UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 20172022

OR

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

For the transition period from ________ to ________

Commission File Number 000-52176001-38717

SNAP INTERACTIVE,PALTALK, INC.

(Exact name of registrant as specified in its charter)

122 East 42nd Street30 Jericho Executive Plaza Suite 400E

New York,Jericho, NY 1016811753

(Address of principal executive offices) (Zip Code)

(212) 594-5050967-5120

(Registrant’s telephone number, including area code)

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

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

*  Excludes 158,571 shares of unvested restricted stock.

SNAP INTERACTIVE,PALTALK, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SeptemberSEPTEMBER 30, 20172022

Table of Contents

Unless the context otherwise indicates, references to “Snap,“Paltalk,” “we,” “our,” “us” and the “Company” refer to Snap Interactive,Paltalk, Inc. and its subsidiaries on a consolidated basis.

FirstMet, Snap, Paltalk, the Snapour logo and other trademarks or service marks appearing in this report are the property of Snap Interactive,Paltalk, Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective owners.

Unless otherwise indicated, metrics Solely for users are based on information that is reported by Facebook®convenience, the trademarks, service marks and internally-derived metrics for users across all platforms through which our applications are accessed. Referencestrade names included in this report are without the ®, or other applicable symbols, but such references are not intended to users means those persons who have created a user nameindicate, 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 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.trade names.

EXPLANATORY NOTE

On October 7, 2016, Snap Interactive, Inc. (“Snap”) completed its previously announced merger with A.V.M. Software, Inc. (d/b/a Paltalk) (“AVM”), pursuant to which SAVM Acquisition Corporation, Snap’s wholly owned subsidiary, merged with and into AVM, with AVM surviving as a wholly owned subsidiary of Snap (the “AVM Merger”). As a result of the AVM Merger, the former shareholders of AVM received shares of Snap’s common stock representing approximately 77.9% of the outstanding shares of common stock of the post-AVM Merger combined company, and Snap’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, Snap 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 Snap. 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 quarterly period ended September 30, 2017 presented in this Form 10-Q reflect the operations of the combined company. These results for the quarterly period ended September 30, 2017 are compared to the financial results for pre-AVM Merger AVM for the quarterly period ended September 30, 2016.

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

Unless the context otherwise indicates, all references in this Quarterly Report on Form 10-Q to “Snap,” “we,” “our,” “us,” and the “Company” refer to the post-AVM Merger combined company and its subsidiaries on a consolidated basis.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, 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” in Part II of this report and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I of this report and the risk factors set forth in (i) our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, which was filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2017 and (ii) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which was filed with the SEC on August 8, 2017.23, 2022. 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 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SNAP INTERACTIVE,PALTALK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

SNAP INTERACTIVE,PALTALK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

PALTALK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

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

SNAP INTERACTIVE,PALTALK, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYCASH FLOWS

(Unaudited)

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

SNAP INTERACTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

SNAP INTERACTIVE,PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business

Overview

On October 7, 2016, Snap Interactive,The accompanying condensed consolidated financial statements include Paltalk, Inc. and its wholly owned subsidiary, Snap Mobile Limited (collectively, “SNAP”), completed a business combination with privately-heldsubsidiaries, A.V.M. Software, Inc. and its wholly owned subsidiaries,, ManyCam ULC, Paltalk Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Vumber LLC and Fire Talk LLC and Vumber LLC (collectively, “AVM”the “Company”) in accordance.

The Company is a communications software innovator that powers multimedia social applications. The Company’s product portfolio includes Paltalk, Camfrog and Tinychat, which together host and serve a large collection of video-based communities. The Company’s 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. The Company has an over 20-year history of technology innovation and holds 14 patents.

ManyCam Asset Acquisition

On June 9, 2022 (the “Effective Date”), the terms of anCompany entered into a Securities Purchase Agreement and Plan of Merger (the “AVM Merger“Securities Purchase Agreement”), by and among SNAP, SAVM Acquisition Corporation, SNAP’s former wholly owned subsidiary, AVMthe Company, ManyCam ULC, an unlimited liability company incorporated under the laws of the Province of Alberta and Jason Katz, pursuant to which AVM merged with and into SAVM Acquisition Corporation, with AVM surviving as a wholly owned subsidiary of SNAPthe Company (the “AVM Merger”“Purchaser”), Visicom Media Inc., a Canadian corporation (the “Visicom”), and 2434936 Alberta ULC, an unlimited liability company incorporated under the laws of the Province of Alberta (“Target NewCo”), pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo (the “ManyCam Acquisition”). Prior to the ManyCam Acquisition, Target NewCo held all assets related to, or used by Visicom in connection with, the business of developing and distributing virtual webcam driver software, including virtual backgrounds and/or “masks” or other camera effects (other than the Excluded Contracts (as defined in the Securities Purchase Agreement)), whether tangible or intangible, including, but not limited to, Target NewCo’s ManyCam software (“ManyCam”) and related source code, customer lists, customer relationships and all associated customer information, contracts with contractors and suppliers, brand names, trade secrets, trademarks, trade names, designs, copyrights, websites, all URLs, goodwill and intellectual property associated with each of the foregoing (collectively, the “Conveyed Assets”). The Company concluded that the Conveyed Assets were not considered a business for purposes of Regulation S-X and Accounting Standards Codification (“ASC”) 805, Business Combinations.

