UNITED STATES

~~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 June 30 ~~2022~~, 2023

☐ 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 001-38717

PALTALK, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-3191847

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

30 Jericho Executive Plaza Suite 400E

Jericho, NY

11753

(Address of principal executive offices)

(Zip Code)

~~30 Jericho Executive Plaza Suite 400E~~(212) 967-5120

~~Jericho, NY 11753~~

~~(Address of principal executive offices) (Zip Code)~~

~~(212) 967-5120~~

(Registrant’s telephone number, including area code)

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		PALT		The Nasdaq Capital Market

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 every Interactive Data File required to be submitted 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 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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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.

Class		Outstanding at August 4, ~~2022~~2023
Common Stock, par value $0.001 per share		9,722,1579,222,157

Excludes ~~141,963~~641,963 shares of common stock that are held as treasury stock by Paltalk, Inc.

PALTALK, INC.

~~PALTALK, INC.~~

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, ~~2022~~2023

Table of Contents

			Page Number

	PART I. FINANCIAL INFORMATION		1


ITEM 1.	Financial Statements		1

	Condensed Consolidated Balance Sheets as of June 30, ~~2022~~2023 (Unaudited) and December 31, ~~2021~~2022		1

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)		2

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)		3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)		4

	Notes to Condensed Consolidated Financial Statements (Unaudited)		5


ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15	13


ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	28	23


ITEM 4.	Controls and Procedures	28	23

	PART II. OTHER INFORMATION		24


ITEM 1.	Legal Proceedings	29	24


ITEM 1A.	Risk Factors	29	24


ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29	24


ITEM 3.	Defaults Upon Senior Securities	29	24


ITEM 4.	Mine Safety Disclosures	29	24


ITEM 5.	Other Information	29	24


ITEM 6.	Exhibits	30	25

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

Paltalk, our logo and other trademarks or service marks appearing in this report are the property of 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 the context otherwise indicates, references to “Paltalk,” “we,” “our,” “us” and the “Company” refer to Paltalk, Inc. and its subsidiaries on a consolidated basis.

FORWARD-LOOKING STATEMENTS

~~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:

●

our ability to effectively market and generate revenue from our applications;

●

our ability to generate and maintain active users and to effectively monetize our user base;

●

our ability to update our applications to respond to rapid technological changes;

●

the intense competition in the industry in which our business operates and our ability to effectively compete with existing competitors and new market entrants;

	●	our ability to consummate favorable acquisitions and effectively integrate any companies ~~assets~~ or properties that we acquire;

	●	~~the impact of the COVID-19 pandemic on our results of operations and our business;~~

●

the dependence of our applications on mobile platforms and operating systems that we do not control, including our heavy reliance on the platforms of Apple, Facebook and Google and their ability to discontinue, limit or restrict access to their platforms by us or our applications, change their terms and conditions or other policies or features (including restricting methods of collecting payments, sending notifications or placing advertisements), establish more favorable relationships with one or more of our competitors or develop applications or features that compete with our applications;

●

our ability to develop, establish and maintain strong brands;

●

our reliance on our executive officers and consultants;

●

our ability to adapt or modify our applications for the international market and derive revenue therefrom;

●

the ability of foreign governments to restrict access to our applications or impose new regulations;

●

the reliance of our mobile applications on having a mobile data plan and/or Wi-Fi access to gain internet connectivity;

●

the effect of security breaches, computer viruses and cybersecurity incidents;

●

our reliance upon credit card processors and related merchant account approvals and the impact of chargeback liabilities that we may face from credit card processors;

●

the possibility that our users or third parties may be physically or emotionally harmed following interaction with other users;

●

our ability to obtain additional capital or financing when and if necessary, to execute our business plan, including through offerings of debt or equity or sale of any of our assets;

●

the risk that we may face litigation resulting from the transmission of information through our applications;

●

the effects of current and future government regulation, including laws and regulations regarding the use of the internet, privacy, cybersecurity and protection of user ~~data and cryptocurrency technology;~~data;

●

the impact of any claim that we have infringed on intellectual property rights of others;

●

our ability to protect our intellectual property rights;

●

our ability to maintain effective internal controls over financial reporting;

●

our ability to offset fees associated with the distribution platforms that host our applications;

●

our reliance on internally derived data to accurately report user metrics and other measures of our performance;

●

our ability to release new applications or improve upon or add features to existing applications on schedule or at all;

●

our reliance on third-party investor relations firms to help create awareness of our Company and compliance by such third parties with regulatory requirements related to promotional reports; and

●

our ability to attract and retain qualified employees and consultants.

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 our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, which was filed with the Securities and Exchange Commission on March 23, ~~2022.~~2023. 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.

iii

PART I - FINANCIAL INFORMATION

~~PART I - FINANCIAL INFORMATION~~

ITEM 1. FINANCIAL STATEMENTS

PALTALK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2023			2022
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	13,650,942		$	14,739,933
Accounts receivable, net of allowances of $3,648 as of June 30, 2023 and December 31, 2022		126,654			122,297
Employee retention tax credit receivable, net		246,629			-
Prepaid expense and other current assets		789,099			543,199
Total current assets		14,813,324			15,405,429
Operating lease right-of-use asset		118,330			159,181
Goodwill		6,326,250			6,326,250
Intangible assets, net		3,115,644			3,526,811
Other assets		13,937			13,937
Total assets	$	24,387,485		$	25,431,608

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	679,082		$	1,013,637
Accrued expenses and other current liabilities		211,225			225,193
Operating lease liabilities, current portion		83,367			82,176
Contingent Consideration		-			85,000
Deferred subscription revenue		2,169,454			2,257,452
Total current liabilities		3,143,128			3,663,458
Operating lease liabilities, non-current portion		34,963			77,005
Deferred tax liability		732,723			716,903
Total liabilities		3,910,814			4,457,366
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.001 par value, 25,000,000 shares authorized, 9,864,120 shares issued and 9,222,157 and 9,227,349 shares outstanding as of June 30, 2023 and December 31, 2022, respectively		9,864			9,864
Treasury stock, 641,963 and 636,771 shares repurchased as of June 30, 2023 and December 31, 2022, respectively		(1,199,337	)		(1,192,124	)
Additional paid-in capital		36,086,046			35,973,735
Accumulated deficit		(14,419,902	)		(13,817,233	)
Total stockholders’ equity		20,476,671			20,974,242
Total liabilities and stockholders’ equity	$	24,387,485		$	25,431,608

June 30, December 31,
2022 2021
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 16,850,818 $ 21,636,860
Accounts receivable, net of allowances of $3,648 as of June 30, 2022 and December 31, 2021 106,791 153,448
Prepaid expense and other current assets 359,944 239,258
Total current assets 17,317,553 22,029,566
Operating lease right-of-use asset 199,567 239,491
Property and equipment, net 17,681 69,599
Goodwill 6,326,250 6,326,250
Intangible assets, net 3,799,442 196,543
Digital tokens - 7,262
Other assets 13,937 13,937
Total assets $ 27,674,430 $ 28,882,648

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 1,464,732 $ 1,332,632
Accrued expenses and other current liabilities 182,409 344,441
Operating lease liabilities, current portion 81,237 80,309
Deferred subscription revenue 1,839,849 1,915,493
Total current liabilities 3,568,227 3,672,875
Operating lease liabilities, non-current portion 118,330 159,182
Deferred tax liability 806,493 -
Total liabilities 4,493,050 3,832,057
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.001 par value, 25,000,000 shares authorized, 9,864,120 shares issued as of June 30, 2022 and December 31, 2021 and 9,722,157 and 9,832,157 shares outstanding as of June 30, 2022 and December 31, 2021, respectively 9,864 9,864
Treasury stock, 141,963 and 31,963 shares as of June 30, 2022 and December 31, 2021, respectively (407,380 ) (194,200 )
Additional paid-in capital 35,851,530 35,639,910
Accumulated deficit (12,272,634 ) (10,404,983 )
Total stockholders’ equity 23,181,380 25,050,591
Total liabilities and stockholders’ equity $ 27,674,430 $ 28,882,648

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

PALTALK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenues:
Subscription revenue	$	2,884,989		$	2,560,706		$	5,390,659		$	5,407,045
Advertising revenue		71,013			83,762			129,360			164,124
Total revenues		2,956,002			2,644,468			5,520,019			5,571,169
Costs and expenses:
Cost of revenue		774,028			661,548			1,576,503			1,313,644
Sales and marketing expense		220,512			484,133			475,380			895,615
Product development expense		1,163,640			1,521,764			2,412,222			3,051,905
General and administrative expense		1,075,520			1,053,347			2,242,631			2,099,495
Impairment loss on digital tokens		--			7,262			--			7,262
Total costs and expenses		3,233,700			3,728,054			6,706,736			7,367,921
Loss from operations		(277,698	)		(1,083,586	)		(1,186,717	)		(1,796,752	)
Interest income (expense), net		171,341			(1,595	)		292,508			(3,457	)
Other income (expense), net		343,045			(38,772	)		343,045			(46,658	)
Income (loss) from operations before provision for income taxes		236,688			(1,123,953	)		(551,164	)		(1,846,867	)
Income tax expense		(101,059	)		(4,753	)		(51,505	)		(20,784	)
Net income (loss)	$	135,629		$	(1,128,706	)	$	(602,669	)	$	(1,867,651	)

Net income (loss) per share of common stock:
Basic	$	0.01		$	(0.12	)	$	(0.07	)	$	(0.19	)
Diluted	$	0.01		$	(0.12	)	$	(0.07	)	$	(0.19	)
Weighted average number of shares of common stock used in calculating net income (loss) income per share of common stock:
Basic		9,222,157			9,771,608			9,222,256			9,801,715
Diluted		9,222,157			9,771,608			9,222,256			9,801,715

Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Revenues:
Subscription revenue $ 2,560,706 $ 3,121,909 $ 5,407,045 $ 6,261,274
Advertising revenue 83,762 75,462 164,124 152,283
Technology service revenue - 218,432 - 374,248
Total revenues 2,644,468 3,415,803 5,571,169 6,787,805
Costs and expenses:
Cost of revenue 661,548 630,582 1,313,644 1,277,297
Sales and marketing expense 484,133 255,204 895,615 512,655
Product development expense 1,521,764 1,298,767 3,051,905 2,596,031
General and administrative expense 1,053,347 469,502 2,099,495 1,231,212
Impairment loss on digital tokens 7,262 184,737 7,262 184,737
Total costs and expenses 3,728,054 2,838,792 7,367,921 5,801,932
(Loss) income from operations (1,083,586 ) 577,011 (1,796,752 ) 985,873
Interest (expense) income, net (1,595 ) (420 ) (3,457 ) 2,047
Gain on extinguishment of term debt - - - 506,500
Realized gain from the sale of digital tokens - 247,293 - 247,293
Other expense, net (38,772 ) - (46,658 ) -
(Loss) income from operations before provision for income taxes (1,123,953 ) 823,884 (1,846,867 ) 1,741,713
Provision for income taxes (4,753 ) (2,200 ) (20,784 ) (3,300 )
Net (loss) income $ (1,128,706 ) $ 821,684 $ (1,867,651 ) $ 1,738,413

Net (loss) income per share of common stock:
Basic $ (0.12 ) $ 0.12 $ (0.19 ) $ 0.25
Diluted $ (0.12 ) $ 0.12 $ (0.19 ) $ 0.25
Weighted average number of shares of common stock used in calculating net (loss) income per share of common stock:
Basic 9,771,608 6,906,454 9,801,715 6,906,454
Diluted 9,771,608 6,930,041 9,801,715 6,918,248

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 SIX MONTHS ENDED JUNE 30, ~~2022~~2023 AND ~~2021~~2022

(Unaudited)

	Common		Stock		Treasury			Stock			Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital		Deficit			Equity
Balance at December 31, 2021		9,864,120	$	9,864		(31,963	)	$	(194,200	)	$	35,639,910	$	(10,404,983	)	$	25,050,591
Stock-based compensation expense		-		-		-			-			152,471		-			152,471
Net loss		-		-		-			-			-		(738,945	)		(738,945	)
Balance at March 31, 2022		9,864,120	$	9,864		(31,963	)	$	(194,200	)	$	35,792,381	$	(11,143,928	)	$	24,464,117
Stock-based compensation expense		-		-		-			-			59,149		-			59,149
Repurchases of common stock		-		-		(110,000	)		(213,180	)		-		-			(213,180	)
Net loss														(1,128,706	)		(1,128,706	)
Balance at June 30, 2022		9,864,120	$	9,864		(141,963	)	$	(407,380	)	$	35,851,530	$	(12,272,634	)	$	23,181,380
Balance at December 31, 2022		9,864,120	$	9,864		(636,771	)	$	(1,192,124	)	$	35,973,735	$	(13,817,233	)	$	20,974,242
Stock-based compensation expense		-		-		-			-			55,141		-			55,141
Repurchases of common stock		-		-		(5,192	)		(7,213	)		-		-			(7,213	)
Net loss														(738,298	)		(738,298	)
Balance at March 31, 2023		9,864,120	$	9,864		(641,963	)	$	(1,199,337	)	$	36,028,876	$	(14,555,531	)	$	20,283,872
Stock-based compensation expense		-		-		-			-			57,170		-			57,170
Net income		-		-		-			-			-		135,629			135,629
Balance at June 30, 2023		9,864,120	$	9,864		(641,963	)	$	(1,199,337	)	$	36,086,046	$	(14,419,902	)	$	20,476,671

Common Stock Treasury Stock Additional
Paid- Accumulated Total
Stockholders’
Shares Amount Shares Amount in Capital Deficit Equity
Balance at December 31, 2020 6,916,404 $ 6,917 (9,950 ) $ (10,859 ) $ 21,568,041 $ (11,729,089 ) $ 9,835,010
Stock-based compensation expense - - - - 31,368 - 31,368
Net income - - - - - 916,729 916,729
Balance at March 31, 2021 6,916,404 6,917 (9,950 ) (10,859 ) 21,599,409 (10,812,360 ) 10,783,107
Stock-based compensation expense - - - - (192,342 ) - (192,342 )
Net income - - - - - 821,684 821,684
Balance at June 30, 2021 6,916,404 $ 6,917 (9,950 ) $ (10,859 ) $ 21,407,067 $ (9,990,676 ) 11,412,449
Balance at December 31, 2021 9,864,120 $ 9,864 (31,963 ) $ (194,200 ) $ 35,639,910 $ (10,404,983 ) $ 25,050,591
Stock-based compensation expense - - - - 152,471 - 152,471
Net loss - - - - - (738,945 ) (738,945 )
Balance at March 31, 2022 9,864,120 $ 9,864 (31,963 ) $ (194,200 ) $ 35,792,381 $ (11,143,928 ) $ 24,464,117
Stock-based compensation expense - - - - 59,149 - 59,149
Repurchases of common stock - - (110,000 ) (213,180 ) - - (213,180 )
Net loss - - - - - (1,128,706 ) (1,128,706 )
Balance at June 30, 2022 9,864,120 $ 9,864 (141,963 ) $ (407,380 ) $ 35,851,530 $ (12,272,634 ) $ 23,181,380

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

PALTALK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(602,669	)	$	(1,867,651	)
Adjustments to reconcile net loss from operations to net cash used in operating activities:
Depreciation of property and equipment		-			51,918
Amortization of intangible assets		411,167			132,522
Amortization of operating lease right-of-use assets		40,851			39,924
Impairment loss on digital tokens		-			7,262
Deferred tax expense		15,820
Stock-based compensation		112,311			211,620
Changes in operating assets and liabilities:		-
Accounts receivable		(4,357	)		46,657
Operating lease liability		(40,851	)		(39,924	)
Prepaid expense and other current assets		(245,900	)		(120,686	)
Accounts payable, accrued expenses and other current liabilities		(381,523	)		(29,932	)
Employee retention tax credit receivable, net		(213,629	)		-
Deferred subscription revenue		(87,998	)		(75,644	)
Net cash used in operating activities		(996,778	)		(1,643,934	)
Cash flows from investing activities:
Acquisition of ManyCam assets		-			(2,700,000	)
Acquisition related costs of ManyCam assets		-			(228,928	)
Payment of contingent consideration		(85,000	)		-
Net cash used in investing activities		(85,000	)		(2,928,928	)
Cash flows from financing activities:
Purchase of treasury stock		(7,213	)		(213,180	)
Net cash used in financing activities		(7,213	)		(213,180	)
Net decrease in cash and cash equivalents		(1,088,991	)		(4,786,042	)
Balance of cash and cash equivalents at beginning of period		14,739,933			21,636,860
Balance of cash and cash equivalents at end of period	$	13,650,942		$	16,850,818
Supplemental disclosure of cash flow information:
Cash paid during the periods:
Interest	$	512		$	-
Taxes	$	18,551		$	-
Non-cash investing and financing activities:
Write-off of property and equipment	$	-		$	1,475,649
Deferred tax liability associated with the acquisition of ManyCam assets	$			$	806,493

Six Months Ended
June 30,
2022 2021
Cash flows from operating activities:
Net (loss) income $ (1,867,651 ) $ 1,738,413
Adjustments to reconcile net (loss) income from operations to net cash (used in) provided by operating activities:
Depreciation of property and equipment 51,918 101,856
Amortization of intangible assets 132,522 92,333
Amortization of operating lease right-of-use assets 39,924 34,021
Impairment loss on digital tokens 7,262 184,737
Realized gain from the sale of digital tokens - (247,293 )
Gain on extinguishment of term debt - (506,500 )
Stock-based compensation 211,620 (160,974 )
Bad debt expense - (3,235 )
Changes in operating assets and liabilities:
Digital tokens - (733,835 )
Accounts receivable 46,657 22,384
Digital tokens receivable - 210,000
Operating lease liability (39,924 ) (34,021 )
Digital tokens payable - 149,587
Deferred offering costs - (212,420 )
Prepaid expense and other current assets (120,686 ) 28,620
Accounts payable, accrued expenses and other current liabilities (29,932 ) (4,327 )
Deferred subscription revenue (75,644 ) (47,358 )
Net cash (used in) provided by operating activities (1,643,934 ) 611,988
Cash flows from investing activities:
Acquisition of ManyCam assets (2,700,000 ) -
Acquisition related costs of ManyCam assets (228,928 ) -
Proceeds from the sale of digital tokens - 304,304
Net cash (used in) provided by investing activities (2,928,928 ) 304,304
Cash flows from financing activities:
Purchase of treasury stock (213,180 ) -
Net cash used in financing activities (213,180 ) -
Net (decrease) increase in cash and cash equivalents (4,786,042 ) 916,292
Balance of cash and cash equivalents at beginning of period 21,636,860 5,585,420
Balance of cash and cash equivalents at end of period $ 16,850,818 $ 6,501,712
Supplemental disclosure of cash flow information:
Cash paid during the periods:
Interest $ - $ -
Taxes $ - $ -
Non-cash investing and financing activities:
Write-off of property and equipment $ 1,475,649 $ -
Deferred tax liability associated with the acquisition of ManyCam assets $ 806,493 $ -

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

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business

Overview

The accompanying condensed consolidated financial statements include Paltalk, Inc. and its wholly owned subsidiaries, A.V.M. Software, Inc., ~~ManyCam ULC,~~ Paltalk Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Fire Talk LLC, ~~and~~ Vumber LLC and ManyCam ULC (collectively, the “Company”).

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 1410 patents.

