UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For The Fiscal Year Ended December 31, 20172023

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

Commission File No. 000-52176001-38717

PEERSTREAM,PALTALK, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (212) 594-5050967-5120

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

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

Common stock, par value $0.001 per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

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

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

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

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

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

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

The aggregate market value of the registrant’s common stock, par value $0.001 per share, held by non-affiliates of the registrant, based on the closing price of the common stock as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $4,856,429.$14,682,997.

As of March 16, 2018,11, 2024, the registrant had 6,723,2239,222,157* shares of common stock outstanding, excluding 158,571 unvestedoutstanding.

* Excludes 641,963 shares of restricted stock.common stock that are held as treasury stock by Paltalk, Inc.

DOCUMENTS INCORPORATED BY REFERENCE:

The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated by reference to the registrant’s Definitive Proxy Statement on Schedule 14A relating to the 2018 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates.None.

PEERSTREAM,PALTALK, INC.

ANNUAL REPORT ON

FORM 10-K

TABLE OF CONTENTS

Effective March 12, 2018, we changed our name from “Snap Interactive, Inc.” to “PeerStream, Inc.” Unless the context otherwise indicates, references to “PeerStream,” “Snap,“Paltalk,” “we,” “our,” “us” and the “Company” refer to PeerStream,Paltalk, Inc. and its subsidiaries on a consolidated basis.

PeerStream, FirstMet, Paltalk, our logo and other trademarks or service marks appearing in this report are the property of PeerStream,Paltalk, Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names included in this report are without the ®, or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

Unless otherwise indicated, operational metrics forsuch as those related to active users are based on information that is reported by Facebook^®and internally-derived metrics for users across all platforms through which our applications are accessed. References in this report to users means those persons who have created a user name and password, and active subscribers means users that have prepaid a fee, redeemed credits or received an upgrade from another user as a gift for current unlocked features such as enhanced voice and video access, elevated status in the community or unrestricted communication on our applications and whose subscription period has not yet expired. The metrics for active subscribers are based on internally-derived metrics across all platforms through which our applications are accessed.

FORWARD-LOOKING STATEMENTS

EXPLANATORY NOTE

Name Change

Effective March 12, 2018, we changed our name from “Snap Interactive, Inc.” to “PeerStream, Inc.” In connection with the name change, we also changed our trading symbol on the OTCQB Marketplace from “STVI” to “PEER.” The new brand is intended to honor the Company’s legacy of empowering consumers to meet new people and connect with peers via social video applications, while also referencing the anticipated importance of peer-to-peer networks and multimedia streaming in the Company’s future.

AVM Merger

On October 7, 2016, PeerStream, Inc. (“PeerStream”) (formerly known as Snap Interactive, Inc.) completed its previously announced merger with A.V.M. Software, Inc. (d/b/a Paltalk) (“AVM”), pursuant to which SAVM Acquisition Corporation, PeerStream’s wholly owned subsidiary, merged with and into AVM, with AVM surviving as a wholly owned subsidiary of PeerStream (the “AVM Merger”). As a result of the AVM Merger, the former shareholders of AVM received shares of PeerStream’s common stock representing approximately 77.9% of the outstanding shares of common stock of the post-AVM Merger combined company, and PeerStream’s former shareholders retained approximately 22.1% of the outstanding shares of common stock of the post-AVM Merger combined company, in each case including unvested shares of restricted stock in the total number of shares of common stock outstanding. In connection with the consummation of the AVM Merger, PeerStream fully repaid its outstanding 12% Senior Secured Convertible Note due February 13, 2017 in the original aggregate principal amount of $3,000,000.

The AVM Merger has been accounted for as a “reverse merger” under the acquisition method of accounting for business combinations with AVM being treated as the accounting acquirer of PeerStream. As such, the historical financial statements of AVM are treated as the historical financial statements of the combined company. Accordingly, the financial results for the fiscal year ended December 31, 2017 presented in this Form 10-K reflect the operations of the combined company. These results for the fiscal year ended December 31, 2017 are compared to the financial results of AVM for the period of January 1, 2016 through October 7, 2016 and the operations of the combined company for the period of October 8, 2016 through December 31, 2016.

For additional information, see the Notes to our Consolidated Financial Statements set forth in this Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K constitute “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on current expectations, estimates, forecasts and assumptions and are subject to risks and uncertainties. Words such as “anticipate,” “assume,” “began,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “would” and variations of such words and similar expressions are intended to identify such forward-looking statements. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

For a more detailed discussion of these and other factors that may affect our business, see the discussion in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this report, except to the extent required by applicable securities laws.

PART I

ITEM 1. BUSINESS

Background of Presentation and Recent DevelopmentsCompany Overview

Name Change

Effective March 12, 2018, we changed our name from “Snap Interactive, Inc.” to “PeerStream, Inc.” In connection with the name change, we also changed our trading symbol on the OTCQB Marketplace from “STVI” to “PEER.” The new brand is intended to honor the Company’s legacy of empowering consumers to meet new people and connect with peers via social video applications, while also referencing the anticipated importance of peer-to-peer networks and multimedia streaming in the Company’s future.

AVM Merger

On October 7, 2016, we completed the AVM Merger, pursuant to which SAVM Acquisition Corporation, our wholly owned subsidiary, merged with and into AVM, with AVM surviving as a wholly owned subsidiary of the Company. As a result of the AVM Merger, the former shareholders of AVM received shares of our common stock representing approximately 77.9% of the outstanding shares of common stock of the post-AVM Merger combined company, and the Company’s former shareholders retained approximately 22.1% of the outstanding shares of common stock of the post-AVM Merger combined company, in each case including unvested shares of restricted stock in the total number of shares of common stock outstanding.

Presentation for Reverse Stock Split

On January 5, 2017, we effected a 1-for-35 reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each issued and outstanding share of our common stock, and the per share exercise price of and number of shares of our common stock underlying our outstanding stock options, was automatically proportionally adjusted based on the 1-for-35 Reverse Stock Split ratio. Except as otherwise provided herein, all share and per-share amounts of our common stock and stock options have been adjusted to give effect to the Reverse Stock Split for all periods presented. The Reverse Stock Split did not alter the par value of our common stock, which remains at $0.001 per share, modify any voting rights or other terms of our common stock or impact the amount of preferred stock we are authorized to issue.

Terminated LiveXLive Merger Agreement

On September 6, 2017, we entered into an Agreement and Plan of Merger with LiveXLive Media, Inc. (“LiveXLive”), LXL Video Acquisition Corp., a wholly owned subsidiary of LiveXLive (“Merger Sub”), and Jason Katz, as the agent of the stockholders of the Company, pursuant to which we would have merged with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of LiveXLive (the “LiveXLive Merger Agreement”).

On October 31, 2017, we terminated the LiveXLive Merger Agreement pursuant to Section 8.2(a) of the LiveXLive Merger Agreement due to certain conditions of the LiveXLive Merger Agreement not having been fulfilled as of October 27, 2017, which relieved us of all of our obligations under the LiveXLive Merger Agreement. No termination fee was payable by the Company in connection with the termination of the LiveXLive Merger Agreement.

Company Overview

We are a leading developer of innovative decentralized technologiescommunications software innovator that powerpowers multimedia social applicationsapplications. Our product portfolio includes Paltalk, Camfrog and business communication solutions worldwide. Tinychat, which together host a large collection of video-based communities. Our other products include ManyCam and Vumber. ManyCam is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools. Vumber is a telecommunications services provider that enables users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user’s existing telephone number. We have an over 20-year history of technology innovation and hold 8 patents.

We were incorporated under the laws of the State of Delaware in 2005. Our principal executive office is located at 122 East 42^nd Street,30 Jericho Executive Plaza Suite 2600, New York, New York 10168.400E, Jericho, NY 11753.

Our product portfolio includes Paltalk and Camfrog, which together host oneConsumer Application Products

We operate a network of the world's largest collections of video-based communities, and FirstMet, a prominent interactive dating brand serving users 35 and older. Our other products include Tinychat, Firetalk, 50More, Ribbit Live, The Grade, and Vumber. We recently announced a number of initiatives that feature enhancements of our technology platform using blockchain and plans to offer aspects of our multimedia streaming and communications technology to third party developers and corporate clients. We are also currently developing a new video-enabled secure messaging service built on blockchain technology called Backchannelconsumer applications that we expect to launch in the fourth quarter of 2018.

Our leading network of products createsbelieve create a unique social media enterprise where users can meet, see, chat, broadcast, play online card games and board games and message in real time in a secure environment with other usersothers in our network. Our properties are generally available through Windows^®, Mac^TMOS, iOS^TM and Android^TMplatforms. The proprietary technology underlying our products allows us to operate thousands of simultaneous streams, including on mobile platforms, thatwhich support interactions on a one-on-one, one-to-many and many-to-many basis. We also have a worldwide established presenceOur consumer applications generate revenue principally from subscription fees, including virtual goods, and brand identity in both live video chat and interactive dating, with users in over 180 countries as of March 16, 2018. Furthermore, our technology is supported by a portfolio of 26 issued patents.advertising arrangements.

We believe that live video is in the early stages of adoption for applications related to meeting, chatting, dating, broadcasting and other interactive purposes and over time presents an attractive growth opportunity as it becomes pervasively integrated across the social networking and interactive communications industries. As individuals become more reliant on communicating through applications, we believe it is becoming increasingly more important to users that we provide a secure and private environment on which to interact via live video online.