Under U.S. generally accepted accounting principles (“GAAP”),The purchase price for the AVM Merger is treated asConveyed Assets was $2.7 million in cash consideration, plus a “reverse merger” underpotential earn-out payment of up to $600,000 upon the acquisition methodachievement of accounting. For accounting purposes, AVM is considered to have acquired SNAP. Consequently,certain performance thresholds over the historical financial statements reflect the operations and financial condition of AVM and operating results of SNAP are reported beginning onsix-month period following the closing date of the AVM Merger (collectively,ManyCam Acquisition. For more information regarding the “Company”).ManyCam Acquisition, see Note 3.

The Company is an Internet software company. Under its registered trademarks, the Company develops and operates computer software that enables spontaneous global real time audio/video conversation via the internet and operates a portfolio of dating applications.

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The condensed consolidated financial statements included in this report have been prepared on a going concern basis in accordance with GAAPgenerally accepted accounting principles in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The Company has not included certain information normally included in annualand notes required by GAAP for complete financial statements pursuant to those rules and regulations, although it believes that the disclosure included herein is adequate to make the information presented not misleading.

The condensed consolidated financial statements contained herein should be read in conjunction with the Company’s audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed with the SEC on March 28, 201723, 2022 (the “Form 10-K”).

In the opinion of management, the accompanying unaudited condensed consolidated financial information contains all normal and recurring adjustments necessary to fairly present the condensed consolidated balance sheet, resultssheets and statements of operations, cash flows and changes in the stockholders’ equity of the Company for the interim periods presented. The Company’s historical results are not necessarily indicative of future operating results, and the results for the three and nine months ended September 30, 20172022 are not necessarily indicative of results for the year ending December 31, 2017,2022, or for any other period.

Reverse Stock SplitMacro-Economic Factors and COVID-19 Update

The Company completed a 1-for-35 reverse stock split which became effective atCompany’s results of operations have been and may continue to be negatively impacted by the closeuncertainty regarding COVID-19 and macro-economic factors, including the timing of regular trading hours on January 5, 2017economic recessions and/or recovery and the overall inflationary environment. Prolonged periods of inflation may affect the Company’s common stock began tradingability to target new customers as well as keep existing customers engaged, and may ultimately have a correlating effect on a post-reverse stock split basis at the opening of regular trading hours on January 6, 2017. Except as otherwise provided herein, all share and per-share amountsCompany’s users’ discretionary spending. Furthermore, the recent strength of the US dollar compared to foreign currencies could have a negative effect on the Company’s common stock and stock options have been adjusted to give effect tonon-US customer base, as the reverse stock split for all periods presented.Company’s subscription prices are based in US dollars.

The global spread of the COVID-19 pandemic and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions and potential quarantines. Although the Company’s core multimedia social applications were able to support the increased demand the Company experienced from the second quarter of 2020 through the year ended December 31, 2021, the extent of the future impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict. Adverse economic and market conditions as well as the lifting of COVID-19 restrictions could also affect the demand for the Company’s applications. If the pandemic continues to cause significant negative impacts to economic conditions, the Company’s results of operations, financial condition and liquidity could be materially and adversely impacted.

On April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, the Company applied for a loan under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and on May 3, 2020, the Company entered into a promissory note with an aggregate principal amount of $506,500 (the “Note”) in favor of Citibank, N.A., as lender (the “Lender”). On January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act.

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Summary of Significant Accounting Policies

During the nine months ended September 30, 2017,2022, there were no materialsignificant changes made to the Company’s significant accounting policies, from those disclosedexcept for the acquisition of the Conveyed Assets which is discussed in Note 3 below.

For a detailed discussion about the Company’s significant accounting policies, see the Form 10-K. Certain significant accounting policies relied on in the preparation of the accompanying unaudited condensed consolidated financial statements are as follows:

Significant Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Significant estimates relied upon in preparing these financial statements include the estimatesvaluation inputs used to determinein determining the fair value of the Company’s common stock up until the time of the AVM Merger, stock options issued in share based payment arrangements, collectability of the Company’s accounts receivable and the valuation allowance on deferred tax assets.ManyCam assets, described more fully below. Management evaluates these estimates on an ongoing basis. Changes in estimates are recorded in the period in which they become known. The Company bases estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates.

Revisions to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the condensed consolidated financial statements in the periods in which they are first identified. If the Company’s estimates indicate that a contract loss will be incurred, a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated. Contract losses are the amount by which the estimated costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of revenues in the Company’s condensed consolidated statements of operations. There were no contract losses for the periods presented.