ManyCam Asset Acquisition

On June 9, 2022 (the “Effective Date”), the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among the Company, ManyCam ULC, an unlimited liability company incorporated under the laws of the Province of Alberta and a wholly owned subsidiary of the Company (the “Purchaser”), Visicom Media Inc., a Canadian corporation ~~(the “Visicom”~~(“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 ~~acquisition of the~~ Conveyed Assets iswere not considered a business ~~under~~for purposes of Regulation S-X and ~~in accordance with~~ Accounting Standards Codification (“ASC”) 805, Business ~~Combinations~~.Combinations.

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 was 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:

	Estimated Fair Value		Estimated Useful Life in Years
Internally developed software	$	1,504,000		7
Intellectual property (trade names, trademarks, URLs)	$	321,000		7
Subscriber Relationships/Customer List	$	875,000		3
Total acquired assets	$	2,700,000

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

The ~~purchase price for~~Purchaser acquired the Conveyed Assets ~~was~~for a cash purchase price of $2.7 million ~~in cash consideration, plus a potential earn-out~~(the “Cash Consideration”). In addition to the Cash Consideration, Visicom was entitled to receive an additional payment of up to $600,000 ~~upon~~(the “Earn-Out Payment”) based on the ~~achievement~~sales of ~~certain performance thresholds over~~the ManyCam software less chargebacks and refunds (“Gross Sales”) in the six-month period following the closing (the “Earn-Out Period”) as follows: (i) if the Gross Sales during the Earn-Out Period were greater than $800,000, the Earn-Out Payment would have been $600,000, (ii) if the Gross Sales during the Earn-Out Period were greater than $700,000 but less than $800,000, the Earn-Out Payment would have been $300,000, (iii) if the Gross Sales during the Earn-Out Period were greater than $600,000 but less than $700,000, the Earn-Out Payment would have been $150,000 and (iv) if the Gross Sales during the Earn-Out Period did not exceed $600,000, then Visicom would not be paid any portion of the Earn-Out Payment.

Gross Sales during the Earn-Out Period exceeded $600,000 but were less than $700,000. Pursuant to the terms of that certain Letter Agreement, by and between Visicom, the Purchaser and the Company, dated February 24, 2023, the Company made an earn-out payment to Visicom in the amount of $85,000 (the “Adjusted Earn-Out Payment”). At December 31, 2022 the Company recorded a liability in the amount of the Adjusted Earn-Out Payment, with a corresponding adjustment to the cost basis of the Conveyed Assets. This Adjusted Earn-Out Payment was paid during the second quarter of 2023.

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 ~~Acquisition. For more information regarding~~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 ~~Acquisition, see Note 3.~~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.

Impact of Macro-Economic Factors

The Company’s results of operations have been and may continue to be, negatively impacted by macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary environment. Prolonged periods of inflation may have affected, and may continue to affect the Company’s ability to target new customers as well as keep existing customers engaged and may ultimately have a correlating effect on the Company’s users’ discretionary spending. Additionally, the recent closures of certain banks and their placement into receivership with the Federal Deposit Insurance Corporation created bank-specific and broader financial institution liquidity challenges and concerns. Future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to additional market and economic uncertainty, which could affect our industry.

Employee Retention Tax Credit

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company was eligible for a refundable employee retention tax credit (the “ERTC”), subject to certain criteria. As ERTCs are not within the scope of ASC 740, Income Taxes, the Company has chosen to account for the ERTCs by analogizing to the International Standard IAS 20, Accounting/or Government Grants and Disclosure of Government Assistance (“IAS 20”). In accordance with IAS 20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. During the three months ended June 30, 2023, the Company applied for the ERTC and recorded a receivable in the amount of $343,045, net of related costs, which was recognized in the Company’s condensed consolidated statement of operation as other income. As of June 30, 2023, the Company had received an aggregate of $129,416, which was accounted for as a reduction of the receivable on the Company’s condensed consolidated balance sheet at June 30, 2023.

Basis of Presentation

The condensed consolidated financial statements included in this report have been prepared on a going concern basis in accordance with generally 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 and 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, ~~2021,~~2022, filed with the SEC on March 23, ~~2022~~2023 (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 sheets and statements of operations, cash flows and changes in 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 six months ended June 30, ~~2022~~2023 are not necessarily indicative of results for the year ending December 31, ~~2022,~~2023, or for any other period.

~~Macro-Economic Factors and COVID-19 Update~~

The Company’s results of operations have and may continue to be negatively impacted by the uncertainty regarding COVID-19 and macro-economic factors, including the timing of any economic recession and/or recovery and the overall inflationary environment.

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 our business is highly uncertain and difficult to predict. Adverse economic and market conditions as a result of COVID-19 as well as the lifting of COVID-19 restrictions could also affect the demand for the Company’s applications and the ability of the Company’s users to satisfy their obligations to the Company. 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 six months ended June 30, ~~2022,~~2023, there were no significant changes made to the Company’s significant accounting ~~policies, except for the acquisition of the ManyCam assets which is discussed in Note 3 below.~~policies.

For a detailed discussion about the Company’s significant accounting policies, see the Form 10-K.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on the Company’s financial position, results of operations or cash flows.

~~Significant Estimates and Assumptions~~

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported ~~amounts of assets and liabilities at~~in the ~~date of the condensed consolidated~~ financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the ~~reported amounts~~determination of ~~revenue~~estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and ~~expenses during~~such differences may be material to the ~~reporting period.~~

~~Significant estimates relied upon~~financial statements. The most significant accounting estimate inherent in ~~preparing these~~the preparation of our financial statements include the ~~estimates~~discount rates and weighted average costs of capital used ~~to determine the fair value of the stock options issued~~ in ~~share-based payment arrangements, subscription revenues net of refunds, credits, and known and estimated credit card chargebacks as well as valuation inputs used in determining~~ the fair value of the ManyCam assets ~~described more fully below. Management evaluates these~~and in assigning their respective useful lives. These fair values and estimates were based on a number of factors, including a valuation by 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.independent third party.

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:

●

~~Level 1: Fair value measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets or liabilities;~~

●

Level 2: Fair value measurement of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and

●

~~Level 3: Fair value measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability.~~

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.~~

~~PALTALK, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Revenue Recognition

In accordance with ASC 606, Revenue from Contracts with Customers, revenue from contracts with customers is recognized when control of the promised services is transferred to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. 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 six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, subscriptions were offered in durations of one-, three-, six-, ~~twelve-~~twelve-month and ~~twenty-four-month~~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 unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets. Deferred revenue at December 31, ~~2021~~2022 was ~~$1,915,493, $1,180,225~~$2,257,452, of which $1,329,327 was subsequently recognized as subscription revenue during the six months ended June 30, ~~2022.~~2023. The ending balance of deferred revenue at June 30, 2023 and 2022 was $2,169,454 and ~~2021 was~~ $1,839,849 ~~and $ $2,011,363,~~ 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 virtual gifts such as a rose, a beer or a car, 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 recognized upon the users’ redemption of virtual gifts at the fixed transaction price and included in subscription revenue in the accompanying condensed consolidated statements of operations. Virtual gift revenue is presented as deferred revenue in the condensed consolidated balance sheets until virtual gifts are redeemed. Virtual gift revenue was $1,312,113 and $1,091,487 for the three months ended June 30, 2023 and 2022, respectively, and virtual gift revenue was $2,322,313 and $2,361,024 for the ~~three and~~ six months ended June 30, ~~2022, respectively. Virtual gift revenue was $1,389,046~~2023, and ~~$2,809,176 for the three and six months ended June 30, 2021,~~2022, respectively. The ending balance of deferred revenue from virtual gifts at June 30, 2023 and 2022 was $465,199 and ~~2021 was~~ $349,552, ~~and $317,889,~~ 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 negotiated 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 the YouNow Agreement, once the integration of Props tokens into the Company’s Paltalk and Camfrog applications was completed, the Company began receiving Props tokens for providing a validator service and for allowing users to participate in the 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.

In 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 15, 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 former Props program as internal rewards and also have the opportunity to earn new internal rewards points. In connection with the internal rewards points, the Company added 25 new reward tiers, including specialty coins, subscriptions, stickers, flair, and other popular buttons.

Given the trading availability of Props tokens in various active markets, the Company calculated the fair value of digital tokens based on the observable daily quoted market prices (Level 1 inputs) on multiple international exchanges, as recorded on CoinmarketCap. The total net revenue value recognized as earned was $218,432 and $374,248 for the three and six months ended June 30, 2021, respectively. As of June 30, 2022, the value of all digital tokens has been reduced to zero.

~~The Company did not generate any technology service revenue during the three and six months ended June 30, 2022.~~

3. ~~Asset Acquisition – Securities Purchase Agreement~~

As 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 the 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 acquisition of the Conveyed Assets is not considered a business under Regulation S-X and in accordance with ASC 805, ~~Business Combinations~~.

~~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:

Estimated Fair
Value Estimated Useful
Life in
Years
Internally developed software $ 1,504,000 7
Intellectual property (trade names, trademarks, URLs) $ 321,000 3
Subscriber Relationships/Customer List $ 875,000 7
Total acquired assets $ 2,700,000

The estimated aggregate amortization expense for each of the next five years and thereafter will approximate $185,238 for the remainder of 2022, $444,571 in 2023, $444,571 in 2024, $393,071 in 2025, $341,571 in 2026 and $853,930 thereafter.

~~The Company incurred approximately $230,000 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 $0.8 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.

~~4. Property and Equipment, Net~~

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

June 30, December 31,
2022 2021
(unaudited)
Computer equipment $ 311,335 $ 866,459
Website development 2,155,798 3,076,323
Furniture and fixtures 47,463 47,463
Total property and equipment 2,514,596 3,990,245
Less: Accumulated depreciation (2,496,915 ) (3,920,646 )
Total property and equipment, net $ 17,681 $ 69,599

Depreciation expense for the three and six months ended June 30, 2022 was $21,820 and $51,918, respectively, as compared to $53,076 and $101,856 for the three and six months ended June 30, 2021, respectively.