In 2018, we plan to pursue a strategy of using blockchain technology to improve our existing technology platform, to build new proprietary applications and to offer technology solutions to third parties, in each case taking advantage of the enhanced security, scalability and cost-effectiveness that blockchain technology offers. We recently announced that we are developing an open source, multimedia delivery platform based on blockchain technology called “PeerStream Protocol,” or “PSP,” that is expected to specialize in routing live, rich media content and powering applications that require real time data and video communications. At launch, we plan for this platform to host new proprietary apps we develop, as well as to allow third-party developers to build the next generation of social networking, messaging, group collaboration and live video streaming applications based on blockchain technologies. In concert with PSP, we are currently developing Backchannel, a blockchain-based secure messaging application that we believe will be the first video messaging application to eliminate a centralized intermediary responsible for hosting and storing user information, thereby reducing the risk that communications between users can be hacked, stolen or leaked.

We believe that we are well-positioned to take advantage of key business opportunities in our industry by leveraging our technology, user base and suite of complementary applications to provide video, voice and chat services and experiences with superior security, scalability and cost-efficiency.

Key Business Strengths

Early Mover to Live Video

We believe our early development and use of live video and dating applications have enabled us to have a leading position in the live video industry today. Our products, Paltalk and Camfrog, together host one of the world's largest collections of video-based communities and we believe live video will in time become ubiquitous and an integral element of social networking, messaging and online business applications. Our early mover advantage enables us to seize growth opportunities with existing and new products as the popularity and pervasiveness of live video increases.

Engaging Functionality

We have designed our applications with browse functions and other features that prompt interactions between users, which make our applications highly engaging and easy to use. While many online applications and websites provide similar functionality, many competitive services require meaningful effort and initiative on the part of the user to make contact with other users. Our applications are designed to eliminate effort and friction in user-to-user interaction by organizing users around common interests or automating certain aspects of the introductory dialog between users. As a result, we believe our users find our experience more social and enjoyable than many competitive social networking and dating services.

Freemium Online Model

We operate our video chat and dating products on a “freemium” model in which certain application features are free to all users and other features are only available to paid subscribers or other paying members. Dating users are allowed to create a profile, browse, search and view profiles of other users, send instant messages and send an initial message to any user. Premium features, such as access to multiple video chat rooms and enhanced status in the community for our video chat applications or unlimited custom messaging for our dating applications, require a paid subscription. We believe this “freemium” model differentiates us from some other like applications in the industry.

Data-Driven Model

We have developed data analytics and application development processes that we believe provide us with a competitive advantage over many other video chat and online dating applications and platforms. Our data analytics provide us with critical visibility into the effectiveness of our sales and marketing expense which allows us to quickly modify such expenditures to create more effective user acquisition campaigns. Our application development processes include a sophisticated A/B testing framework, a framework for comparing two versions of the same application, which allows us to test new features, new functionality, design changes, changes to our proprietary algorithms and compare our results to control groups. These processes provide a real-time granular analysis of user behavior with the intention to modify our applications to improve the user experience as well as increase user engagement in order to increase the number of users that convert into paying subscribers.

Highly Scalable Platform

Our applications are extremely scalable and require limited incremental cost to host additional users, create new features catering to additional discrete audiences, or build new applications based on developed feature-sets with new brand identities. Our video chat properties are built on a highly scalable architecture that enables them to power thousands of chat rooms and live streams simultaneously. This technology is used to power topical discussions in several different formats, including interactions on a one-on-one, one-to-many and many-to-many basis. Our dating platforms allow thousands of simultaneous users to browse the profile of other users, message other users or otherwise be active on our website and applications.

Subscriber Base

Our applications and the majority of revenues generated therefrom are supported by a large user database of approximately 164,000 active subscribers worldwide as of March 16, 2018. Our management believes that the scale of our subscriberuser base presents a competitive advantage in the video chat and datingsocial networking industry and can presentprovides growth opportunities to advance our existing products with upsellup-sell opportunities as well as toand build future brands with cross-sell offers. We also believe that our proprietary consumer app technology platform can scalably support large communities of users in activities such as video, voice and text chat, online card games and board games and provide robust user base provides us the opportunity to utilize our blockchain development efforts to offer products and services at scale with the benefits of this advanced technology. The scale of our usage also offers us the opportunity to build our third party advertising revenue.

Company Business Strategy

Build on Blockchain Technology

We recently announced a multipoint strategy to extend our existing capabilities in multimedia streaming and communications while embracing the growth potential and technological capabilities of blockchain technology. We are currently in the process of developing PSP, an open source protocol for multimedia streaming and communications, and our first blockchain-based application, Backchannel. We are also exploring opportunities to enhance our existing applications with blockchain technology. We believe that using blockchain technology provides several key advantages over the traditional technology used to develop live multimedia streaming and communications applications:

In order to drive our blockchain strategy, we formed a Blockchain Advisory Board in November 2017. The purpose of the Blockchain Advisory Board is to assist us in:

As part of our blockchain strategy, in the second half of 2017, we expanded our payment processing options on two of our applications, Camfrog and Tinychat, to accept bitcoin as a form of payment. Upon receipt of a bitcoin payment, our payment processor automatically converts the bitcoin into U.S. dollars, so that we receive payment for the transaction in U.S. dollars.

monetization tools.

In December 2017, we took two steps to advance our blockchain strategy. First, we initiated a strategic product development and technology relationship with blockchain security innovator, Gladius Network, LLC (“Gladius”). Gladius is building a decentralized solution to protect against DDoS attacks that we believe has promise to integrate into our technology platform that supports several our applications. As part of our strategic relationship with Gladius, we also made a small investment in Gladius’ initial coin offering.

In addition, based on the research and recommendation of our development team, we selected the blockchain protocol of NEM.io Foundation Ltd. (“NEM”), one of industry’s leading blockchain technology projects, to power our core blockchain infrastructure. We believe that NEM’s highly regarded technology will offer us the right combination of premier security, capability, flexibility and scalability, coupled with a strong, passionate core development team and community.

Develop PSP as an Open Source Media Streaming Protocol

We believe our video technology has broad applications to many other industries beyond video social networking. Additionally, we believe that our multimedia streaming technology is scalable and applicable to a large array of applications for consumer and business end users. Through the development of PSP, an open source multimedia streaming and communication protocol, we intend to explore opportunities to contribute technology to and collaborate with leading companies in other industries seeking to integrate multimedia communication or improve their existing service. These partnerships can take many different forms, all of which ultimately may help us to drive the value of our technology and build our business.

Introduce New Applications

We plan to enhance our existing applications and develop new applications around our core video chat and blockchain technologies. For example, as described above, we have started development of Backchannel, a blockchain-based secure messaging application, which we expect to launch in the fourth quarter of 2018 targeting privacy-minded consumers as well as business and government end users.

Launch PeerStream Business Solutions

On March 8, 2018, we launched PeerStream Business Solutions to provide technology licensing, services and support related to multimedia streaming and communications for third party developers and corporate clients (“PeerStream Business Solutions”). PeerStream Business Solutions is intended to leverage our nearly 20 years of technology innovation to tap into a potential new B2B revenue stream and support the efforts of a broad range of prospective corporate clients to adopt blockchain technology.

On March 21, 2018, as a first step in providing services through PeerStream Business Solutions, we entered into a technology services agreement with ProximaX Limited (“ProximaX”) whereby we agreed to provide certain development and related services to ProximaX to facilitate the implementation of PSP into ProximaX’s proprietary blockchain protocol that is currently under development. Pursuant to the terms of the agreement, ProximaX agreed to pay us up to an aggregate of $10.0 million of cash in exchange for our services, with $5.0 million due upon the successful consummation of a future initial coin offering by ProximaX and up to an additional $5.0 million due upon our achievement of certain development milestones set forth in the agreement. In addition, ProximaX agreed to issue us a number of tokens equal to 2.4% of all outstanding tokens on the date of the planned initial coin offering and to reserve an additional 2% of such tokens to be issued as payment for future services provided by us, subject, in each case, to such initial coin offering generating aggregate gross proceeds of at least $30.0 million. If the planned initial coin offering does not raise at least $30.0 million or ProximaX fails to pay us the upfront cash payment of $5.0 million by June 1, 2018, we and ProximaX have agreed to negotiate alternative compensation for our services in good faith.

Defend our Intellectual Property

We have a portfolio of 26 issued patents. We have successfully defended our intellectual property in the past and have generated tens of millions of dollars in licensing fees for the use of our patents. In 2016, we commenced an enforcement action related to two of our patents against Riot Games, Inc. and Valve Corporation for infringement of U.S. Patent Nos. 5,822,523 and 6,226,686 with respect to their online games League of Legends and Defense of the Ancients 2. These two patents were previously asserted against, and then licensed to, Microsoft, Sony, and Activision. For additional information concerning the status of these proceedings, see “Item 3. Legal Proceedings” herein.

Our Products

Live Video Chat

We have fivethree existing products in the video chat space: Paltalk; Camfrog; Tinychat; Ribbit Live;Paltalk, Camfrog and Firetalk. In addition, we are currently developing a new blockchain based video application, Backchannel, which is expected to launch in the fourth quarter of 2018. TheTinychat. Our major revenue-generating Live Video Chatlive video chat products are Paltalk and Camfrog. Each product enables individuals to self-organize around topics and users with common affinities. Tinychat Ribbit Live and Firetalk enableis web-based, enables adaptations of our video technology and does not require a download. It is primarily targeted for use in alternative usesmarkets and opportunities in the future.is focused on a younger demographic user base.