Fair Value Measurements

The fair value framework under the guidance issued by the Financial Accounting Standards Board (“FASB”) requires the categorization of assets and liabilities into three levels based upon the assumptions used to measure the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment. The three levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:

The Company reviews the appropriateness of fair value measurements including validation processes, and the reconciliation of period-over-period fluctuations based on changes in key market inputs. All fair value measurements are subject to the Company’s analysis. Review and approval by management is required as part of the validation process.

The carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short-term nature of these instruments.

SNAP INTERACTIVE,PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revenue Recognition

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09,accordance with ASC 606, Revenue from Contracts with Customers, which requires entitiesrevenue from contracts with customers is recognized when control of the promised services is transferred to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entityCompany expects to be entitled toreceive in exchange for those goodsservices. Sales tax is excluded from reported revenue. The Company has elected the practical expedient allowable by the guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less.

Subscription Revenue

The Company generates subscription revenue primarily from monthly premium subscription services. Subscription revenues are presented net of refunds, credits, and known and estimated credit card chargebacks. During the three and nine months ended September 30, 2022 and 2021, subscriptions were offered in durations of one-, three-, six-, twelve- and twenty-four-month terms. All subscription fees, however, are paid by credit card at the origination of the subscription regardless of the term of the subscription. Revenues from multi-month subscriptions are recognized on a straight-line basis over the period where the service is offered to the customer, indicated by length of the subscription term purchased. The new guidance also requires additional disclosure aboutunearned portion of subscription revenue is presented as deferred revenue in the nature, amount, timingaccompanying condensed consolidated balance sheets. Deferred revenue at December 31, 2021 was $1,915,493, $1,529,597 of which was subsequently recognized as subscription revenue during the nine months ended September 30, 2022. The ending balance of deferred revenue at September 30, 2022 and uncertainty2021 was $2,060,867 and $1,858,955, respectively.

In addition, the Company offers virtual gifts to its users. Users may purchase credits in $5, $10 or $20 increments that can be redeemed for a host of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfillvirtual gifts such as a contract. In March 2016, the FASB issued ASU 2016-08,Revenue Recognition - Principal versus Agent (reporting revenue gross versus net). Also, in April 2016, the FASB issued ASU 2016-10,Revenue from Contracts with Customers Identifying Performance Obligations and Licensing, and in May 2016 the FASB issued ASU 2016-12,Revenue Recognition – New Scope Improvements and Practical Expedients. These standards are effective for interim and annual periods beginning after December 15, 2017, and may be adopted earlier. The revenue standards are required to be adopted by taking eitherrose, a full retrospectivebeer or a modified retrospective approach. The Companycar, among other items. These gifts are given among users to enhance communication and are typically redeemed within 30 days of purchase. Upon purchase, the virtual gifts are credited to the users’ account and are under the users’ control. Virtual gift revenue is currently evaluatingrecognized upon the impactusers’ redemption of virtual gifts at the standards will have onfixed transaction price and included in subscription revenue in the Company’saccompanying condensed consolidated financial statements and determining the transition method, including the period of adoption, that it will apply.

In February 2016, the FASB issued ASU No. 2016-02,Leases (“ASU 2016-02”), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective for interim and annual periods beginning after December 15, 2018. Early adoption of ASU 2016-02operations. Virtual gift revenue is permitted. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting ASU 2016-02 onpresented as deferred revenue in the condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01,Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill,balance sheets until virtual gifts are redeemed. Virtual gift revenue was $966,757 and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company expects no impact from adopting this guidance and will adopt this on a prospective basis.

In January 2017, the FASB issued ASU 2017-04,Intangibles - Goodwill and Other (Topic 350) Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard, which is effective for the interim and annual period beginning after December 15, 2019, is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09,Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting(“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms of conditions of a share based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following are met: 1) the fair value of the modified award is the same as the fair value of the original award; 2) the vesting conditions of the modified award are the same as the vesting conditions of the original award; and 3) the classification of the modified award as an equity instrument or liability instrument is the same as the classification of the original award. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company expects no impact from adopting this guidance and will adopt this on a prospective basis.

Property and equipment, net consisted of the following at September 30, 2017 and December 31, 2016:

SNAP INTERACTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Depreciation expense$3,327,781 for the three and nine months ended September 30, 20172022, respectively. Virtual gift revenue was $101,801$1,450,757 and $355,348, respectively, as compared to $120,294 and $321,167, respectively,$4,259,933 for the three and nine months ended September 30, 2016. During May 2017,2021, respectively. The ending balance of deferred revenue from virtual gifts at September 30, 2022 and 2021 was $372,559 and $305,767, respectively.

Advertising Revenue

The Company generates advertising revenue from the display of advertisements on its products through contractual agreements with third parties that are based on the number of advertising impressions delivered. Measurements of impressions include when a customer clicks an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through the application (CPA basis). Advertising revenue is dependent upon traffic as well as the advertising inventory placed on the Company’s products.