~~PALTALK, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

5. Intangible Assets, Net

Intangible assets, net consisted of the following at June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

	June 30, 2023							December 31, 2022
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Patents	$	50,000	$	(35,000	)	$	15,000	$	50,000	$	(33,750	)	$	16,250
Trade names, trademarks product names, URLs		1,022,425		(603,252	)		419,173		1,022,425		(562,114	)		460,311
Internally developed software		4,180,005		(2,321,979	)		1,858,026		4,180,005		(2,165,550	)		2,014,455
Subscriber/customer relationships		3,553,102		(2,729,657	)		823,445		3,553,102		(2,517,307	)		1,035,794
Total intangible assets	$	8,805,532	$	(5,689,888	)	$	3,115,644	$	8,805,532	$	(5,278,721	)	$	3,526,811

June 30, 2022 December 31, 2021
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
Patents $ 50,000 $ (32,500 ) $ 17,500 $ 50,000 $ (31,251 ) $ 18,749
Trade names, trademarks product names, URLs 999,100 (526,571 ) 472,529 555,000 (509,148 ) 45,852
Internally developed software 4,070,768 (2,009,216 ) 2,061,552 1,990,000 (1,990,000 ) -
Subscriber/customer relationships 3,489,553 (2,241,692 ) 1,247,861 2,279,000 (2,147,058 ) 131,942
Total intangible assets $ 8,609,421 $ (4,809,979 ) $ 3,799,442 $ 4,874,000 $ (4,677,457 ) $ 196,543

Amortization expense for the three and six months ended June 30, ~~2022~~2023 was ~~$86,356~~$205,583 and ~~$132,522,~~$411,167, respectively, as compared to ~~$46,166~~$86,356 and ~~$92,333~~$132,522 for the three and six months ended June 30, ~~2021,~~2022, respectively. The aggregate amortization expense for each of the next five years and thereafter is estimated to be ~~$300,190~~$411,167 for the remainder of ~~2022, $502,745 in~~ 2023, ~~$502,100~~$821,687 in 2024, ~~$419,536~~$568,529 in 2025, ~~$371,173~~$382,133 in 2026, $382,133 in 2027 and ~~$897,205~~$549,995 thereafter.

6.4. Accrued Expenses and Other Current Liabilities

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

	June 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
	(unaudited)				(unaudited)
Compensation, benefits and payroll taxes	$	134,076	$	318,150	$	-	$	114,000
Income tax payable		3,235		-
Other accrued expenses		45,098		26,291		211,225		111,193
Total accrued expenses and other current liabilities	$	182,409	$	344,441	$	211,225	$	225,193

7.5. Income Taxes

The Company’s provision for income taxes consists of federal, foreign, 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 June 30, ~~2022, our~~2023, the Company’s conclusion regarding the realizability of ~~our~~its US deferred tax assets ~~did~~had not ~~change~~changed, and ~~we have recorded~~the Company has continued to maintain a full valuation allowance against them.

~~On March 11, 2021,~~

For the ~~American Rescue Plan Act~~three and six months ended June 30, 2023, the Company recorded an income tax provision of ~~2021 (“American Rescue Plan”) was signed into law~~$101,059 and $51,505, respectively, primarily related to ~~provide additional relief in connection with~~a discrete item related to 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 repealfiling of the ~~election to allocate interest expense~~Company’s Canadian tax return. The effective tax rate for the three and six months ended June 30, 2023 was 42.70% and (9.34)%, respectively. The effective tax rate differed from the statutory rate of 21% as the Company has concluded that its deferred tax assets are not realizable on a ~~worldwide~~more-likely-than-not 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 six months ended June 30, 2022, the Company recorded an income tax provision of $4,753 and $20,784, respectively, primarily related to state and local taxes. The effective tax rate for the three and six months ended June 30, 2022 was (0.39)% and (1.08)%, respectively. The effective tax rate ~~differs~~differed 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 six months ended June 30, 2021, the Company recorded an income tax provision of $2,200 and $3,300, respectively, primarily related to state and local taxes. The effective tax rate for the three and six months ended June 30, 2021 was 0.28% and 0.19%, 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)~~

8.6. Stockholders’ Equity

The 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 ~~36,402~~28,964 shares of the Company’s common stock may be issued pursuant to outstanding options awarded under the 2011 Plan; however, no additional awards may be granted under such plan. The Paltalk, Inc. 2016 Long-Term Incentive Plan (“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. The maximum number of shares of 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 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 June 30, ~~2022,~~2023, there were ~~767,728~~762,406 shares available for future issuance under the 2016 Plan.

~~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 June 30, 2022, 110,000 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 six months ended June 30, ~~2022:~~2023:

Expected volatility	~~173% - 182~~161.44	%
Expected life of option (in years)	5.2 -– 6.2
Risk free interest rate	~~2.53~~3.58 – 3.59	%
Expected dividend yield	0.0	%

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~~adjusts to reflect actual forfeitures as the stock-based awards vest.

The following table summarizes stock option activity during the six months ended June 30, ~~2022:~~2023:

Weighted
Average
Number of Exercise
Options Price
Stock Options:
Outstanding at January 1, 2022 435,770 $ 5.31
Granted 248,500 2.66
Forfeited or canceled, during the period (31,787 ) 2.97
Expired, during the period (6,082 ) 54.08
Outstanding at June 30, 2022 646,401 $ 3.95
Exercisable at June 30, 2022 434,900 $ 4.65

				Weighted
				Average
	Number of			Exercise
	Options			Price
Stock Options:
Outstanding at January 1, 2023		622,074		$	3.71
Granted during the period		49,000			1.94
Cancelled/Forfeited, during the period		(21,935	)		1.62
Expired, during the period		(2,584	)		21.24
Outstanding at June 30, 2023		646,555		$	3.58
Exercisable at June 30, 2023		499,780		$	3.93

At June 30, ~~2022,~~2023, there was ~~$479,162~~$300,353 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of ~~3.52~~2.05 years.

On June 30, 2023, the aggregate intrinsic value of stock options that were outstanding and exercisable was $26,010 and $24,323, respectively. On June 30, 2022, the aggregate intrinsic value of stock options that were outstanding and exercisable was $45,840 and $38,340, respectively. ~~On June 30, 2021, the aggregate~~The intrinsic value of ~~stock options that were outstanding and exercisable was $258,359 and $159,558, 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.

~~PALTALK, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

During the six months ended June 30, ~~2022,~~2023, 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~~$1.94 per share. The stock options vest in four equal quarterly installments on the last day of each calendar quarter in ~~2022~~2023 and have a term of ten years. During the six months ended June 30, ~~2022,~~2023, the Company also granted options to employees to purchase an aggregate of ~~224,500~~25,000 shares of common stock. These options have varying vesting dates ranging between the grant date and up to four years, have a term of ten years and have an exercise price of ~~$2.66.~~$1.94. The aggregate fair value for the ~~stock~~ options granted during the six months ended June 30, 2023 and 2022 was $90,380 and ~~2021 was~~ $636,957, ~~and $78,522,~~ respectively.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Cost of revenue	$	3,151	$	2,192	$	5,366	$	15,056
Sales and marketing expense		842		637		1,481		756
Product development expense		7,616		7,270		14,489		10,739
General and administrative expense		45,561		49,050		90,975		185,069
Total stock compensation expense	$	57,170	$	59,149	$	112,311	$	211,620

Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Cost of revenue $ 2,192 $ - $ 15,056 $ 182
Sales and marketing expense 637 96 756 103
Product development expense 7,270 2,740 10,739 5,784
General and administrative expense 49,050 (195,178 ) 185,069 (167,043 )
Total stock compensation expense $ 59,149 $ (192,342 ) $ 211,620 $ (160,974 )

Treasury Shares

~~On April 29, 2019,~~The Board of Directors of the Company ~~implemented~~approved a stock repurchase plan ~~to repurchase~~for up to ~~$500,000~~$1,750,000 of ~~its~~the Company’s outstanding common stock ~~for cash. The repurchase plan~~(the “Stock Repurchase Plan”), effective as of March 29, 2022, which expired on ~~April~~March 29, ~~2020.~~2023, the one-year anniversary of such date. Under the Stock Repurchase Plan, shares were 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. The actual timing, number and value of shares repurchased was determined by a committee of the Board of Directors at its discretion and depended 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 June 30, 2023 and December 31, 2022, the Company had ~~purchased 9,950~~641,963, and 636,771, shares of its common stock, ~~under the repurchase plan as of April 29, 2020 and has~~respectively, classified ~~them~~ as treasury shares on the Company’s ~~condensed~~ consolidated balance sheets. ~~In addition, during~~During the ~~year~~six months ended ~~December 31, 2021, the Company retained 22,013 in treasury shares as part of a 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 cash. The Stock Repurchase Plan expires on March 29, 2023. As of June 30, ~~2022, 110,000~~2023, 5,192 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.~~at an average purchase price of $1.39.

~~As of June 30, 2022 and December 31, 2021, the Company had 141,963 and 31,963 shares, respectively, of its common stock classified as treasury shares.~~

9.7. Net Income (Loss) ~~Income Per~~ Share

Basic earnings and net income (loss) ~~income~~ per share are computed by dividing the net income (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. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method). To the extent stock options are antidilutive, they are excluded from the calculation of diluted income per share. For the three ~~and six~~ months ended June 30, 2023 and 2022, 646,555 and 646,401 of shares issuable upon the exercise of outstanding stock options, respectively, were not included in the computation of diluted net loss per share from operations because their inclusion would be antidilutive. For the ~~three and~~ six months ended June 30, 2023 and 2022, ~~no shares issuable upon the exercise~~646,555 and 646,401 of outstanding stock options, respectively, were included in the computation of diluted net loss per share from operations because their inclusion would be dilutive. For the three and six months ended June 30, 2021, 494,385 and 510,208 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 three and six months ended June 30, 2021, 23,857 and 7,764 shares issuable upon the exercise of outstanding stock options, respectively, were included in the computation of diluted net incomeloss per share from operations because their inclusion would be ~~dilutive.~~antidilutive.