Key features and tools of our video chat applications include:

Paltalk and Camfrog. Paltalk and Camfrog are our major video chat applications and are both leading providers of live video social networking applications available on Windows, Mac OS, iOS, Android and other tablet devices. Together, these products power onea large collection of the world’s largest global collections of video basedvideo-based communities, with proprietary technology to host thousands of simultaneous live group conversations on topics such as politics, financial markets, music and dating.dating, among others. Our proprietary client server technology helps maintain high qualityhigh-quality video and audio, even as many users simultaneously watch a particular broadcaster. Paltalk and Camfrog both have hundreds of millions of registered users and attract a demographically and geographically diverse user base, with users in over 180 different countries. Paltalk users are approximately one-third domestic and two-thirds international, whereas the majority ofand Camfrog users arehave an even larger international presence, with a particular concentration in Southeast Asia.

Live Streaming Software

In the first half of 2017,2022, we founded an innovation lab to leverage our technology and commercial platform to support growth initiatives in the live video markets. Through the support of our innovation lab, we recently updated Camfrog to support one-to-manyacquired ManyCam, a live streaming video capabilities through the launch of Camfrog Live. Camfrog Live offers a wide variety ofsoftware and virtual camera that allows users to deliver professional live video broadcasting entertainment while allowing spontaneous, real-time engagement at a more personal level. The platform offers these viewing users a unique way of connecting and sharing through live interaction with content creators, allowing them to offer feedback and appreciation, including cash donations and tips. Camfrog will continue to support its industry-leading traditional group video chat service, which the Company believes is complemented by the addition of livevideos on streaming entertainment. We expect to offer similar one-to-many live streaming video capabilities within our Paltalk application in 2018.

PSP. PSP is an open source, decentralized, peer-to-peer multimedia and messaging protocol that, when coupled with blockchain technology, is designed to increase scalability, cost efficiency and security for real-time communication applications in such areas asplatforms, video conferencing messagingapps and workforce collaboration.

Backchannel. Backchannel is a blockchain-based video-enabled secure messaging service we are developing that we plandistance learning tools. The ManyCam software provides multiple camera feeds, backgrounds and effects while also enabling users to release in the fourth quarter of 2018. Backchannel is expected to enable real-time text, voice,share presentations, spreadsheets and video messaging between individuals and among small groups and to leverage blockchain and other decentralization technologies to offer unique security and privacy benefits. We plan to market Backchannel to privacy-minded consumers around the world, as well as business, legal and government end-users.documents.

Backchannel is expected to integrate end-to-end and forward secrecy encryption best practices for communication applications. In addition, we anticipate that Backchannel will use blockchain technology to validate and authenticate users with a crypto identity that does not require any personally identifiable information from the user. As a result, Backchannel will never request or hold the real world identity of its users, and therefore will not have any personal information that could be stolen by hackers. In addition, Backchannel is intended to decentralize the transmission of all communications within its network, meaning that communications will never pass through Backchannel servers, making the application more resistant to censorship, disruption and eavesdropping than traditional communication platforms.

DatingTelecommunications

We currently have three dating applications: FirstMet, 50more and The Grade. FirstMet generates substantially all of the revenue in our dating portfolio. 50more, our product targeting users over 50, was launched commercially in July 2017. For the foreseeable future, we expect to focus our dating application resources on FirstMet and 50more.

FirstMet. We provide a leading online dating application under the FirstMet brand. FirstMet is native on Facebook, iOS and Android platforms and is also accessible on mobile devices and desktops at FirstMet.com. FirstMet is extremely scalable and requires limited incremental operational cost to add users, active subscribers or new features catering to additional discrete audiences.

FirstMet attracts a demographically and geographically diverse user base, with users in over 180 different countries. FirstMet is intuitive, and allows users and subscribers to easily find, connect and communicate with each other. 

50more. We introduced 50more commercially in July 2017 as our dating application targeting adults over the age of 50. 50more is based on our FirstMet platform and utilizes the underlying FirstMet infrastructure and technology, a strategy which allowed us to streamline the process of launching 50more as a new and fresh online dating product. 50more has similar functionality to FirstMet but offers more information-rich user profiles and addresses a different target audience of adults over 50.

We expect that we will operate 50more in parallel with FirstMet in order to leverage the overlap with FirstMet’s user base and cross sell our users with multiple brands. 50more is available on mobile and desktop platforms.

The Grade. The Grade is a free mobile dating application offered on iOS and Android designed to foster a high quality community of users by rewarding good behavior and exposing improper behavior through a programmatic grading algorithm. Despite the uniqueness and early success of The Grade, we decided in late 2015 to shift our promotional and product development resource-focus to FirstMet, with its established user base, and the development of 50more. We believe The Grade remains a viable product with relevant technology, and it may provide a platform in the future for other product opportunities.

Telecommunications

We own and operate a small telecommunications services provider called Vumber that enables users to have multiple phone numbers in any area code through which calls can be forwarded to a user’s existing cell phone or land line telephone number. Vumber serves both the retail and small business community.communities. Vumber not only allows individuals to communicate while protecting privacy, but also gives business professionals the ability to add a new business line with any chosen area code to their cell phones. Vumber also provides an in-depth data analytics platform that can track, record and analyze calls to gain new insights into one’s business.

Product Payment Options

Our users have a variety of methods by which to purchase product subscriptions across all of our platforms.consumer applications. Users can pay by credit card, PayPal, Western Union, Check,check, local e-wallet providers, or complete an in-app purchase through the Apple App Store or Google Play Store for Android users. As noted above, we also expanded our payment options on certain of our applications in 2017

Apple generally retains up to include bitcoin as a method of payment. However, any payment made in bitcoin is automatically converted by our payment processor into U.S. dollars so that we receive U.S. dollars for the transaction.

Apple retains 30%15% of the revenue that is generated from sales on our iPhone applicationapplications through in-app purchases in the United States. Google also generally retains 30%up to 15% of the revenue that is generated from sales on Android applications via Google wallet through in-app purchases in the United States.

All of our credit card transactions are processed through various payment providers. Video chat users in certain international territories also have an option to purchase through local resellers. Local resellers prepay in bulk for services and debit the prepaid balance as one-time subscriptions and virtual currencygifts are sold to end users. Regardless of which payment method is utilized, users may access our products through any of the gateways we offer.

Product DevelopmentDuring fiscal year 2023, we engaged Cleverbridge, a growth engine for global technology companies, to, among other things, facilitate and Innovation Labauthenticate payments in international geographic markets to reduce fraud and increase acceptance rates.

Company Business Strategy

Our continued growth depends on attracting new consumer application users through the introduction of new applications, features and partnerships and further penetration of our existing markets. Our principal growth strategy is to invest in the development of proprietary software, expand our sales and marketing efforts with respect to such software, and increase our consumer application user base through potential platform partnerships and new and existing advertising campaigns that we run through internet and mobile advertising networks, all while balancing the capital needs of the business.

Our strategy is to approach these opportunities in a measured way, being mindful of our resources and evaluating factors such as potential revenue, time to market and amount of capital needed to invest in the opportunity.

Acquiring and Investing in Complementary Technologies and Businesses

Our strategy also includes acquiring, or investing in technologies, solutions or business that complement our business and cross-selling them to additional synergistic businesses. In furtherance of this strategy, we have strategically added specialized employees and complementary companies, products and technologies to our existing business. In addition, we continue to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our business.

Enhance Existing Live Video Chat Applications

We continue to develop our existing live video chat applications by implementing programs and features that enhance our users’ experience on our platforms. For example, in the fourth quarter of 2023, we launched the first version of our “Chat History,” a feature that retains messages posted in chat rooms. When fully implemented, we expect to offer our users a searchable database that users can refer to for content.

In addition, we plan to continue leveraging our integration of the ManyCam product into Paltalk products through upselling initiatives and are continually developing new products,a user-friendly version of ManyCam that will be optimized for both consumer and enterprise applications.

Our Paltalk platform’s rewards loyalty program, “Paltalk Rewards Points”, has 25 reward tiers such as specialty coins, subscriptions, stickers, flair, and other popular buttons. Additionally, a real-time asynchronous message board called the “Paltalk Feed” is available on our Paltalk platform, which grants users the ability to interact with the platform without a live video cam. The Paltalk Feed also allows our users to comment, add photos or videos and contribute to conversations around shared interests on a digital message board.

In 2022, we integrated Hive Automated Content Moderation Solutions into our Paltalk and Camfrog platforms, which reduces spam and objectionable content on our applications. More recently in 2023, we made certain updates to the ManyCam product, which now, and following the acquisition, we subsequently released software updates to provide users with greater ease of use, dark and light modes and enhanced overall rendering performance for high resolution users, as well as optimizing our existing platformsimproved quality and feature sets in orderperformance with regard to meet the evolving needs of our user base and advertising partners.virtual backgrounds.

We develop most of our software internally. We will, however, purchase technology and license intellectual property rights where it is strategically important, operationally compatible, or economically advantageous. For instance, we partner with third parties to further our internationalization efforts as we look to bring additional languages into our existing platforms. We are not materially dependent upon licenses and other agreements with third parties relating to product development.