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Technology Service Revenue

Technology service revenue was historically generated under service and partnership agreements that the Company disposednegotiated with third parties which included development, integration, engineering, licensing or other services that the Company provided.

During 2021, the Company recorded technology service revenue in connection with its agreement to serve as a launch partner with Open Props, Inc. (formerly YouNow, Inc., and referred to herein as “YouNow”) and to integrate YouNow’s props infrastructure (the “Props platform”) into the Company’s Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).

Pursuant to the terms of approximately $17,000the YouNow Agreement, once the integration of computer equipmentProps tokens into the Company’s Paltalk and furnitureCamfrog applications was completed, the Company began receiving Props tokens for providing a validator service and fixtures in relationfor allowing users to a relocation of its corporate office, which is reflected on the condensed consolidated balance sheets in property and equipment, net. The Company only holds property and equipmentparticipate in the United States. loyalty platform. The loyalty platform was intended to drive engagement and incentivize users financially by providing users with the ability to earn Props tokens while using the Paltalk and Camfrog applications.

OnIn August 2021, the Company received notice from YouNow that it was terminating the YouNow Agreement, and that it would no longer support the Props platform past the end of calendar year 2021. As a result of the termination of the YouNow Agreement, the Company notified its users that it would no longer be issuing Props starting October 7, 2016, AVM completed15, 2021, and would be replacing any user’s outstanding Props with a new internal rewards program. The new rewards loyalty program for Paltalk and Camfrog allowed users to keep their existing rewards earned from the AVM Mergerformer Props program as internal rewards and also have the opportunity to earn new internal rewards points. In connection with SNAP, pursuant to which SAVM Acquisition Corporation, SNAP’s former wholly owned subsidiary, merged withthe internal rewards points, the Company added 25 new reward tiers, including specialty coins, subscriptions, stickers, flair, and into AVM, with AVM surviving as a wholly owned subsidiary of SNAP.other popular buttons.

The Company finalizedGiven the original valuation and as parttrading availability of a revision for the AVM Merger,Props tokens in various active markets, the Company made an adjustment to increasecalculated the fair value of digital tokens based on the deferredobservable daily quoted market prices (Level 1 inputs) on multiple international exchanges, as recorded on CoinmarketCap. The total net revenue atvalue recognized as earned was $77,507 and $451,755 for the acquisition date by $234,144, offset by a decrease in deferred tax liabilitythree and nine months ended September 30, 2021, respectively. As of $1,452,339, with a corresponding decreaseSeptember 30, 2022, the value of all digital tokens has been reduced to goodwill reflected in the accompanying condensed consolidated financial statements. Additionally, the change to the provisional amount resulted in amortization of deferredzero.

The Company did not generate any technology service revenue of $65,000 during the three and nine months ended September 30, 2017.2022.

3. Asset Acquisition – Securities Purchase Agreement

Intangible assets, net consistedAs discussed above, on June 9, 2022, the Company entered into the Securities Purchase Agreement by and among the Company, the Purchaser, Visicom and Target NewCo, pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo.

The Purchaser acquired the Conveyed Assets for a cash purchase price of $2.7 million (the “Cash Consideration”). In addition to the Cash Consideration, Visicom is entitled to receive an additional payment of up to $600,000 (the “Earn-Out Payment”) based on the sales of the ManyCam software less chargebacks and refunds (“Gross Sales”) in the six-month period following atthe Closing (the “Earn-Out Period”) as follows: (i) if the Gross Sales during the Earn-Out Period are greater than $800,000, the Earn-Out Payment shall be $600,000, (ii) if the Gross Sales during the Earn-Out Period are greater than $700,000 but less than $800,000, the Earn-Out Payment shall be $300,000, (iii) if the Gross Sales during the Earn-Out Period are greater than $600,000 but less than $700,000, the Earn-Out Payment shall be $150,000 and (iv) if the Gross Sales during the Earn-Out Period do not exceed $600,000, then the Seller will not be paid any portion of the Earn-Out Payment. The Company concluded that the Conveyed Assets were not considered a business for purposes of Regulation S-X and ASC 805, Business Combinations. Based on performance as of September 30, 20172022, the Company determined that it was likely that Gross Sales during the Earn Out Period would exceed $600,000 but be less than $700,000, and December 31, 2016:as a result, the Company recorded a liability in the amount of $150,000 for payment to the Seller, with a corresponding adjustment to the cost basis of the Conveyed Assets, as it is likely that the contingency will be resolved.

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As part of a valuation analysis, the Company identified intangible assets, including internally developed software, subscriber relationships/customer list and intellectual property (trade names, trademarks, URLs). The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. Final allocation was determined by a third-party valuation specialist hired by Company management. The following table summarizes the fair value of the identifiable intangible assets and their respective useful lives:

Amortization expense for the three and nine months ended September 30, 2017 was $421,188 and $1,263,563, respectively, as compared to $137,771 and $413,317, respectively, for the three and nine months ended September 30, 2016.