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2023		2022			2023			2022
Net income (loss) from operations – basic and diluted	$	135,629	$	(1,128,706	)	$	(518,313	)	$	(1,867,651	)
Weighted average shares outstanding – basic		9,222,157		9,771,608			9,222,256			9,801,715
Weighted average shares outstanding – diluted		9,222,157		9,771,608			9,222,256			9,801,715
Per share data:
Basic from operations	$	0.01	$	(0.12	)	$	(0.07	)	$	(0.19	)
Diluted from operations	$	0.01	$	(0.12	)	$	(0.07	)	$	(0.19	)

Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net (loss) income from operations – basic and diluted $ (1,128,706 ) $ 821,684 $ (1,867,651 ) $ 1,738,413
Weighted average shares outstanding – basic 9,771,608 6,906,454 9,801,715 6,906,454
Weighted average shares outstanding – diluted 9,771,608 6,930,041 9,801,715 6,918,248
Per share data:
Basic from operations $ (0.12 ) $ 0.12 $ (0.19 ) $ 0. 25
Diluted from operations $ (0.12 ) $ 0.12 $ (0.19 ) $ 0.25

. ~~PALTALK, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~10.~~ Leases

On April 9, 2021, the Company entered into a lease extension agreement with Jericho Executive Center LLC for the office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on December 1, 2021 and runs through November 30, 2024. The Company’s monthly office rent payments under the lease are currently approximately $7,081 per month. ~~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 June 30, ~~2022,~~2023, the Company had no long-term leases that were classified as financing leases. As of June 30, ~~2022,~~2023, the Company did not have additional operating and financing leases that had not yet commenced.

AtAs of June 30, ~~2022,~~2023, the Company had operating lease liabilities of approximately ~~$200,000~~$118,000 and ROU assets of approximately ~~$200,000,~~$118,000, which are included in the condensed consolidated balance sheets.

Total rent expense for the six months ended June 30, 2023 was $40,829, of which $1,500 was sublease income. Total rent expense for six months ended June 30, 2022 was $43,075, of which $3,000 ~~was sublease income. Total rent expense for the six months ended June 30, 2021 was $52,119, of which $1,500~~ was sublease income. Rent expense is recorded under general and administrative expense in the condensed consolidated statements of operations.

The following table summarizes the Company’s operating leases for the periods presented:

	Six Months Ended
	June 30,
	2023			2022
Cash paid for amounts included in the measurement of operating lease liabilities:	$	40,851		$	39,924
Weighted average assumptions:
Remaining lease term		1.4			2.4
Discount rate		2.3	%		2.3	%

Six Months Ended
June 30,
2022 2021
Cash paid for amounts included in the measurement of operating lease liabilities: $ 39,924 $ 34,021
Weighted average assumptions:
Remaining lease term 2.4 0.4
Discount rate 2.3 % 3.5 %

As of June 30, ~~2022,~~2023, future minimum payments under non-cancelable operating leases were as follows:

For the year ending December 31,	Amount			Amount
2022		42,488
2023		84,975			42,488
2024		77,893			77,894
Total	$	205,356		$	120,382
Less: present value adjustment		(5,789	)		(2,052	)
Present value of minimum lease payments	$	199,567		$	118,330

~~PALTALK, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~11.~~9. 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 ~~amends~~amended and ~~restates~~restated their existing employment agreements with the Company dated October 7, 2016 and December 9, 2019, respectively. The agreements are each for terms 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 ~~will remain~~remained in full force and effect. The Amended and Restated Employment Agreement for the CEO ~~agreement~~ is retroactive to February 2021. The Amended and Restated Employment Agreement for the CFO ~~agreement~~ is retroactive to January 2022. Aggregate commitments of base salaries under the ~~agreements~~Amended and Restated Employment Agreements for each of 2022 and 2023 total $490,000. Should the agreements be renewed for ~~2023~~2024 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.~~Texas (the “Court”). The Company alleges that certain 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. On September 7, 2022, the United States Patent Office issued a reexamination of U.S. Patent No. 6,683,858, and on January 19, 2023, the Examiner issued an Ex Parte Reexamination Certificate, ending the reexamination and confirming the patentability of claims 1-10 of U.S. Patent No. 6,683,858. On June 29, 2023, the Court held a pretrial conference and denied Cisco’s motion for summary judgment. The trial is expected to be scheduled for ~~February~~late in the fourth quarter of 2023.

~~Other~~ Legal Proceedings

The Company may be included 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 June 30, ~~2022.~~2023.

~~12.~~10. Subsequent Events

Management has evaluated subsequent events or transactions occurring through the date the condensed consolidated financial statements were issued and determined that no 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 six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, (ii) the consolidated financial statements and notes thereto for the year ended December 31, ~~2021~~2022 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 23, ~~2022~~2023 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-K. Aside from certain information as of December 31, ~~2021,~~2022, 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 Part II of this report and “Item 1A. Risk Factors” in the Form 10-K.

Overview

We are a communications software innovator that powers multimedia social applications. We operate a network of consumer 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 others in our network. Our consumer applications generate revenue principally from subscription fees and advertising arrangements.

Our product portfolio includes Paltalk, Camfrog and Tinychat, which together host ~~and serve~~ 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 1410 patents.

We believe that the scale of our user base presents a competitive advantage in the video social networking industry and provides growth opportunities to advance our existing products with up-sell opportunities and 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 monetization tools.

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 also includes the acquisition of, or investment in, technologies, solutions or businesses that complement our ~~business.~~business and cross-selling them to additional synergistic businesses.

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.

Recent Developments

~~ManyCam Asset Acquisition~~Stock Repurchase Plan

On ~~June 9,~~March 23, 2022, ~~(the “Effective Date”),~~ we ~~entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among~~announced that the ~~Company, ManyCam ULC, an unlimited liability company incorporated under the laws~~Board of ~~the Province of Alberta and a wholly owned subsidiary~~Directors of the Company ~~(the “Purchaser”), Visicom Media Inc.,~~approved a ~~Canadian corporation (the “Visicom”), and 2434936 Alberta ULC, an unlimited liability company incorporated under the laws~~stock repurchase plan for up to $1,750,000 of the ~~Province of Alberta (“Target NewCo”~~Company’s outstanding common stock (the “Stock Repurchase Plan”)~~, pursuant to which the Purchaser purchased,~~. The Stock Repurchase Plan was effective as of March 29, 2022 and expired on March 29, 2023, the ~~Effective Date, all~~one-year anniversary of such date. Shares were 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. The actual timing, number and value of shares repurchased were determined by a committee of the ~~issued~~Board of Directors at its discretion and ~~outstanding~~depended 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 June 30, 2023 and December 31, 2022, we had 641,963, and 636,771, 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”).its common stock, respectively, classified as treasury shares on our consolidated balance sheets.

~~The Purchaser acquired the Conveyed Assets for a cash purchase price~~Impact 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 the 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.

As part of the accounting for the ManyCam assets, the Company provisionally recorded a deferred tax liability of $0.8 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, we entered into a License Agreement with Visicom (the “License Agreement”), pursuant to which we 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 us 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, we do not have any obligation to provide support or service to the licensee end users.

Macro-Economic Factors ~~and COVID-19 Update~~

Our results of operations have been and may continue to be negatively impacted by ~~the uncertainty regarding~~ macro-economic factors, including the timing of ~~any~~ economic ~~recession~~recessions and/or recovery and the overall inflationary ~~environment~~environment. Prolonged periods of inflation have affected, and ~~COVID-19.~~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. Additionally, the closures of certain banks and their placement into receivership with the Federal Deposit Insurance Corporation created bank-specific and broader financial institution liquidity challenges and concerns. Future adverse developments with respect to specific financial institutions or the broader financial services industry may create additional market and economic uncertainty, which could affect our industry.

~~The global spread~~Under the provisions 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 our core multimedia social applications were able to support the increased demand we experienced from the second quarterextension of 2020 through the year ended December 31, 2021, the extent of the future impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. Adverse economic and market conditions as a result of COVID-19 as well as the lifting of COVID-19 restrictions could also affect the demand for our applications and the ability of our users to satisfy their obligations to us. If the pandemic continues to cause significant negative impacts to economic conditions, our 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, we 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”), we were eligible for a refundable employee retention tax credit (the “ERTC”) subject to certain criteria. We applied for the ERTC and ~~on May 3, 2020,~~recorded a receivable in the amount of $343,045, net of related costs, which was recognized in our condensed consolidated statement of operations as other income. As of June 30, 2023, we ~~entered into a promissory note with~~received an aggregate ~~principal amount~~ of ~~$506,500 (the “Note”) in favor of Citibank, N.A.,~~$129,416, which was recorded as ~~lender (the “Lender”). On January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions~~a reduction of the ~~CARES Act. We do not expect to incur additional indebtedness under the CARES Act.~~receivable on our condensed consolidated balance sheet.

We continue to serve as a form of safe and entertaining communication during this global pandemic, and in order to help those affected in hardest hit countries, will continue to offer some of its group video conferencing services free of charge to select countries.

Operational Highlights and Business Objectives

During the three and six months ended June 30, ~~2022,~~2023, we executed key components of our objectives:

●

~~acquired~~ the ~~core assets~~total revenue increased by approximately 11.8%, or $311,534, for the three months ended June 30, 2023 compared to total revenue for the three months ended June 30, 2022, primarily as a result of enhancements made to our products, expansion of our product offerings and the addition of the ManyCam ~~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;~~product;

●

~~released~~net income improved by 112% to $135,629 for the ~~Windows version~~three months ended June 30, 2023, compared to net loss of ~~ManyCam 8.0, an upgrade to~~approximately $1.1 million for the ~~newly acquired asset;~~three months ended June 30, 2022, as a result of increased revenues, reduced expenses, recording of the ERTC refund and increased operating efficiencies; and


	●	~~engaged Roth Capital Partners, LLC (“Roth”)~~cash flows used in operations decreased by $0.2 million and $0.6 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, mainly as ~~our financial advisor and investment banker to explore strategic initiatives focused on buy-side acquisitions;~~result of a decrease in product development expense.