Implementation of Enhanced Processors

In the first halfAs discussed above, during fiscal year 2023, we engaged Cleverbridge, a growth engine for global technology companies. Cleverbridge’s robust suite of 2017, we founded an innovation labglobal payment and eCommerce capabilities has allowed us to leverageoptimize our technologyinternational markets while minimizing risk and commercial platform to support growth initiatives in the live video markets. Our innovation lab contributed to the launch of the blockchain initiative, and is currently pursuing live video social networking and live streaming entertainment opportunities on mobile, two areas that we believe show extraordinary promise for user adoption and revenue growth. As described above, our innovation lab recently launched Camfrog Live as an update to our existing Camfrog application to provide support for one-to-many live streaming videos and to include new monetization opportunities for content creators.administrative work. We believe that the launchthis is an important aspect of our business strategy given that Paltalk and Camfrog Live has the potential to substantially grow ourboth attract a demographically and geographically diverse user base, by providingwith users in over 180 different countries. Paltalk users are domestic and international, and Camfrog users have an even larger international presence, with a compelling platformparticular concentration in Southeast Asia. Beyond facilitating and authenticating payments, we believe Cleverbridge’s chargeback prevention algorithms can help us with acceptance rates and reduce fraud.

Defend our Intellectual Property

We have a portfolio of 8 issued patents. We have successfully defended certain of our intellectual property in the past and have generated tens of millions of dollars in licensing fees for live video interactions.the use of our patents. We intend to continue defending our intellectual property rights.

Marketing Strategy

We invest in advertising and marketing primarily for the purpose of acquiring users.users for our consumer applications. We adapt our marketing expenditures and channels as we gather the data to analyze the success of our campaigns. We primarily advertise through Internetinternet and mobile advertising networks and run hundreds of campaigns at any given time, targeting various audiences of users, and focusing on campaigns that we believe will produce a positive return over the lifetime of new users. We also generate new sign-ups organically, as people find our sites and applications through brand recognition and word of mouth, search engines and product review websites.

During 2022, we engaged two marketing agencies to help us drive consumer engagement through the Paltalk and Camfrog applications, but we subsequently scaled back the marketing agencies’ efforts during the fourth quarter of 2022 in response to the overall macro-economic environment. During 2023, we leveraged our in-house resources in an effort to further define and refine our renewal strategy and optimize cost per new customer acquisition.

Competition and Our Industry

Our products face substantial competitionCompetition in both the live videoour industry remains fierce. The market for consumer applications is extremely dynamic and dating industries.is undergoing constant change. We have direct competition from many live video streaming websites including YouNow, Live.me, BIGO Live, Live.ly, Houseparty, Facebook Live, YouTube Live, Instagram Live, and Twitch. In the dating industry, we compete with online dating websites such as OkCupid.com, Christianmingle.com, eHarmony.com, POF.com, Match Group, Inc. properties,believe this environment creates significant opportunities for us as well as online dating applications provided by Badoo Trading Limited, IAC, Affinitas, MeetMe, Inc.our direct and Zoosk, Inc. We also face substantial competition from mobile-based applications including Tinder, Happn, Hingeindirect competitors. Our principal competitors are BIGO Live, Cisco Webex, Facebook Live, Google Meet, Discord, Instagram Live, Live.ly, Live.me, Microsoft Teams, Skype, Twitch, YouTube Live and Bumble.Zoom.

Many of our competitors have substantially greater financial, managerial, technological and other resources than we do. In addition, the products within our portfolio both compete and collaborate with each other.

As technology evolves and the lines between video and dating become less defined, many of these and other properties will become our competitors. Therethere are relatively few significant barriers to entry in ourinto the consumer applications industry, and, as a result, any organization that has adequate financial resources and access to technical expertise and skilled personnel may become a competitor. Nonetheless, we believe that users often utilize multiple applications for multiple purposes, and the use of one website or application is not necessarily to the exclusion of others.

Achieving a critical mass of users is crucial for our applications. As a result of our large and dynamic user base, we believe we are well-positionedcompetitors.

In order to continue as a leader in the industries in which we currently operate. Additionally,compete effectively, we seek to offer applicationssoftware, services and servicesapplications that are differentiated in the industry,from existing products, superior in quality and more appealing than those of our competitors. We believe that our applications compete favorably against those offered by our competitors due to their ability to scale, their cost-efficiency and their innovative technology. We also believe that we have the tools and expertise that may enable us to attract new users through Facebook and other sources at a lower cost per subscriber than certain of our traditional competitors. As social networking application platforms and mobile platforms continue to expand and the Internet becomes ever more of a mainstream method for connecting and interacting with others,

Although we believe thatwe have the industries we operate within offer substantial room for growth.

Patent and Trademarks

To establish and protect our proprietary rights, we rely on a combination of trademarks, copyrights, trade secrets, license agreements, patent applications, confidentiality agreements and other contractual rights. We have 26 registered trademarkscapability to compete effectively in the United Statesconsumer applications industry, our competitors may offer products, services and internationally. Weapplications that we do not provide, and that may have a patent portfoliomore desirable features or may be offered at lower prices, and they may be able to devote greater resources to the development, promotion, sale and support of 26 patents,their products. In addition, many of our competitors have more extensive customer bases and broader customer relationships than we have, historically generated tens of millions of dollars successfully defendingincluding relationships with our patents. We continue to pursue patents related to certain feature sets on applications currently under development, as well as defend our intellectual property as appropriate. In 2016, we commenced an enforcement action related to two of our patents against Riot Games, Inc. and Valve Corporation for infringement of U.S. Patent Nos. 5,822,523 and 6,226,686 with respect to their online games League of Legends and Defense of the Ancients 2. These two patents were previously asserted against, and then licensed to, Microsoft, Sony, and Activision. For additional information concerning the status of these proceedings, see “Item 3. Legal Proceedings” herein.potential customers. 

Governmental Regulations

We are subject to a number of U.S. federal and state laws and regulations that affect companies conducting business on the Internet,internet, many of which are still evolving and being litigated in the courts and could be interpreted in ways that could harm our business. These laws and regulations may involve user privacy, data protection, content, intellectual property, distribution, electronic contracts, and other communications, competition, wiretapping, biometrics, online tracking, protection of minors, consumer protection, taxation and online payment services. In particular, we are subject to federal and state laws regarding privacy and protection of user data, which are constantly evolving and can be subject to significant change. We are also subject to diverse and evolving laws and regulations in other countries in which we operate. The application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly-evolvingrapidly evolving industry in which we operate. Because our applications are accessible worldwide and used by residents of some foreign countries, foreign jurisdictions may claim that we must comply with foreign laws, even in jurisdictions in which we have no local business entity, employees or infrastructure.

We are also subject to federal laws and regulations regarding online content, user privacy and the protection of user data,electronic marketing, including The Communications Decency Act of 1996, as amended (“The Communications Decency Act”),amended. The Children’s Online Privacy Protection Act of 1998, as amended, The Video Privacy Protection Act of 1998 (“VPPA”), The Digital Millennium Copyright Act, The Electronic Communications Privacy Act of 1986, as amended, the USA PATRIOT Act of 2001, and the Controlling the Assault of Non-Solicited Pornography And Marketing (“CAN-SPAM”) Act of 2003, among others. The Digital Millennium Copyright Act limits our liability as an online service provider for linking to or hosting third-party content that infringes copyrights. The Communications Decency Act provides statutory protections to online service providers like us who distribute third-party content. The VPPA restricts digital video providers from disclosing to third parties personally identifiable information that is tied to the titles of consumers’ viewed videos. The Children’s Online Privacy Protection Act restricts the ability of online service providers to collect personal information from children under 13. Congress, the Federal Trade Commission (“FTC”) and many states have promulgated laws and regulations regarding email advertising, including the CAN-SPAM Act. Any changes in these laws or judicial interpretations narrowing the protections of these laws may subject us to increased risk, increased costs of compliance, and limits on the operation of certain parts of our business.

Growing public concern about privacy and the use of personal information may subject us to increased regulatory scrutiny. The FTC has, overRegulation related to treatment of user data by online services is evolving as several U.S. state governments have recently adopted new, or modified existing, laws and regulations addressing data privacy and the last few years, begun investigating companies that have used personally identifiable information in a deceptive or unfair manner or in violationcollection, processing, storage, transfer and use of a posted privacy policy. data. These state laws include, for example: the California Consumer Protection Act (“CCPA”), the California Privacy Rights Act (“CPRA”), the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Act Concerning Personal Data Privacy and Online Monitoring, the Utah Consumer Privacy Act, the Delaware Personal Data Privacy Act, the Indiana Consumer Data Protection Act, the Iowa Consumer Data Protection Act, the Montana Consumer Data Privacy Act, the Oregon Consumer Privacy Act, the Tennessee Information Protection Act, the Texas Data Privacy and Security Act, and the New York Stop Hacks and Improve Electronic Data Security (“SHIELD”) Act.

The European Union is implementingimplemented a new privacy directiveregulation called the Global Data Protection Regulation (“GDPR”) that comes into effect in May 2018 and will imposeimposes additional new regulatory scrutiny on our businessprocessing of personal data from in that geographic regionthe European Economic Area, with possible financial consequences for noncompliance. If we are accusednoncompliance of violating the termsup to 4% of our privacy policy or implementing unfair privacy practices, we may be forced to expend significant financial and managerial resources to defend against an FTC or GDPR enforcement action. Our user database holds the personal information of our users and subscribers residing in the United States and other countries, and we could be sued by those users if any of the information is misappropriated. Any failure by us to adequately protect our users’ privacy and data could also result in loss of user confidence in our online dating applications and services and ultimately in a loss of active subscribers, which could adversely affect our business.worldwide revenues.