The estimated aggregate amortization expense for each of the next five years and thereafter will be $419,934approximate $161,315 for the remainder of 2022, $645,260 in 2017, $1,599,7192023, $645,260 in 2018, $1,087,3332024, $558,562 in 2019, $592,6812025, $490,748 in 2020, $444,167 in 20212026 and $197,796$1,196,880 thereafter.

The Company incurred approximately $242,000 of expenses in connection with the ManyCam Acquisition and capitalized them accordingly.

As part of the accounting for the ManyCam assets, the Company provisionally recorded a deferred tax liability of $0.9 million with an offset to intangible assets related to the excess financial reporting basis over the tax basis of the Conveyed Assets.

On June 30, 2022, the Company entered into a License Agreement with Visicom (the “License Agreement”), pursuant to which the Company agreed to distribute, at the discretion and direction of Visicom, a specified number of ManyCam software updates to certain license holders to whom Visicom has previously granted a “lifetime” license to ManyCam software. As consideration for distributing the software updates, Visicom paid the Company an initial upfront nonrefundable payment of $65,000. The License Agreement provides that Visicom may purchase additional licenses at prices specified therein. Other than providing a one-time, limited license to Visicom for the distribution of ManyCam software updates pursuant to the terms of the License Agreement, the Company does not have any obligation to provide support or service to the licensee end users. The Company recognized the $65,000 payment as revenue during the three months ended September 30, 2022, as it satisfied its performance obligation as specified in the License Agreement.

4. Property and Equipment, Net

Property and equipment, net consisted of the following at September 30, 2022 and December 31, 2021:

Depreciation expense for the three and nine months ended September 30, 2022 was $13,399 and $65,317, respectively, as compared to $46,090 and $147,947 for the three and nine months ended September 30, 2021, respectively.

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Intangible Assets, Net

Intangible assets, net consisted of the following at September 30, 2022 and December 31, 2021:

Amortization expense for the three and nine months ended September 30, 2022 was $206,725 and $339,247, respectively, as compared to $46,167 and $138,500 for the three and nine months ended September 30, 2021, respectively. The aggregate amortization expense for each of the next five years and thereafter is estimated to be $217,558 for the remainder of 2022, $663,260 in 2023, $662,615 in 2024, $561,062 in 2025, $493,248 in 2026 and $1,203,130 thereafter.

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following atfor the periods presented:

7. Income Taxes

The Company’s provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. As of September 30, 20172022, our conclusion regarding the realizability of our US deferred tax assets did not change and December 31, 2016:we have recorded a full valuation allowance against them.

On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to PPP loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740, the effects of new legislation are recognized upon enactment. The enactment of the American Rescue Plan did not impact on the Company’s income tax provision.

For the three and nine months ended September 30, 2022, the Company recorded an income tax provision of $9,712 and $30,496, respectively, primarily related to state and local taxes. The effective tax rate for the three and nine months ended September 30, 2022 was (0.95)% and (1.06)%, respectively. The effective tax rate differs from the statutory rate of 21% as the Company has concluded that its deferred tax assets are not realizable on a more-likely-than-not basis.

For the three and nine months ended September 30, 2021, the Company recorded an income tax provision of $6,166 and $9,466, respectively, primarily related to state and local taxes. The effective tax rate for the three and nine months ended September 30, 2021 was (1.51)% and 0.70%, respectively. The effective tax rate differs from the statutory rate of 21% as the Company has concluded that its deferred tax assets are not realizable on a more-likely-than-not basis.

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. Stockholders’ Equity

The Snap Interactive,Paltalk, Inc. Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”) was terminated as to future awards on May 16, 2016. A total of 181,60436,402 shares of the Company’s common stock may be deliveredissued pursuant to outstanding options awarded under the 2011 Plan,Plan; however, no additional awards may be granted under such plan. The Snap Interactive,Paltalk, Inc. 2016 Long-Term Incentive Plan (the “2016(“the 2016 Plan”) was adopted by the Company’s stockholders on May 16, 2016 and permits the Company to award stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other stock-based awards and cash-based incentive awards to its employees (including an employee who is also a director or officer under certain circumstances), non-employee directors and consultants. On May 25, 2017, the Company’s stockholders approved an amendment to the 2016 Plan to increase theThe maximum number of shares issuableof common stock that may be issued pursuant to awards under the 2016 Plan is 1,300,000 shares, 100% of which may be issued pursuant to 1,300,000 shares.incentive stock options. In addition, the maximum number of shares of common stock that may be issued under the 2016 Plan may be increased by an indeterminate number of shares of common stock underlying outstanding awards issued under the 2011 Plan that are forfeited, expired, cancelled or settled in cash. As of September 30, 2017,2022, there were 665,378773,921 shares available for future issuance under the 2016 Plan.