●

~~selected two marketing companies, to lead our increased marketing efforts for our Paltalk and Camfrog applications; and~~

●

~~partnered with Hive Automated Content Moderation Solutions to roll out new content moderation software for increased user experience.~~

For the near term, our business objectives include:

●

~~Adjusting~~leveraging our ~~spend to better align with overall macro-economic conditions and investing in a measured way that ensures responsible cash management;~~

●

~~working with Roth to continue to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions~~recently completed integration of ~~other assets or entities that are synergistic to our business;~~

the ManyCam product into Paltalk product through upselling initiatives;

●

further optimizing marketing spend to effectively realize a positive return on our ~~acquisition~~investment;

●

developing a user-friendly version of ~~the~~ ManyCam ~~software to not only maximize subscription revenue but to integrate~~that will be optimized for both consumer and ~~cross-sell with our existing customer base and explore business-to-business sales opportunities;~~

enterprise applications;

●

continuing to implement several enhancements to our live video chat applications as well as the integration of card and board games and other features focused on ~~user~~ retention and monetization, which collectively are intended to increase user engagement and revenue opportunities;

●

continuing to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our businesses;

●

continuing to develop our consumer application platform strategy by seeking potential partnerships with large third-party communities to whom we could promote a co-branded version of our video chat products and potentially share in the incremental revenues generated by these partner communities; and

●

continuing to defend our intellectual property.

Sources of Revenue

Our main sources of revenue are subscription, advertising and other fees generated from users of our core video chat products, Paltalk and Camfrog, as well as revenue from downloads of our ManyCam software products. We expect that the majority of our revenue in future periods will continue to be generated from our core video chat products. We also have historically generated technology service revenue under licensing and service agreements that we negotiate with third parties which includes development, integration, engineering, licensing or other services that we provide.

Subscription Revenue

Our video chat platforms generate revenue primarily through subscription fees. Our tiers of subscriptions provide users with unlimited video windows and levels of status within the community. Multiple subscription tiers are offered in different durations depending on the product from one-, six-~~, twelve-~~ and ~~twenty-four-month~~twelve-month terms, which continue to vary as we continue to test and optimize length and pricing. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates. Levels of membership benefits are offered in tiers, with the least membership benefits in the lowest paid tier and the most membership benefits in the highest paid tier. Our membership tiers are “Plus,” “Extreme,” “VIP” and “Prime” for Paltalk and “Pro,” “Extreme” and “Gold” for Camfrog. We also hold occasional promotions that offer discounted subscriptions and virtual gifts. Subscriptions for ManyCam are generally offered in annual and two-year terms, with exceptions made for enterprise sales.

We recognize revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated. Revenues from multi-month (or annual) subscriptions are recognized on a gross and straight-line basis over the length of the subscription period. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets.

We also offer virtual gifts to our ~~users.~~users through our Paltalk, Camfrog and TinyChat applications. Users may purchase credits that can be redeemed for a host of virtual gifts such as a rose, a beer, or a car, among other items. Virtual gift revenue is recognized upon the users’ utilization of the virtual gift and included in subscription revenue. The unearned portion of virtual gifts revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets.

Advertising Revenue

We generate a portion of our revenue through advertisements on our video platforms. Advertising revenue is dependent upon the volume of advertising impressions viewed by active users as well as the advertising inventory we place on our products. We recognize advertising revenue as earned on a click-through, impression, registration or subscription basis. Measurements of impressions include when a user clicks on an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through our application (CPA basis).

~~Technology Service Revenue~~

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

In 2021, we recorded technology service revenue in connection with our 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 our Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).

Pursuant to the terms of the YouNow Agreement, once the integration of Props tokens into our Paltalk and Camfrog applications was completed, we began receiving Props tokens for providing a validator service and for allowing users to participate in the 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. The net revenue earned was recorded under “technology service revenue” in the condensed consolidated statements of operations. The total net revenue value was recognized as earned.

~~We determined the fair value of the Props tokens using observable daily quoted market prices on multiple international exchanges, as recorded on CoinmarketCap.~~

In August 2021, we 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. The YouNow Agreement was terminated effective on November 23, 2021. We expect that the majority of our future technology service revenue, if any, will result from opportunistic collaborations with third parties, however, any such collaborations are not a primary focus for the Company.

Costs and Expenses

Cost of revenue

Cost of revenue consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent and bandwidth costs. Cost of revenue also includes compensation and other employee-related costs for technical personnel, consultants and subcontracting costs relating to technology service revenue.

Sales and marketing expense

Sales and marketing expense consist primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel and consultants engaged in sales and sales support functions. Advertising and promotional spend includes online marketing, including fees paid to search engines, and offline marketing, which primarily consists of partner-related payments to those who direct traffic to our brands.

Product development expense

Product development expense, which relates to the development of technology of our applications, consists primarily of compensation (including stock-based compensation) and other employee-related and consultant-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of service offerings as well as amortization of capitalized website development costs.

General and administrative expense

General and administrative expense consists primarily of compensation (including non-cash stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources and facilities costs and fees for other professional services and cost of insurance. General and administrative expense also includes depreciation of property and equipment and amortization of intangible assets.

~~Impairment loss on digital tokens~~

Impairment loss on digital tokens results from the daily assessment of the Props tokens’ quoted market prices, as reflected on CoinmarketCap, and adjusting the recorded carrying amount to the amount equal to the lowest quoted market price during the period in which the Props tokens are held. During the three and six months ended June 30, 2022 and June 30, 2021, we recorded a non-cash impairment charge in the amount of $7,262 and $184,737, respectively, which is reported in our accompanying condensed consolidated statements of operations, as a result of recent decline in the quoted market prices below the market price of their acquisition.

Key Metrics

Our management relies on certain non-GAAP and/or unaudited performance indicators to manage and evaluate our business. The key performance indicators set forth below help us evaluate growth trends, establish budgets, measure the effectiveness of our advertising and marketing efforts and assess operational efficiencies. We also discuss net cash (used in) provided by operating activities under the ‟Results of Operations” and “Liquidity and Capital Resources” sections below. ~~Subscription bookings and~~ Adjusted EBITDA ~~are~~is discussed below.

Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Subscription bookings $ 2,554,702 $ 3,109,478 $ 5,331,401 $ 6,213,916
Net cash (used in) provided by operating activities $ (410,980 ) $ 515,933 $ (1,643,934 ) $ 611,988
Net (loss) income $ (1,128,706 ) $ 821,684 $ (1,867,651 ) $ 1,738,413
Adjusted EBITDA $ (908,999 ) $ 668,649 $ (1,393,430 ) $ 1,203,825
Adjusted EBITDA as percentage of total revenues (34.4 )% 19.6 % (25.0 )% 17.7 %

~~Subscription Bookings~~
Subscription bookings is a financial measure representing the aggregate dollar value of subscription fees and virtual gifts purchases received during the period. We calculate subscription bookings as subscription revenue recognized during the period plus the change in deferred subscription revenue recognized during the period. We record subscription revenue from subscription fees as deferred subscription revenue and then recognize that revenue ratably over the length of the subscription term or ratably over usage for virtual gifts. Our management uses subscription bookings internally in analyzing our financial results to assess operational performance and to assess the effectiveness of, and plan future, user acquisition campaigns. We believe that this financial measure is useful in evaluating the performance of our consumer applications because we believe, as compared to subscription revenue, it is a better indicator of the subscription activity in a given period. We believe that both management and investors benefit from referring to subscription bookings in assessing our performance and when planning, forecasting and analyzing future periods.
While the factors that affect subscription bookings and subscription revenue are generally the same, certain factors may affect subscription bookings more or less than such factors affect subscription revenue in any period. While we believe that subscription bookings is useful in evaluating our business, it should be considered as supplemental in nature and it is not meant to be a substitute for subscription revenue recognized in accordance with generally accepted accounting principles in the United States (“GAAP”).
Three Months Ended Six Months Ended
June 30, June 30,
2023 2022 2023 2022
Net cash used in operating activities $ (193,787 ) $ (410,980 ) $ (996,778 ) $ (1,643,934 )
Net income (loss) $ 135,629 $ (1,128,706 ) $ (602,669 ) $ (1,867,651 )
Adjusted EBITDA $ (14,945 ) $ (908,999 ) $ (663,239 ) $ (1,393,430 )
Adjusted EBITDA as percentage of total revenues (0.5 )% (34.4 )% (12.0 )% (25.0 )%

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net income (loss) ~~income~~ adjusted to exclude interest (income) expense, ~~(income),~~ net, ~~provision for~~other (income) expense, income taxes ~~gain~~(benefit) expense, impairment loss on ~~extinguishment of term debt,~~digital tokens, depreciation and amortization expense, ~~other expense, net,~~and stock-based compensation ~~expense, realized gain from sale of digital tokens and impairment loss on digital tokens.~~expense.

We present Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to develop short- and long-term operational plans and to allocate resources to expand our business. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of the cash operating income generated by our business. We believe that Adjusted EBITDA is useful to investors and others to understand and evaluate our operating results, and it allows for a more meaningful comparison between our performance and that of competitors.