In addition, virtually every U.S. state has passed laws requiring notification to users when there is a security breach for personal data resulting in unauthorized disclosure of certain types of personal information, many of which are modeled on California’s Information Practices Act. There are a number of legislative proposals pending before the U.S. Congress and various state legislative bodies concerning data protection that could, if adopted, have an adverse effect on our business. We are unable to determine if and when such legislation may be adopted. Many other jurisdictions, including the European Union, have adopted breach notification and other data protection notification laws designed to preventinform users of unauthorized disclosure of personally identifiable information. The introduction of new privacy and data breach laws and the interpretation of existing privacy and data breach laws in the United States, Europe and other foreign jurisdictions is constantly evolving. There is a risk that new laws may be introduced or that existing laws may be applied in a way that would conflict our current data protection practices or prevent the transfer of data between countries in which we operate.

While online personal services are not currently required to verify the age or identity of subscribers, or to run criminal background checks, legislation in this area has been proposed over the last few years in Ohio, Texas, California, Michigan, New Jersey, Florida and Virginia. Companies that provide personal services are not currently subject to the same type of regulation as companies deemed “dating service” providers. However, if a court holds that we are legally providing “dating services” as defined in the relevant regulations, we may be required to comply with additional state regulations. Further, Connecticut, New York, Florida, Texas and New Jersey each have enacted laws that require us to display safety warnings and disclosures to users that we do not conduct background checks.

In addition, rising concern about the use of social networking technologies for illegal conduct may in the future produce legislation or other governmental action that could require changes to our online dating applications or restrict or impose additional costs upon the conduct of our business. These regulatory and legislative developments, including excessive taxation, may prevent or significantly limit our ability to expand our business.

We may also become subject to laws or regulations in the future that limit our ability to accept bitcoin or other cryptocurrencies as a form of payment or to otherwise hold bitcoin or other cryptocurrencies. As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies, with certain governments deeming cryptocurrency offerings and cryptocurrency exchanges illegal, while others have allowed their use and trade. Governments may in the future curtail or outlaw the acquisition or use of cryptocurrencies or the exchange of cryptocurrencies for fiat currencies. Ownership of, holding, trading in or participating in offerings of cryptocurrencies may then be considered illegal and subject to sanction. Governments may also take regulatory action that may increase the cost and/or subject companies that transact in or hold cryptocurrencies to additional regulation.

Furthermore, some of the video card games that we offer on our Paltalk application are based upon traditional casino games, such as poker and blackjack. We have structured and operate these games and features with gambling laws in mind and believe that these games and features do not constitute gambling. Our games are intended to be for entertainment purposes only and do not offer an opportunity to win earnings outside of the platform.

Employees

As of March 16, 2018,11, 2024, we had 53no part-time employees and 17 full-time employees. We believe that our future success depends, in part, on our continued ability to hire, assimilate and retain qualified personnel. We attract and retain employees by offering training, bonus opportunities, competitive salaries and a comprehensive benefits package.

Company Internet Site and Availability of SEC Filings

Our corporate website is located at www.paltalk.com. We make available on that site, as soon as reasonably practicable, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy statements, Current Reports on Form 8-K, other reports filed with or furnished to the Securities and Exchange Commission (“SEC”), as well as any amendments to those filings. Our SEC filings, as well as our Code of Conduct and other corporate governance documents, can be found in the Investor Relations section of our site and are available free of charge. Amendments to our Code of Conduct and any grant of a waiver from a provision of the Code of Conduct requiring disclosure under applicable SEC rules will be disclosed on our website. Information on our website is not part of this Annual Report on Form 10-K. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC.

ITEM 1A. RISK FACTORS

Below is a summary of our risk factors with a more detailed discussion following. The risks below are those that we believe are the material risks that we currently face but are not the only risks facing us and our business. If any of these risks actually occur, our business, financial condition and results of operations could be materially adversely affected.

Risks RelatingRelated to Our Business

The success of our businessconsumer applications is principally dependent on our active subscribersusers and our engagement with our user base.

AsOn an annual basis the Company has millions of March 16, 2018, our applications supported an active subscriber base of approximately 164,000 active subscribers worldwide. However,users; however, compared to the total number of users in any given period, only a small portion of our users are active subscribersusers or purchasers of virtual currency.gifts. We primarily generate revenue through the sale of subscriptions and virtual currencygifts to this small portion of users and secondarily generate revenue through paid advertisements. Accordingly, the success of our financial results areconsumer applications is substantially dependent on our ability to convert our users into active subscribersusers and to sell our users virtual currency.gifts.

Users discontinue the use of our applications in the ordinary course of business, and to sustain our revenue levels, we must attract, retain and increase the number of users or more effectively monetize our existing users. Falling user retention, growth or engagement could also make our applications less attractive to advertisers, which could harm our business.

There are a number of factors that could negatively impact user retention, growth and engagement, including, among other things:

To retain existing users, and particularly those users who are paying subscribers, we must devote significant resources so that our applications retain their interest. If we fail to grow or sustain the number of our users, or if the rates at which we attract and retain existing users declines or the rate at which users become paying subscribers declines, it could have a material adverse effect on our business, results of operations or financial condition.

We operate in an intensely competitive industry and any failure to attract new users and subscribers could diminish or suspend our development and possibly cease our operations.

The online live video and dating industries areindustry in which we compete is highly competitive and havehas few barriers to entry. If we are unable to efficiently and effectively attract new users and subscribers as a result of intense competition or a saturated market, we may not be able to continue the provision, development and enhancement of our consumer applications or become profitable on a consistent basis in the future.

Important factors affecting our ability to successfully compete include:

We face substantial competition in both the live video and dating industries. We have direct competition from many live video streaming websites including YouNow, Live.me, BIGO Live, Live.ly, Houseparty, Facebook Live, YouTube Live, Instagram Live, and Twitch. In the dating industry, we compete with online dating websites such as OkCupid.com, Christianmingle.com, eHarmony.com, POF.com, Match Group, Inc., as well as online dating applications provided by Badoo Trading Limited, IAC, Affinitas, MeetMe, Inc. and Zoosk, Inc. We also face substantial competition from mobile-based applications including Tinder, Happn, Hinge and Bumble. In addition, the products within our portfolio both compete and collaborate with each other.

Many of our current and potential competitors offer similar services and have longer operating histories, significantly greater capital, financial, technical, marketing and other resources and larger user or subscriber bases than we do. These factors may allow our competitors to more quickly respond to new or emerging technologies and changes in userclient or consumer preferences. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing strategies that may allow them to build larger user bases consisting of greater numbers of paying users. Our competitors may develop applications or servicesand software that are equal or superior to our applications and software or that achieve greater market acceptance than our applications.or industry acceptance. It is possible that a new productapplication developed or offered by one of our competitors could gain rapid scale at the expense of existing brands through harnessing a new technology or distribution channel, creating a new approach to connecting people or some other means. In addition, our advertisers may use information that our users share through our applications to develop or work with competitors to develop products or features that compete with us.people.

Certain entities that we do not directly compete with but that have large or dominant positions in one or more markets could use those positions to gain a competitive advantage against us in areas where we operate by integrating competing dating, video chat or social media platforms into products they control, such as search engines, web browsers or mobile device operating systems.

Costs for consumers to switch between products in the video chat and dating industriesindustry are generally low, and consumers have a propensity to try new products to connect with new people. As a result, new entrants and business models are likely to continue to emerge in our industry. These activities could attract users and subscribers away from our applications and reduce our market share.

If we are unable to effectively compete, we may fail to obtain new users for our products or our users may discontinue the use of our products and we may lose active subscribers,users, either of which would have a material adverse effect on our business, results of operations and financial condition.

The online live video industry is characterized by rapid technological change, including the development of enhancements and new applications, and if we fail to keep pace with technological developments or launch new applications, our business may be adversely affected.

The online live video industry is characterized by rapid change, and our future success is dependent upon our ability to adopt and innovate. To attract new users and increase revenues from existing users, we need to enhance, add new features to and improve our existing applications, introduce new applications in the future and where applicable, cross-market such applications. The success of any enhancements or new features and applications depends on several factors, including timely completion, introduction and market acceptance. Building a new brand or product is generally an iterative process that occurs over a meaningful period of time and involves considerable resources and expenditures, and we may expend significant time and resources developing and launching an application that may not result in revenues in the anticipated timeframe or at all or may not result in revenue growth that is sufficient to offset increased expenses. If we are unable to successfully develop enhancements, new features or new applications to meet user trends and preferences, our business and operating results could be adversely affected.

In addition, our applications are designed to operate on a variety of network, hardware and software platforms using internet tools and protocols and we need to continuously modify and enhance our applications to keep pace with technological changes. If we are unable to respond in a timely and cost-effective manner, our current and future applications may become less marketable and less competitive or even obsolete. 

Our shiftbusiness may be significantly affected by a change in focus towards the utilizationeconomy, including inflation and developmentany resulting effect on consumer or business spending.

Our business may be affected by changes in the economy generally, including as a result of blockchain-basedpandemics, terrorist attacks, natural disasters or other events outside our control, and any resulting effect on spending by our customers. Furthermore, prolonged periods of inflation have affected, and may continue to affect, our ability to target new customers as well as keep existing customers engaged and may ultimately have a correlating effect on our users’ discretionary spending. While some of our customers may consider our applications to be a cost-saving purchase, others may view a subscription to our applications as a discretionary purchase, and technologies couldour customers may reduce their discretionary spending on our platform during an economic downturn. Moreover, while we continue to add paid users to our customer base, our user growth may continue to slow or decline as the impact of the highly inflationary environment, which makes products like ours more discretionary in nature.