SNAP INTERACTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)Stock Repurchase Plan

On March 21, 2022, the Board of Directors of the Company approved a stock repurchase plan for up to $1,750,000 of the Company’s outstanding common stock (the “Stock Repurchase Plan”). The Stock Repurchase Plan is effective as of March 29, 2022 and expires on the one-year anniversary of such date. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs, and the Stock Repurchase Plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased will be determined by a committee of the Board of Directors at its discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, alternative investment opportunities and other corporate considerations. As of September 30, 2022, 317,089 shares of common stock had been repurchased by the Company pursuant to the Stock Repurchase Plan.

Stock Options

The following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted during the following periods:nine months ended September 30, 2022:

The expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior to exercise. The expected life of options has been determined using the “simplified” method as prescribed by Staff Accounting Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term. The volatility of the Company’s common stock is calculated using the Company’s historical volatilities beginning at the grant date and going back for a period of time equal to the expected life of the award. The Company estimates potential forfeitures of stock awards and adjusts recorded stock-based compensation expense accordingly. The Company estimates pre-vesting forfeitures primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the stock basedstock-based awards vest.

The following tables summarizetable summarizes stock option activity during the nine months ended September 30, 2017:2022:

During the nine months endedAt September 30, 2017, the Company entered into option cancellation and release agreements with three employees, pursuant2022, there was $403,847 of total unrecognized compensation expense related to stock options, which each of the parties agreedis expected to cancel outstanding options to purchase an aggregate of 77,312 shares of common stock of the Company at exercise prices ranging from $4.55 to $21.00 per share. In exchange for the cancellation of the options, the Company granted the employees replacement options to purchase an aggregate of 64,600 shares of common stock of the Company at exercise prices ranging from $3.36 to $6.00 per share. The incremental value of the modified options compared to the original options, both valued on the respective modification date, of $55,055 is beingbe recognized over the vesting termsa weighted average period of the options.3.28 years.

On April 13, 2017, the Company’s Board of Directors awarded Alexander Harrington, Chief Executive Officer, (i) a stock option representing the right to purchase 80,000 shares of common stock at an exercise price equal to $3.63 per share, with the shares underlying this stock option vesting 25% on the six month anniversary of the date of grant and the remaining three tranches vesting on each of the first, second and third anniversaries of the first vesting date, and (ii) a stock option representing the right to purchase 24,000 shares of common stock at an exercise price equal to $3.63 per share, with the shares underlying this stock option vesting based on the Company’s achievement of certain performance goals related to its annual revenues. In addition, on April 13, 2017, the Company’s Board of Directors awarded Jason Katz, Chief Operating Officer and Chairman of the Board of Directors, a stock option representing the right to purchase 70,000 shares of common stock at an exercise price equal to $3.63 per share, with (i) 17,500 of the underlying shares vesting based on the Company’s achievement of certain performance goals related to its earnings before interest, tax, depreciation, and amortization and (ii) 52,500 of the underlying shares vesting based on the Company’s achievement of certain performance goals related to its annual revenues.

On May 5, 2017, the Compensation Committee of the Company’s Board of Directors awarded each of Mr. Harrington and Eric Sackowitz, Chief Technology Officer, a stock option representing the right to purchase 28,571 shares of common stock at an exercise price equal to $3.36 per share. The shares underlying these stock options vest in four equal installments on each anniversary of the date of grant.

On September 30, 2017,2022, the aggregate intrinsic value of stock options that were outstanding and exercisable was $17,565$12,980 and $9,972,$12,980, respectively. On September 30, 2016,2021, the aggregate intrinsic value of stock options that were outstanding and exercisable was $235,860$3,186,961 and $225,170,$2,578,975, respectively. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the fair value of such awards as of the period-end date.

SNAP INTERACTIVE,PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the nine months ended September 30, 2017,2022, the Company granted stock options to members of the Board of Directors to purchase an aggregate of 24,000 shares of common stock at an exercise price of $2.66 per share. The stock options vest in four equal quarterly installments on the last day of each calendar quarter in 2022 and have a term of ten years. During the nine months ended September 30, 2022, the Company also granted options to employees to purchase an aggregate 58,696of 224,500 shares of common stock at exercise pricesstock. These options have varying vesting dates ranging from $3.34 to $4.50. The options vest between onethe grant date and four years andfrom the grant date, have a term of ten years.

years and have an exercise price of $2.66. The aggregate fair value for the stock options granted during the nine months ended September 30, 20172022 and 2021 was $966,560. The aggregate fair value for the options granted during the nine months ended September 30, 2016 was $87,000.$636,957 and $145,522, respectively.

Stock-based compensation expense for the Company’s stock options included in the condensed consolidated statements of operations iswas as follows:

At September 30, 2017, there was $1,171,251 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 3.0 years.Treasury Shares

Restricted Stock Awards

The following table summarizes restricted stock award activity forOn April 29, 2019, the nine months ended September 30, 2017:

At September 30, 2017, there was $1,482,991 of total unrecognized compensation expense related to unvested restricted stock awards, which is expected to be recognized over a weighted average period of 1.8 years.

Stock-based compensation expense relating to restricted stock awards for the three and nine months ended September 30, 2017 was $185,374 and $556,122, respectively, as compared to $0 for the three and nine months ended September 30, 2016.