Limitations of Adjusted EBITDA

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA does not ~~reflect: cash capital expenditures for assets underlying~~reflect, among other things: interest (income) expense, net, income tax (benefit), depreciation and amortization expense, ~~that may need to be replaced or for new capital expenditures; interest income (expense), net;~~ other ~~income, net; the potentially dilutive impact of~~(income) expense, net, and stock-based ~~compensation; gain on the extinguishment of term debt; and the provision for income taxes.~~compensation. Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, ~~of cash flows,~~ net income (loss) ~~income~~ and our other GAAP results. The following table presents a reconciliation of net income (loss) ~~income,~~, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated:

Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Reconciliation of net (loss) income to Adjusted EBITDA:
Net (loss) income $ (1,128,706 ) $ 821,684 $ (1,867,651 ) $ 1,738,413
Interest expense (income), net 1,595 420 3,457 (2,047 )
Other expense, net 38,772 - 46,658 -
Gain on extinguishment of term debt - - - (506,500 )
Provision for income taxes 4,753 2,200 20,784 3,300
Realized gain from sale of digital tokens - (247,293 ) - (247,293 )
Impairment loss on digital tokens 7,262 184,737 7,262 184,737
Depreciation and amortization expense 108,176 99,243 184,440 194,189
Stock-based compensation expense 59,149 (192,342 ) 211,620 (160,974 )
Adjusted EBITDA $ (908,999 ) $ 668,649 $ (1,393,430 ) $ 1,203,825
Three Months Ended Six Months Ended
June 30, June 30,
2023 2022 2023 2022
Reconciliation of net income (loss) to Adjusted EBITDA:
Net income (loss) $ 135,629 $ (1,128,706 ) $ (602,669 ) $ (1,867,651 )
Interest (income) expense, net (171,341 ) 1,595 (292,508 ) 3,457
Other (income) expense (343,045 ) 38,772 (343,045 ) 46,658
Income tax expense 101,059 4,753 51,505 20,784
Impairment loss on digital tokens -- 7,262 7,262
Depreciation and amortization expense 205,583 108,176 411,167 184,440
Stock-based compensation expense 57,170 59,149 112,311 211,620
Adjusted EBITDA $ (14,945 ) $ (908,999 ) $ (663,239 ) $ (1,393,430 )

Results of Operations

The following table sets forth condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenues:

Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2022 2021 2022 2021 2023 2022 2023 2022
Total revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of revenue 25.0 % 18.5 % 23.6 % 18.8 % 26.2 % 25.0 % 28.6 % 23.6 %
Sales and marketing expense 18.3 % 7.5 % 16.1 % 7.6 % 7.5 % 18.3 % 8.6 % 16.1 %
Product development expense 57.5 % 38.0 % 54.8 % 38.2 % 39.4 % 57.5 % 43.7 % 54.8 %
General and administrative expense 39.8 % 13.7 % 37.7 % 18.1 % 36.4 % 39.8 % 40.6 % 37.7 %
Impairment loss on digital tokens 0.3 % 5.4 % 0.1 % 2.7 % 0.0 % 0.3 % 0.0 % 0.1 %
Total costs and expenses 140.9 % 83.1 % 132.3 % 85.4 % 109.4 % 140.9 % 121.5 % 132.3 %
(Loss) income from operations (40.9 )% 16.9 % (32.3 )% 14.6 %
Interest (expense) income, net (0.1 )% (0.0 )% (0.1 )% 0.0 %
Gain on extinguishment of term debt - % - % - % 7.5 %
Realized gain from sale of digital tokens - % 7.2 % - % 3.6 %
Other expense, net (1.5 )% - % (0.7 )% - %
(Loss) income from operations before provision for income taxes (42.5 )% 24.1 % (33.1 )% 25.7 %
Provision for income taxes (0.2 )% (0.1 )% (0.4 )% (0.0 )%
Net (loss) income (42.7 )% 24.0 % (33.5 )% 25.7 %
Loss from operations (9.4 )% (40.9 )% (21.5 )% (32.3 )%
Interest income (expense), net 5.8 % (0.1 )% 5.3 % (0.1 )%
Other income (expense), net 11.6 % (1.5 )% 6.2 % (0.7 )%
Income (loss) from operations before provision for income taxes 8.0 % (42.5 )% (10.0 )% (33.1 )%
Income tax expense (3.4 )% (0.2 )% (0.9 )% (0.4 )%
Net income (loss) 4.6 % (42.7 )% (10.9 )% (33.5 )%

Three Months Ended June 30, ~~2022~~2023 Compared to Three Months Ended June, ~~30, 2021~~2022

Revenue

Total revenue ~~decreased~~increased by ~~22.6%~~11.8% to $2,956,002 for the three months ended June 30, 2023 from $2,644,468 for the three months ended June 30, ~~2022 from $3,415,803 for the three months ended June 30, 2021.~~2022. This ~~decrease~~increase was primarily driven by ~~a decrease~~an increase in subscription revenue across Paltalk and Vumber as well as the incorporation of a ~~decrease~~full quarter of revenue from ManyCam as the acquisition was completed in ~~technology service revenue driven by the termination of the YouNow Agreement.~~June 2022.

The following table sets forth our subscription revenue, advertising revenue ~~technology service revenue~~ and total revenue for the three months ended June 30, ~~2022~~2023 and the three months ended June 30, ~~2021,~~2022, the increase or decrease between those periods, the percentage increase or decrease between those periods, and the percentage of total revenue that each represented for those periods:

% Revenue % Revenue
Three Months Ended $ % Three Months Ended Three Months Ended $ % Three Months Ended
June 30, Increase Increase June 30, June 30, Increase Increase June 30,
2022 2021 (Decrease) (Decrease) 2022 2021 2023 2022 (Decrease) (Decrease) 2023 2022
Subscription revenue $ 2,560,706 $ 3,121,909 $ (561,203 ) (18.0 )% 96.8 % 91.4 % $ 2,884,989 $ 2,560,706 $ 324,283 12.7 % 97.6 % 96.8 %
Advertising revenue 83,762 75,462 8,300 11.0 % 3.2 % 2.2 % 71,013 83,762 (12,749 ) (15.2 )% 2.4 % 3.2 %
Technology service revenue - 218,432 (218,432 ) (100.0 )% - % 6.4 %
Total revenues $ 2,644,468 $ 3,415,803 $ (771,335 ) (22.6 )% 100.0 % 100.0 % $ 2,956,002 $ 2,644,468 $ 311,534 11.8 % 100.0 % 100.0 %

Subscription Revenue

Our subscription revenue for the three months ended June 30, ~~2022 decreased~~2023 increased by ~~$561,203,~~$324,283, or ~~18.0%~~12.7%, as compared to the three months ended June 30, ~~2021.~~2022. The ~~decrease~~increase in subscription revenue was primarily driven by ~~a decrease~~an increase in new subscribers and virtual gift revenue in the Paltalk application, a price increase in Vumber, as well as the benefit of having a ~~decrease~~full quarter of ManyCam revenue as the acquisition was completed in virtual gift revenue across the Paltalk and Camfrog applications. We attribute this decrease to the overall macro-economic environment that may limit a customer’s access to discretionary spending, as well as, to a lesser degree, the lifting of various COVID-19 related restrictions in certain of our target markets that prohibited individuals from leaving their homes and ,as a result, customers are devoting less time to their social applications.June 2022.

Advertising Revenue

Our advertising revenue for the three months ended June 30, ~~2022 increased~~2023 decreased by ~~$8,300,~~$12,749, or ~~11.0%~~15.2%, as compared to the three months ended June 30, ~~2021.~~2022. The ~~increase~~decrease in advertising revenue was primarily due to ~~an increase~~a decrease in the volume of advertising impressions related to changes in ~~and~~ the optimization of third-party advertising partners.
~~Technology Service Revenue~~
Our technology service revenue for the three months ended June 30, 2022 decreased by $218,432, or 100.0%, as compared to the three months ended June 30, 2021. The decrease in technology service revenue was driven by the termination of the YouNow Agreement, effective November 23, 2021. We do not expect to generate a material amount of technology service revenue in future periods.


Costs and Expenses

Total costs and expenses for the three months ended June 30, ~~2022 increased~~2023 decreased by ~~$889,262,~~$494,354, or ~~31.3%~~13.3%, as compared to the three months ended June 30, ~~2021.~~2022. The following table presents our costs and expenses for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the increase or decrease between those periods and the percentage increase or decrease between those periods and the percentage of total revenue that each represented for those periods:

% Revenue % Revenue
Three Months Ended $ % Three Months Ended Three Months Ended $ % Three Months Ended
June 30, Increase Increase June 30, June 30, Increase Increase June 30,
2022 2021 (Decrease) (Decrease) 2022 2021 2023 2022
(Decrease)

(Decrease)
2023 2022
Cost of revenue $ 661,548 $ 630,582 $ 30,966 4.9 % 25.0 % 18.5 % $ 774,028 $ 661,548 $ 112,480 17.0 % 26.2 % 25.0 %
Sales and marketing expense 484,133 255,204 228,929 89.7 % 18.3 % 7.5 % 220,512 484,133 (263,621 ) (54.5 )% 7.5 % 18.3 %
Product development expense 1,521,764 1,298,767 222,997 17.2 % 57.5 % 38.0 % 1,163,640 1,521,764 (358,124 ) (23.5 )% 39.4 % 57.5 %
General and administrative expense 1,053,347 469,502 583,845 124.4 % 39.8 % 13.7 % 1,075,520 1,053,347 22,173 2.1 % 36.4 % 39.8 %
Impairment loss on digital tokens 7,262 184,737 (177,475 ) (96.1 )% 0.3 % 5.4 % - 7,262 (7,262 ) (100.0 )% 0.0 % 0.3 %
Total costs and expenses $ 3,728,054 $ 2,838,792 $ 889,262 31.3 % 140.9 % 83.1 % $ 3,233,700 $ 3,728,054 $ (494,354 ) (13.3 )% 109.4 % 140.9 %

Cost of revenue

Our cost of revenue for the three months ended June 30, ~~2022~~2023 increased by ~~$30,966,~~$112,480, or ~~4.9%~~17.0%, as compared to the three months ended June 30, ~~2021. The~~2022. This increase ~~in cost of revenue expenses was~~is primarily ~~attributed~~due to an increase in ~~approximately $15,000 of salary and salary-related expenses and an increase of approximately $25,400 of expenses~~hosting expense related to the addition of the ManyCam ~~sales~~product, which was purchased in late June 2022, as well as increased usage and ~~was partially offset by a decrease in~~per unit cost from web hosting ~~expenses of approximately $14,400.~~providers.