In addition, increased inflation may result in increased operating costs (including labor and consulting costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may continue to raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks. In an inflationary environment, we may be unable to raise the prices of our subscriptions at or above the rate at which our costs increase, which could/would reduce our profit margins and have a material adverse effect on our business,financial results and liquidity. A reduction in our revenue would be detrimental to our profitability and financial condition or results of operations.

We recently announced our intention to pursue a multipoint strategy to embrace the growth potential and technological capabilities of blockchain technology, a rapidly evolving technology in which we have limited operational history or experience. Our focus on blockchain technology subjects us to risks associated with the use of new and novel technologies, including technical, operational, financial, regulatory, legal and reputational risks, as well as the risk that we may be unable to timely develop our blockchain-based applications or technologies or market, license or sell our blockchain-based applications or technologies successfully or profitably. Although we formed a Blockchain Advisory Board in 2017 to help drive our blockchain strategy, we cannot provide any assurance that we will be able to retain or continue to hire well-qualified individuals with experience in the blockchain industry or that our assessment of individuals we retain will be correct. These individuals may be unfamiliar with the requirements of being involved in a public company which could cause us to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affectalso have an adverse impact on our operations.future growth.

We may face significant challenges in launching PeerStream Business Solutions.

On March 8, 2018, we launched PeerStream Business Solutions, which provides blockchain-based licensing, services and support related to multimedia streaming, messaging and communications. The launch of PeerStream Business Solutions poses risks and challenges that could materially impact our business, financial condition and results of operations. The success of PeerStream Business Solutions depends upon our ability to identify suitable clients on acceptable terms, and our failure to do so could negatively affect our ability to generate revenue. In addition, our management only recently determined to shift our corporate focus towards providing business solutions services. While we intend to expand our staff with individuals with more experience in the business solutions industry and will closely scrutinize individuals we engage, we cannot provide assurance that we will be able to retain or continue to hire well-qualified and experienced individuals or that our assessment of individuals we retain will be correct.

We are subject to risks related to holding cryptocurrencies and accepting cryptocurrencies as a form of payment.

In August 2017, we began accepting bitcoin as a form of payment for purchases on two of our applications, Camfrog and Tinychat. In the future, we may accept bitcoin and other forms of cryptocurrencies across our entire portfolio of applications.

Cryptocurrencies are not considered legal tender or backed by any government and have experienced price volatility, technological glitches and various law enforcement and regulatory interventions. At present, we do not accept bitcoin or cryptocurrency payments directly, but use a third party vendor to accept cryptocurrency payments on our behalf. That third party vendor then immediately converts the cryptocurrency payments into U.S. dollars so that we receive payment for the transaction at the sales price in U.S. dollars.

The use of cryptocurrency such as bitcoin has been prohibited or effectively prohibited in some countries. If we fail to comply with prohibitions applicable to us, we could face regulatory or other enforcement actions and potential fines and other consequences.

We may also invest in and hold cryptocurrencies directly. For example, as part of our strategy of forming strategic alliances with blockchain companies, we may make limited investments in initial coin or token offerings, such as our investment in Gladius’ initial coin offering in December 2017. In addition, a portion of our compensation under our technology services agreement with ProximaX will be paid in tokens, subject to certain conditions. Consequently, we may have exchange rate risk on the amounts we hold, as well as the risks that regulatory or other developments may adversely affect the value of the cryptocurrency we hold. For instance, governments may in the near future curtail or outlaw the acquisition, use or redemption of cryptocurrencies. Ownership of, holding or trading in cryptocurrencies may then be considered illegal and subject to sanction. In the future, we may transact in cryptocurrency directly or increase our cryptocurrency holdings. This would subject us to additional exchange risk and other risks described above, which may have an adverse effect on our results.

There is substantial uncertainty regarding the future legal and regulatory requirements relating to cryptocurrency or transactions utilizing cryptocurrency. These uncertainties, as well as future accounting and tax developments, or other requirements relating to cryptocurrency, could have a material adverse effect on our business.

Our mobile applications are substantially dependent on interaction with mobile platforms and operating systems that we do not control.

A portion of our revenue, primarily our revenue from mobile platforms, is derived from Apple’sthe Apple iOS platform and Google’sthe Google Android platforms.platform. Although we believe that we have a good relationship with Apple and Google, any deterioration in our relationship with either could materially harm our business, results of operations or financial condition.

We are subject to each of Apple’s and Google’s standard terms and conditions for application developers, which govern the promotion, distribution and operation of our applications on their respective storefronts. Each of Apple and Google has broad discretion to change its standard terms and conditions. In addition, these standard terms and conditions can be vague and subject to changing interpretations by Apple or Google. In addition, each of Apple and Google has the right to prohibit a developer from distributing applications on the storefront if the developer violates the standard terms and conditions. In the event that either Apple or Google ever determines that we are in violation of its standard terms and conditions and prohibits us from distributing our applications on its storefront, it could materially harm our business, results of operations or financial condition.

The number of people who access the Internetinternet through devices other than personal computers, including smart phones, cell phones and handheld tablets, has increased dramatically in the past fewseveral years and is projected to continue to increase. Accordingly, we are substantially dependent on interoperability with popular mobile platforms that we do not control, including the Apple App Store and the Google Play^TM Store, and a portion of our revenue is derived from these two digital storefronts. There have been occasions in the past when these digital storefronts were unavailable for short periods of time or where there have been issues with the in-App purchasing functionality from the storefront. In the event that either the Apple App Store or the Google Play Store is unavailable or if in-App purchasing functionality from the storefront is non-operational for a prolonged period of time, it could have a material adverse effect on our business, results of operations or financial condition.

In addition, each of the Apple App Store and Google Play Store provideprovides consumers with products that compete with ours. If either of these platforms give preferential treatment to competitive products, it could seriously harm the usage of our products on mobile devices.

Our business depends on developing, establishing and maintaining strong brands. If we are unable to maintain and enhance our brands, we may be unable to expand or retain our user and paying subscriber bases.

We believe that developing, establishing and maintaining awareness of our application brands is critical to our efforts to achieve widespread acceptance of our applications and is an important element to expanding our user and subscriber bases.base. Successful promotion of our application brands will depend largely on the effectiveness of our advertising and marketing efforts and on our ability to provide reliable and useful applications at competitive prices. If paying users do not perceive our applicationsproducts to be of high quality, or if our applicationsproducts are not favorably received by users, and subscribers, the value of our brands could diminish, thereby decreasing the attractiveness of our software, services and applications to users and subscribers.users. In addition, advertising and marketing activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brands.

If we fail to successfully promote and maintain our application brands or incur substantial expenses in unsuccessfully attempting to promote and maintain our brands, we may fail to attract enough new subscribers or retain our existing subscribers to the extent necessary to realize a sufficient return on our advertising and marketing activities, and it could have a material adverse effect on our business, results of operations or financial condition.

We may conduct a portion of our operations through partnerships, strategic alliances or joint ventures, and our failure to continue such relationships or resolve any material disagreements with these third parties could have a material adverse effect on the success of these operations, our financial condition and our results of operations.

We may conduct a portion of our operations through partnerships, strategic alliances or joint ventures. For instance, as part of our blockchain strategy, we are exploring forming partnerships with blockchain companies and identifying potential strategic equity or small investments in blockchain companies. As part of this strategy, we formed a strategic product development and technology relationship with Gladius and made a small investment in Gladius’ initial coin offering, and we also entered into a technology services agreement with ProximaX under which we will receive a combination of cash and tokens as compensation for our services, subject to certain conditions. We may enter into similar arrangements in the future.

We may depend on third parties for elements of these arrangements that are important to the success of the relationship, such as the development of features or technologies to be incorporated into our applications. The performance of these third party obligations or the ability of third parties to meet their obligations under these arrangements is outside of our control. If these third parties do not meet or satisfy their obligations under these arrangements, the performance and success of these arrangements, and their value to us, may be adversely affected. If our currentgoodwill or future partners are unable to meet their obligations,other intangible assets become impaired, we may be forced to undertake the obligations ourselves and/or incur additional expenses in order to have some other party perform such obligations. In such cases we may also be required to seek legal enforcementrecord a significant charge to earnings, which could seriously harm our operating results.

We are required to test goodwill for impairment at least annually or more frequently if there are indicators that the carrying amount of the goodwill exceeds its carried value. As of December 31, 2023, we had recorded a total of $6.3 million of goodwill and $2.7 million of other intangible assets. An adverse change in domestic or global market conditions, particularly if such change has the effect of changing one of our rights,critical assumptions or estimates made in connection with the outcomeimpairment testing of which would be uncertain.goodwill or intangible assets, could result in a change to the estimation of fair value that could, in turn, result in an impairment charge to our goodwill or other intangible assets. If anywe divest or discontinue product categories or products that we previously acquired, or if the value of these events occur, theythose parts of our business become impaired, we also may adverselyneed to evaluate the carrying value of our goodwill. Any such material charges may have a negative impact us,on our financial performance and results of operations, and/or adversely impact our ability our ability to enter into similar relationships in the future.

operating results.

These arrangements with third parties may involve risks not otherwise present when we directly manage our operations, including, for example:

As the distribution of our products through application stores increases, we may incur additional fees from the developers of application stores.