Common Stock

On May 18, 2017, we announcedCompany implemented a stock repurchase plan to repurchase up to $1.0 million$500,000 of ourits common stock for cash. The repurchase plan was automatically terminated pursuant toexpired on April 29, 2020. The Company had purchased 9,950 shares of its terms on September 11, 2017 in connection with the public announcement of the proposed merger with LiveXLive. At the time of the termination ofcommon stock under the repurchase plan we had repurchased an aggregateas of 2,346April 29, 2020 and has classified them as treasury shares on the Company’s condensed consolidated balance sheets. In addition, during the year ended December 31, 2021, the Company retained 22,013 in treasury shares as part of oura net share exercise of stock options by former employees.

As discussed above, on March 29, 2022, the Company implemented the Stock Repurchase Plan to repurchase up to $1,750,000 of its outstanding common stock for an aggregate purchase pricecash. The Stock Repurchase Plan expires on March 29, 2023. As of $7,038.

Basic net loss per share of common stock is computed based upon the number of weighted averageSeptember 30, 2022, 317,089 shares of common stock had been repurchased by the Company pursuant to the Stock Repurchase Plan, which shares have been classified as treasury shares on the Company’s condensed consolidated balance sheets.

As of September 30, 2022 and December 31, 2021, the Company had 349,052 and 31,963 shares, respectively, of its common stock classified as treasury shares.

9. Net (Loss) Income Per Share

Basic earnings and net (loss) income per share are computed by dividing the net (loss) income available to common stockholders by the weighted average number of common shares outstanding during the period as defined by ASC Topic 260, Earnings Per Share.Share. Diluted net lossearnings per share is computed using the weighted average number of common stock includesshares and, if dilutive, potential common shares outstanding during the dilutive effectsperiod. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and(using the treasury stock equivalents.method). To the extent stock options are antidilutive, they are excluded from the calculation of diluted net lossincome per share of common stock.share. For the three and nine months ended September 30, 2017, 817,0202022, 640,207 shares upon the exercise of outstanding stock options and 264,286 shares of unvested restricted stock were not included in the computation of diluted net loss per share because their inclusion would be antidilutive. For the three months ended September 30, 2016, diluted net income per share did not include the effect of any shares issuable upon the exercise of stock options as the exercise price of these options were not less than the average market price during the period.

For the nine months ended September 30, 2016, 71,700 shares upon the exercise of outstanding stock options, were not included in the computation of diluted net loss per share from operations because their inclusion would be anti-dilutive. For the three and nine months ended September 30, 2021, 517,972 and 496,421 shares issuable upon the exercise of outstanding stock options, respectively, were not included in the computation of diluted net income per share because their inclusion would be antidilutive.

For the nine months ended September 30, 2021, 21,551 shares issuable upon the exercise of outstanding stock options, respectively, were included in the computation of diluted net income per share from operations because their inclusion would be dilutive.

The following table summarizes the net (loss) income per share calculation for the periods presented:

SNAP INTERACTIVE,PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. Leases

Operating Lease Agreements

As result of the AVM Merger,On April 9, 2021, the Company entered into a lease extension agreement with Jericho Executive Center LLC for the office space located at 320 W 37th Street, 13th Floor,30 Jericho Executive Plaza in Jericho, New York, NY 10018. The term of the lease originally ran until March 4, 2022.which commenced on December 1, 2021 and runs through November 30, 2024. The Company’s monthly office rent payments under the lease wereare currently approximately $26,000$7,081 per month. On March 3, 2017,The lease extension resulted in an increase in the Company’s right-of-use (“ROU”) assets and lease liabilities of $0.2 million, using a discount rate of 2.30%.

As of September 30, 2022, the Company entered into an agreement to terminate the lease for this office space. Under the termshad no long-term leases that were classified as financing leases. As of the lease termination agreement,September 30, 2022, the Company vacated the offices by May 31, 2017did not have additional operating and agreed to forfeit its security deposit of $200,659.financing leases that had not yet commenced.

At September 30, 2022, the Company had operating lease liabilities of approximately $179,000 and ROU assets of approximately $179,000, which are included in the condensed consolidated balance sheets.

Total rent utilities, real estate tax expense and commercial rent tax expense relating to operating lease agreements for the three and nine months ended September 30, 2017 were approximately $91,000 and $263,000, respectively, as compared to $33,460 and $314,055, respectively,2022 was $62,819, of which $3,000 was sublease income. Total rent expense for the three and nine months ended September 30, 2016.

Capital Lease Agreements

As result2021 was $64,782, of the AVM Merger, the Company acquired five three-year capital lease agreements with Hewlett Packard Financial Services Company. The Company’s monthly paymentswhich $3,000 was sublease income. Rent expense is recorded under these capital leases are approximately $7,600. The Company recognizes these leases ongeneral and administrative expense in the condensed consolidated balance sheet under accrued expenses and other current liabilities.statements of operations.

