
    
    
    33.5
    
    
    
    36.8Amortization of intangible assets other than goodwill
    
    
    1.4
    
    
    
    0.7Total operating expenses
    
    
    60.8
    
    
    
    56.1Operating income
    
    
    5.5
    
    
    
    12.3Interest and other expense, (income), net
    
    
    0.2
    
    
    
    (0.1
    )Loss income before income taxes
    
    
    5.3
    
    
    
    12.4Provision for income taxes
    
    
    1.1
    
    
    
    0.3Net income
    
    
    4.2
    %
    
    
    12.1
    %
 Business Metrics
   19




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Net Revenues
   Direct Marketing Expenses
  Operating Expenses
  20




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Indirect Marketing.
 Customer Service.
 Technical Operations.
 Product Development.
 General and Administrative.
 Amortization of Intangible Assets Other Than Goodwill.
 Interest Income/Loss and Other Expenses, Net.
 Liquidity and Capital Resources
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Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   Foreign Currency Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of disclosure controls and procedures
  22




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(b) Changes in internal control over financial reporting
  
 PART II. OTHER INFORMATION.
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 Other than with respect to the following risk factor, which has been updated and restated in
its entirety below,to reflect the hiring of our new General Counsel and departure of our former
Chief Technology Officer , there have been no material changes from the risk factors disclosed in
the Risk Factors section of our Annual report on Form 10-K for the year ended December 31, 2005.
 If we are unable to attract, retain and motivate key personnel or hire qualified personnel, or such
personnel do not work well together, our growth prospects and profitability will be harmed.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS.
  10.13(a)
    
    Amendment No. 1, dated March 15, 2006, to the Executive Employment Agreement
between the Registrant and Gregory R. Liberman (incorporated by reference to Exhibit 10.13(a)
of the Registrants Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on April 7, 2006).31.1
    
    Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, whether made before or after the date hereof and irrespective of any general
incorporation language in any filings. 
 SIGNATURES
  SPARK NETWORKS PLC/s/ Mark Thompson

by: Mark ThompsonChief Financial Officer (Principal Financial andAccounting Officer)Date: May 8, 2006
 24