As our user base continues to shift to mobile solutions, we increasingly rely on the Apple iOS and Google’s Android platforms to distribute our products. While our products are free to download from these stores, we offer our users the opportunity to purchase paid memberships and certain premium features through our products. We determine the prices at which these memberships and features are sold and, in exchange for facilitating the purchase of these memberships and features through our products to users who download our products from these stores, we pay Apple or Google, as applicable, a share (currently 30%) of the revenue we receive from these transactions. In the future, other distribution platforms that we utilize may charge us fees for the distribution of our applications. As the distribution of our products through application stores increases, the amount of fees that we must pay to the developers of these application stores will also increase. Unless we find a way to offset these fees, our business, financial condition and results of operations could be adversely affected.

Our future success is dependent, in part, on the performance and continued service of our executive officers. Without their continued service, we may be forced to interrupt or eventually cease our operations.

We are dependent to a great extent upon the experience, abilities and continued service of Alexander Harrington,Jason Katz, our Chief Executive Officer and Jason Katz, our Chairman of the Board of Directors, and Kara B. Jenny, our Chief Operating Officer.Financial Officer and director. The loss of the services of these individuals would substantially affect our business or operations and could have a material adverse effect on our business, results of operations or financial condition.

Our usersubscription metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may seriously harm and negatively affect our reputation and our business.

We regularly review metrics including our number of users, active subscribers and transaction purchasers, to evaluate growth trends, measure our performance, and make strategic decisions. These metrics are calculated using internal companyCompany data and have not been validated by an independent third party. While these numbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent challenges in measuring how our products are used across large populations globally.

Some of our demographic data may be incomplete or inaccurate. For example, because users self-report their dates of birth, our age-demographic data may differ from our users’ actual ages. If our users provide us with incorrect or incomplete information regarding their age or other attributes, then our estimates may prove inaccurate.

In addition, our business strategy is guided by data analytics that we compute internally based on data collection, data processing, cloud-based platforms, statistical projections and forecasting, mobile computing, social media analytics and other applications and technologies. We use these internally derived data analytics to guide decisions concerning the development and modification of features on our applications, monetization strategies for our applications and the development of new applications, among other things. Our new Backchannel application, when commercial, will not collect any personally identifiable information. As a result, Backchannel will not allow us this analytical opportunity, as a result, our business could suffer.

The inability to accurately derive our metrics or data analytics could result in incorrect business decisions and inefficiencies. For instance, if a significant understatement or overstatement of our active users were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to attract a sufficient number of userssubscribers to satisfy our growth strategies. If advertisers or investors do not perceive our user,subscription, geographic or other demographic metrics to be accurate representations of our user base, or if we discover material inaccuracies in our user,subscription, geographic or other demographic metrics, our reputation may be seriously harmed. At the same time, advertisers may be less willing to allocate their budgets or resources to our products, which could seriously harm our business, results of operation or financial condition.

Because we recognize revenue from subscriptions over the term of the subscription, term, the full impact of downturns or upturns in subscription sales may not be immediately reflected in our results of operations or financial condition.

We recognize subscription revenue from customers monthly over the term of the subscription, term, and subscriptions are generally offered in durations of one-, three-, six-, twelve-, and fifteen-monthtwenty-four- month terms, depending on the particular product. As a result, much of the subscription revenue we report in each period is deferred revenue from subscription agreements entered into during previous periods. Consequently, a decline in new or renewed subscriptions in any one quarter will negatively affect our revenue in future quarters. In addition, we might not be able to immediately adjust our costs and expenses to reflect these reduced revenues. Accordingly, the effect of significant downturns in user acceptance of our applications may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to quickly increase our revenue through additional sales in any period, as revenue from new subscribers must be recognized over the subscription term.term of the subscription. As a result, you should not rely on the amount of subscription revenue generated in prior quarters as an indication of future results.

The online live video and dating industries are characterized by rapid technological change and the development enhancements and new applications, and if we fail to keep pace with technological developments or launch new applications, our business may be adversely affected.

The online live video and dating industries are characterized by rapid change, and our future success is dependent upon our ability to adopt and innovate. To attract new users and increase revenues from existing users, we need to enhance, add new features to and improve our existing applications and introduce new applications in the future. The success of any enhancements or new features and applications depends on several factors, including timely completion, introduction and market acceptance. For example, we recently announced a strategic shift towards focusing on blockchain technology, a rapidly evolving technology that we have limited operational history or experience with. Building a new brand or product is generally an iterative process that occurs over a meaningful period of time and involves considerable resources and expenditures, and we may expend significant time and resources developing and launching an application that may not result in revenues in the anticipated timeframe or at all, or may not result in revenue growth that is sufficient to offset increased expenses. If we are unable to successfully develop enhancements, new features or new applications to meet user trends and preferences, our business and operating results could be adversely affected.

In addition, our applications are designed to operate on a variety of network, hardware and software platforms using Internet tools and protocols and we need to continuously modify and enhance our applications to keep pace with technological changes. If we are unable to respond in a timely and cost-effective manner, our current and future applications may become less marketable and less competitive or even obsolete.

If we are unable to protect our intellectual property rights, we may be unable to compete with competitors developing similar technologies.

Historically, our defense of our intellectual property rights has been a significant aspect of our business and has meaningfully contributed to our results of operations. Accordingly, our success and ability to compete are often dependent upon the development of intellectual property for our applications.

We aim to protect our confidential proprietary information, in part, by entering into confidentiality agreements and invention assignment agreements with all our employees, consultants, advisors and any third parties who access or contribute to our proprietary know-how, information, or technology. We also rely on trademark, copyright, patent, trade secret, and domain-name-protection laws to protect our proprietary rights. In the United States and internationally, we have filed various applications to protect aspects of our intellectual property, and we currently hold a number of issued patents in multiple jurisdictions. In the future we may acquire additional patents or patent portfolios, which could require significant cash expenditures. However, third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which we operate or intend to operate our business.

In any of these cases, we may be required to expend significant time and expense to prevent infringement or to enforce our rights. Although we have taken measures to protect our proprietary rights, others may offer products or concepts that are substantially similar to ours and compete with our business. If we are unable to protect our proprietary rights or prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished, and competitors may be able to more effectively mimic our service and methods of operations. Any of these events could seriously harm our business.

Our business has recently undergone significant changes, including management, personnel and business changes. We may not be able to effectively manage the integration of our business and our growth following the completion of the AVM Merger.

As a result of the completion of the AVM Merger in October 2016, our employee headcount and the scope and complexity of our business have increased significantly. Following the AVM Merger, our management consists of Alexander Harrington, our Chief Executive Officer and the Chief Executive Officer of pre-AVM Merger PeerStream, Jason Katz, our Chairman of the Board of Directors and Chief Operating Officer and the Chief Executive Officer of pre-AVM Merger AVM, Judy Krandel, our Chief Financial Officer and a member of the Board of Directors of pre- AVM Merger PeerStream, Arash Vakil, our Chief Product Officer and the Chief Product Officer of pre-AVM Merger AVM, and Eric Sackowitz, our Chief Technology Officer and the Chief Technology Officer of pre-AVM Merger AVM. Our new management team has been working to adapt to operating our business in a manner that differs meaningfully from prior periods, but may not successfully adapt to these changes.

Following the AVM Merger, business and product integration has been a significant focus of management and has created new challenges, including managing new relationships with users, advertisers, and other third parties. The integration of our products may cause disruptions in our business, and any such disruption could have a material adverse effect on our results of operations and financial condition. Further, any delay in the timing of product integration could decrease and/or delay our expense savings expected in respect of such integration, and any such disruption could have a material adverse effect on our results of operations and financial condition.

Although we are focused on reducing costs and increasing profitability following the AVM Merger, as we continue to grow, we must expend significant resources to identify, hire, integrate, develop, motivate and retain a number of qualified employees. If we fail to effectively manage our employment needs and successfully integrate our new hires, our ability to launch new applications and enhance or support our existing applications could suffer and it could have a material adverse effect on our business, results of operations or financial condition. In addition, we may also find it increasingly difficult to maintain the benefits of our corporate culture, including our ability to quickly develop and launch new and innovative products, as a result of rapid growth. Moreover, if our operations continue to grow, our information-technology systems and our internal controls and procedures may not adequately support our operations. Any of these factors could negatively affect our business performance and seriously harm our business.

If our use of the NEM blockchain protocol is limited, it could materially or permanently disrupt our blockchain initiatives.

We have selected the NEM blockchain protocol to power our core blockchain infrastructure, including our in-development blockchain-based application Backchannel. We are not party to any agreement with the NEM Foundation to use the NEM technology, and no person, business, governmental authority or other entity or authority of any kind has any obligation to provide any financial, technical or other support to the continued operation or development of the NEM blockchain protocol. If the NEM blockchain protocol were to become unavailable to us in its current form and functionality for any reason, we would need to use a different blockchain protocol to power our applications, which could delay the launch of PSP, Backchannel or any of our other blockchain initiatives on a long-term or permanent basis.

The failure to complete the LiveXLive merger may have negatively affected our results of operations and may have negatively impacted our existing or prospective relationships with users or vendors.

On September 6, 2017, we entered into the LiveXLive Merger Agreement. On October 31, 2017, we terminated the LiveXLive Merger Agreement pursuant to Section 8.2(a) of the LiveXLive Merger Agreement due to certain conditions of the LiveXLive Merger Agreement not having been fulfilled as of October 27, 2017, which us of our obligations under the LiveXLive Merger Agreement. No termination fee was payable by us in connection with the termination of the LiveXLive Merger Agreement.