Litigation, Claims and AssessmentsThe following table summarizes the Company’s operating leases for the periods presented:

As of September 30, 2022, future minimum payments under non-cancelable operating leases were as follows:

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11. Commitments and Contingencies

Officer Employment Agreements

On March 23, 2022, the Company entered into Amended and Restated Employment Agreements with the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which amended and restated their existing employment agreements with the Company dated October 7, 2016 and December 9, 2019, respectively. The agreements are each for a term of one year with auto renewal provisions. Except for adjustments to base salaries, all other terms and conditions of the prior employment agreements between the Company and the CEO and CFO remained in full force and effect. The CEO agreement is retroactive to February 2021. The CFO agreement is retroactive to January 2022. Aggregate commitments of base salaries under the agreements for 2022 total $490,000. Should the agreements be renewed for 2023 and beyond, the aggregate base salary commitments would total $510,000 per year. 

Patent Litigation

On July 23, 2021, a wholly owned subsidiary of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit against WebEx Communications, Inc., Cisco WebEx LLC, and Cisco Systems, Inc. (collectively, “Cisco”), in the U.S. District Court for the Western District of Texas. The Company alleges that some of Cisco’s Webex products have infringed U.S. Patent No. 6,683,858, and that the Company is entitled to damages. A Markman hearing took place on February 24, 2022 and a trial is currently scheduled for the first quarter of 2023.

On September 7, 2022, the United States Patent Office, (“USPTO”) issued a reexamination of U.S. Patent No. 6,683,858. On September 16, 2022, Cisco filed a motion to stay the lawsuit pending the re-examination.

Other Legal Proceedings

The Company may be a partyincluded in legal proceedings, claims and assessments arising in the ordinary course of business. The Company evaluates the need for a reserve for specific legal matters based on the probability of an unfavorable outcome and the reasonability of an estimable loss. No reserve was deemed necessary as of September 30, 2017.2022.

12. Subsequent Events

Restricted Awards Vesting

On October 7, 2017, an aggregate of 105,715 shares of restricted stock held by Clifford Lerner, a member of the Company’s Board of Directors, vested. Pursuant to the terms of Mr. Lerner’s restricted stock awards, the Company withheld an aggregate of 43,405 of the vesting shares of restricted stock to satisfy Mr. Lerner’s tax withholding obligations incurred in connection with the vesting of the shares of restricted stock.

Terminated LiveXLive Merger Agreement

On September 6, 2017, the Company 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 the Company 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, the Company provided a letter to LiveXLive that 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 the Company of its obligations under the LiveXLive Merger Agreement. No termination fee was payable by the Company in connection with the termination of the LiveXLive Merger Agreement.

Management has evaluated subsequent events or transactions occurring through the date the condensed consolidated financial statements were issued and determined that no other events or transactions are required to be disclosed herein.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three and nine months ended September 30, 2017,2022 and 2021, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 20162021 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 28, 201723, 2022 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of ourthe Form 10-K. Aside from certain information as of December 31, 2016,2021, all amounts herein are unaudited.

Forward-Looking Statements

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” in the Form 10-KPart II of this report and “Part II: Other Information – Item“Item 1A. Risk Factors” herein and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed with the SEC on August 8, 2017 (the “Second Quarter 10-Q”).

AVM Merger

On October 7, 2016, we completed our previously announced merger with A.V.M. Software, Inc. (d/b/a Paltalk) (“AVM”), pursuant to which SAVM Acquisition Corporation, our wholly owned subsidiary, merged with and into AVM, with AVM surviving as a wholly owned subsidiary of Snap (the
“AVM Merger”). As a result of the AVM Merger, the former shareholders of AVM received shares of Snap’s common stock representing approximately 77.9% of the outstanding shares of common stock of the post-AVM Merger combined company, and Snap’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.Form 10-K.

Except as otherwise specifically provided, this Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the business and operations of AVM and its consolidated subsidiaries for the periods prior to the closing of the AVM Merger and onOverview

We are a consolidated basis with Snap and its subsidiary for periods after the closing of the AVM Merger. Unless the context otherwise indicates, references to “Snap,” “we,” “our,” “us” and the “Company” refer to the post-AVM Merger combined company and its subsidiaries oncommunications software innovator that powers multimedia social applications. We operate a consolidated basis.

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, the Company 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 the Company 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, the Company provided a letter to LiveXLive that 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 the Company of its obligations under the LiveXLive Merger Agreement. No termination fee was payable by the Company in connection with the termination of the LiveXLive Merger Agreement.

Overview

The Company is a leading provider of live video social networking, and interactive dating applications. Our product portfolio includes Paltalk and Camfrog, which together host one 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. Our leading network of products createsconsumer applications that we believe create a unique social media enterprise where users can meet, see, chat, broadcast and message in real time in a secure environment with other usersothers in our network. Our properties are generally available through Windows®, Mac^TM OS, iOS^TMconsumer applications generate revenue principally from subscription fees and Android^TM platforms.