Although no termination fee was payable by us in connection with the termination of the LiveXLive Merger Agreement, the termination has had a negative impact on our results of operations. Due to the uncertainty surrounding the closing of the merger with LiveXLive, we ceased certain employee actions during the pendency of the LiveXLive Merger Agreement, such as hiring, terminating and reallocating personnel. During this time, our employees and management reallocated significant time to integration efforts, and we were also caused to defer and delay the pursuit of new product initiatives and financing options, such as equity issuances or debt facilities, which temporarily decreased our operational efficiency and effectiveness. This temporary allocation of resources to the LiveXLive merger may have adversely impacted our results of operations as we continue to operate as a standalone company. We also expended significant resources in connection with due diligence and negotiations with LiveXLive.

We plan to continue expanding our operations internationally and may be subject to increased business and economic risks that could seriously harm our business.

Presently, we derive a significant portion of revenue from international territories and we plan to continue expanding our business operations abroad.users located outside of the United States. In addition, we rely on outsourced development services from companies with consultants based in Russia, India and elsewhere. The invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization (“NATO”) member states, and Russia. The United States, other NATO member states, as well as non-member states, have imposed sanctions against Russia and certain Russian banks, enterprises and individuals. These and any future additional sanctions and any resulting conflict between Russia, the United States and other countries may, on a short term, disrupt, or in the future could disrupt, the consulting services provided by our third-party developers residing in Russia. This conflict may increase our costs with respect to any current or future planned development services in Russia or could result in negative publicity.

We may enter new international markets where we have limited or no experience in marketing, selling and deploying our products. If we fail to deploy or manage our operations in international markets successfully, our business may suffer. As our international operations increase our operating results may become more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. In addition, we are subject to a variety of risks inherent in doing business internationally, including:

If we are unable to expand internationally and manage the complexity of our global operations successfully, our business could be seriously harmed.

A portion of our revenue is dependent on third-party resellers, the efforts of which we do not control.

We are dependent on the efforts of third parties who resell our subscriptions for a portion of our revenue. In particular, video chat users in certain international territories have an option to purchase subscriptions through local resellers. These local resellers prepay in bulk for services and debit the prepaid balance as one-time subscriptions and virtual currencygifts are sold to end users.

We do not control the efforts of these resellers. If they fail to market or sell our subscriptions successfully, merge or consolidate with other businesses, declare bankruptcy or depart from their respective industries, our business could be harmed. If we are unable to maintain or replace our contractual relationships with resellers, efficiently manage our relationships with them or establish new contractual relationships with other third parties, we may fail to retain subscribers or acquire potential new subscribers and may experience delays and increased costs in adding or replacing subscribers that were lost, any of which could materially affect our business, operating results and financial condition.

Foreign governments restricting access to our applications could materially adversely impact our business.

We have continued to focus on increasing the international presence of our applications by expanding the localized and translated versions for additional international countries that are culturally aligned with our products. Foreign data protection, privacy, consumer protection, content regulation, and other laws and regulations are often more restrictive than those in the United States. Foreign governments may censor our products in their countries, restrict access to our products from their countries entirely, or impose other restrictions that may affect their citizens’ ability to access our products for an extended period of time or even indefinitely. If foreignForeign governments may seek to restrict access to our products if they think we are violating their laws or for other reasons, they may seek to restrict access to our products, which would give our competitors an opportunity to penetrate geographic markets that we cannot access. As a result, our ability to grow our international user base would be impaired, and we may not be able to maintain or grow our revenue as anticipated and our business could be seriously harmed.

Our mobile applications rely on high-bandwidth data capabilities, which are subject to hardware, networks, regulations and standards that we do not control.

Our mobile applications require high-bandwidth data capabilities. If the costs of data usage increase or access to cellular networks is limited, our user growth and retention on mobile platforms may be seriously harmed. Additionally, to deliver high-quality video and other content over mobile cellular networks, our products must work well with a range of mobile technologies, systems, networks, regulations and standards that we do not control, and any changes to those mobile technologies, systems, networks, regulations or standards could impact the usability of our mobile applications, which would materially adversely affect our business, results of operations or financial condition.

Our business depends, in large part, upon the availability of cost-effective advertising space through a variety of media and keeping pace with trends in consumer behavior.

We depend upon the availability of advertising space through a variety of media, including third partythird-party applications on platforms such as Facebook, to recruit new users and subscribers, generate activity from existing users and subscribers and direct traffic to our application.applications. Historically, we have had to increase our marketing expenditures in order to attract and retain users and sustain our growth. The availability of advertising space varies, and a shortage of advertising space in any particular media or on any particular platform, or the elimination of a particular medium on which we advertise, could limit our ability to generate new subscribers, generate activity from existing subscribers or direct traffic to our applications, any of which could have a material adverse effect on our business, results of operations and financial condition. In addition, evolving consumer behavior can affect the availability of profitable marketing opportunities. For example, as consumers communicate less via email and more via text messaging and other virtual means, the reach of email campaigns designed to attract new and repeat users (and retain current users) for our applications is adversely impacted. To continue to reach potential users and grow our business, we must devote more of our overall marketing expenditures to newer advertising channels, which may be unproven and undeveloped, and we may not be able to continue to manage and fine-tune our marketing efforts in response to these trends.

Our applications rely heavily on email campaigns. We face a risk that any disruptions in Any future marketing efforts may be ineffective or restrictions on the sendinginadequate to attract potential users or receipt of emails, or any increase in the associated costs could adversely affect our business, results of operations or financial condition.retain existing users. 

Our emails are an important driver of our users’ and subscribers’ activities. We send a large volume of emails to our subscribers notifying them of a variety of activities on our applications, such as new matches. We face a risk that service providers or email applications may block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails to our users and subscribers. Third parties may also block our emails as spam, impose restrictions on, or start to charge for, the delivery of emails through their email systems. Without the ability to email these users and subscribers, we may have limited means of promoting new subscriptions and inducing subscribers to return to and use our applications.

In addition, we face the risk that, as consumer habits evolve, usage of email will decline as users focus on communicating through text messages and social networking applications. While we continually work to find new means of communicating and connecting with our members, these new means may not be as effective as email has historically been for us. Due to the importance of email to our business, any disruptions or restrictions on the distribution or receipt of emails or increase in the associated costs or erosion in our ability to communicate with our users via email could have a material adverse effect on our business, results of operations and financial condition.

Interruption, maintenance or failure of our programming code, servers or technological infrastructure could hurt our ability to effectively provide our applications, which could damage our reputation and harm our results of operations.

The availability of our applications depends on the continued operation of our programming code, databases, servers and technological infrastructure. Any damage to, or failure of, our systems could result in interruptions in service for our applications, which could damage our brands and have a material adverse effect on our business, results of operations or financial condition. Our systems are vulnerable to damage or interruption from terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm our systems. Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities.

In addition, from time to time we experience limited periods of server downtime due to maintenance or enhancements. If our applications are unavailable during these periods of downtime or if our users are unable to access our applications within a reasonable amount of time, users may not return to our applications in the future, or at all. As our user base and the volume and types of information shared on our applications continues to grow, we will need an increasing amount of technology infrastructure, including network capacity and computing power, to continue to satisfy our users’ needs. It is possible that we may fail to effectively scale and grow our technology infrastructure to accommodate these increased demands. Any failure to support and scale our technology infrastructure could adversely impact the reputation of our brands and harm our results of operations.

Security breaches, computer viruses and computer hacking attackscybersecurity incidents could harm our business, results of operations or financial condition.

We receive, process, store and transmit a significant amount of personal user and other confidential information, including credit card information, and enable our users to share their personal information with each other. In some cases, we retain third party vendors to store this information. We continuously develop and maintain systems to protect the security, integrity and confidentiality of this information, but cannot guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. If any such event were to occur, we may not be able to remedy the event, and we may have to expend significant capital and resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring.

Security breaches, computer malware and computer hacking attackscybersecurity incidents have become more prevalent in our industry have occurred on our systems in the past, and may occur on our systems in the future. Although it is difficult to determine what, if any, harm may directly result from an interruption or attack, any security breach caused by hacking, including efforts to gain unauthorized access to our applications, servers or websites, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business, financial condition and results of operations. If a breach of our security (or the security of our vendors and partners) occurs, the perception of the effectiveness of our security measures and our reputation may be harmed, we could lose current and potential users and the recognition of our various brands and their competitive positions could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.

Spammers may attempt to use our products to send targeted and untargeted spam messages to users, which may embarrass or annoy users and make our products less user friendly. We cannot be certain that the technologies that we have developed to repel spamming attacks will be able to eliminate all spam messages from our products. Our actions to combat spam may also require diversion of significant time and focus of our engineering team from improving our products. As a result of spamming activities, our users may use our products less or stop using them altogether, and result in continuing operational cost to us. Furthermore, the adoption of certain technologies, such as cloud computing, artificial intelligence and machine learning may increase the risks associated with cyber attacks.

Similarly, terror and other criminal groups may use our products to promote their goals and encourage users to engage in terror and other illegal activities. We expect that as more people use our products, these groups will increasingly seek to misuse our products. Although we invest resources to combat these activities, including by suspending or terminating accounts we believe are violating our Terms of Service, we expect these groups will continue to seek ways to act inappropriately and illegally on our products. Combating these groups requires our engineering team to divert significant time and focus from improving our products. In addition, we may not be able to control or stop our products from becoming the preferred application of use by these groups, which may become public knowledge and seriously harm our reputation or lead to lawsuits or attention from regulators. If these activities increase, our reputation, user growth and user engagement, and operational cost structure could be seriously harmed.

Furthermore, many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of personal data. Such laws are inconsistent, and compliance in the event of a widespread data breach is costly.