Sales and marketing expense

Our sales and marketing expense for the three months ended June 30, ~~2022 increased~~2023 decreased by ~~$228,929,~~$263,621, or ~~89.7%~~54.5%, as compared to the three months ended June 30, ~~2021.~~2022. The ~~increase~~decrease in sales and marketing expense for the three months ended June 30, ~~2022~~2023 was primarily due to ~~an increase of approximately $217,600~~a decrease in marketing user acquisition ~~expenses, including agent fees, as we began our focus on increasing user engagement spend through the efforts of our third-party marketing agencies.~~expenses.

Product development expense

Our product development expense for the three months ended June 30, ~~2022 increased~~2023 decreased by ~~$222,997,~~$358,124, or ~~17.2%~~23.5%, as compared to the three months ended June 30, ~~2021.~~2022. The ~~increase~~decrease was primarily due to ~~an increase~~a decrease of approximately ~~$155,200~~$248,989 in software expenses. We accomplished this reduction by streamlining our offshore development efforts and expect to realize further decreases in expense because of these actions. Additionally, during the three months ended June 30, 2023, we reduced our compensation related costs by $52,405 due to ~~software expenses~~headcount reductions, and ~~consulting services in support of~~we reduced our ~~processes to enhance user retention~~amortization expense by $21,638 and ~~improve monetization in the Paltalk application.~~dues and subscriptions expense by $25,159.

General and administrative expense

Our general and administrative expense for the three months ended June 30, ~~2022~~2023 increased by ~~$583,845,~~$22,173, or ~~124.4%~~2.1%, as compared to the three months ended June 30, ~~2021.~~2022. The increase in general and administrative expense for the three months ended June 30, ~~2022~~2023 was due to an increase ~~of approximately $244,200~~ in ~~non-cash stock compensation expense from the issuance of employee stock options, an increase in~~global professional ~~fees relating to corporate matters of approximately $105,300, an increase in insurance expense of approximately $123,600~~ and ~~increased amortization expense of approximately $40,200.~~tax fees.
~~Impairment loss on digital tokens~~
We recorded a non-cash impairment loss on digital tokens of $7,262 and $184,737 for the three months ended June 30, 2022 and June 30, 2021, respectively, as a result of recent declines in the quoted market prices of certain digital tokens below the market price of their acquisition.

Non-Operating Income (Loss) ~~Income~~

The following table presents the components of non-operating income (loss) for the three months ended June 30, 2023 and the three months ended June 30, 2022, the increase between those periods and the percentage increase between those periods and the percentage of total revenue that each represented for those periods:
% Revenue
Three Months Ended Three Months Ended
June 30, $ % June 30,
2023 2022 Increase Increase 2023 2022
Interest income (expense), net $ 171,341 $ (1,595 ) $ 172,936 10842.4 % 5.8 % (0.1 )%
Other income (expense), net $ 343,045 (38,772 ) 381,817 984.8 % 11.6 % (1.5 )%
Total non-operating income (loss) $ 514,386 $ (40,367 ) $ 554,753 1,374.3 % 17.4 % (1.6 )%
Non-operating income for the three months ended June 30, ~~2022 and~~2023 was $514,386, an increase of $554,753, or 1,374.3%, as compared to non-operating loss of $40,367 for the three months ended June 30, ~~2021,~~2022. The increase was primarily the result of recording the ERTC, as well as an increase resulting from the interest earned in a high yield bank account.

Income Taxes
Income tax expense consists of federal and state taxes, as applicable, in amounts necessary to align our year-to-date tax provision with the effective rate that we expect to achieve for the full year. For the three months ended June 30, 2023, and June 30, 2022, we recorded an income tax expense of $101,059 and $4,753, respectively, consisting primarily to a discrete item related to the filing of our Canadian tax return.
As of June 30, 2023, our conclusion regarding the realizability of our US deferred tax assets had not changed, and we have recorded a full valuation allowance against them.
Six Months Ended June 30, 2023 Compared to Six Months Ended June, 2022
Revenue
Total revenue decreased by less than 1% to $5,520,019 for the six months ended June 30, 2023 from $5,571,169 for the six months ended June 30, 2022. This decrease was primarily driven by a decrease in subscription revenue in the first quarter of the year.
The following table sets forth our subscription revenue, advertising revenue and total revenue for the six months ended June 30, 2023 and the six months ended June 30, 2022, the decrease between those periods, ~~and~~ the percentage decrease between those periods, and the percentage of total revenue that each represented for those periods:

% Revenue
Three Months Ended Three Months Ended
June 30, $ % June 30,
2022 2021 (Decrease) (Decrease) 2022 2021
Interest expense, net $ (1,595 ) $ (420 ) $ (1,175 ) (279.8 )% (0.1 )% (0.0 )%
Realized gain from sale of digital tokens - 247,293 (247,293 ) (100.0 )% - % 7.2 %
Other expense, net (38,772 ) - (38,772 ) (100.0 )% (1.5 )% - %
Total non-operating (loss) income $ (40,367 ) $ 246,873 $ (287,240 ) (116.4 )% (1.6 )% 7.2 %
Non-operating loss for the three months ended June 30, 2022 was $40,367, an increase of $287,240, or 116.4%, as compared to non-operating income of $246,873 for the three months ended June 30, 2021. The increase in non-operating loss primarily resulted from the gain from sale of digital tokens during the three months ended June 30, 2021 that was not similarly recognized during the three months ended June 30, 2022.
~~Income Taxes~~
Our 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. For the three months ended June 30, 2022 and June 30, 2021, we recorded an income tax provision of $4,753 and $2,200, respectively, consisting primarily of state and local taxes.
~~As of June 30, 2022, our conclusion regarding the realizability of our US deferred tax assets did not change and we have recorded a full valuation allowance against them.~~
~~Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021~~
~~Revenue~~
Revenue decreased to $5,571,169 for the six months ended June 30, 2022, from $6,787,805 for the six months ended June 30, 2021. The decrease was primarily driven by a decrease in subscription revenue of $854,229 along with a decrease of $374,248 in technology service revenue driven by the termination of the YouNow Agreement.
The following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenues for the six months ended June 30, 2022 and the six months ended June 30, 2021, the increase or decrease between those periods, the percentage increase or decrease between those periods and the percentage of total revenues that each represented for those periods:
% Revenue
Six Months Ended $ % Six Months Ended
June 30, Increase Increase June 30,
2022 2021 (Decrease) (Decrease) 2022 2021
Subscription revenue $ 5,407,045 $ 6,261,274 $ (854,229 ) (13.6 )% 97.1 % 92.2 %
Advertising revenue 164,124 152,283 11,841 7.8 % 2.9 % 2.2 %
Technology service revenue - 374,248 (374,248 ) (100.0 )% - % 5.6 %
Total revenues $ 5,571,169 $ 6,787,805 $ (1,216,636 ) (17.9 )% 100.0 % 100.0 %

% Revenue
Six Months Ended Six Months Ended
June 30, $ % June 30,
2023 2022 Decrease Decrease 2023 2022
Subscription revenue $ 5,390,659 $ 5,407,045 $ (16,386 ) (0.3 )% 97.7 % 97.1 %
Advertising revenue 129,360 164,124 (34,764 ) (21.2 )% 2.3 % 2.9 %
Total revenues $ 5,520,019 $ 5,571,169 $ (51,150 ) (0.9 )% 100.0 % 100.0 %

Subscription Revenue

Our subscription revenue for the six months ended June 30, ~~2022~~2023 decreased by ~~$854,229,~~$16,386, or ~~13.6%~~0.3%, as compared to the six months ended June 30, ~~2021.~~2022. The decrease in subscription revenue was primarily driven by a decrease in new subscribers as well as a decrease in virtual gifts across the Paltalk and Camfrog ~~applications. We attribute this decrease primarily to~~applications during the ~~overall macro-economic environment that may limit a customer’s access to discretionary spending, as well as, to a lesser degree, the lifting~~first quarter of various COVID-19 related restrictions in certain of our target markets that prohibited individuals from leaving their homes and, as a result, customers are devoting less time to their social applications.2023.

Advertising Revenue

Our advertising revenue for the six months ended June 30, ~~2022 increased~~2023 decreased by ~~$11,841,~~$34,764, or ~~7.8%~~21.2%, as compared to the six months ended June 30, ~~2021.~~2022. The ~~increase~~decrease in advertising revenue was primarily due to ~~an increase~~a decrease in the volume of advertising impressions related to changes in ~~and~~ the optimization of third-party advertising partners.

~~Technology Service Revenue~~

Our technology service revenue for the six months ended June 30, 2022 decreased by $374,248, or 100.0%, as compared to the six months ended June 30, 2021. The decrease in technology service revenue was driven by the termination of the YouNow Agreement, effective November 23, 2021. We do not expect to generate a material amount of technology service revenue in future periods.

Costs and Expenses
Total costs and expenses for the six months ended June 30, ~~2022 reflect an increase in costs and expenses of $1,565,989,~~2023 decreased by $661,185, or ~~27.0%~~9.0%, as compared to the six months ended June 30, ~~2021.~~2022. The following table presents our costs and expenses for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the increase or decrease between those periods and the percentage increase or decrease between those periods and the percentage of total ~~revenues~~revenue that each represented for those periods:

% Revenue % Revenue
Six Months Ended $ % Six Months Ended Six Months Ended $ % Six Months Ended
June 30, Increase Increase June 30, June 30, Increase Increase June 30,
2022 2021 (Decrease) (Decrease) 2022 2021 2023 2022 (Decrease) (Decrease) 2023 2022
Cost of revenue $ 1,313,644 $ 1,277,297 $ 36,347 2.8 % 23.6 % 18.8 % $ 1,576,503 $ 1,313,644 $ 262,859 20.0 % 28.6 % 23.6 %
Sales and marketing expense 895,615 512,655 382,960 74.7 % 16.1 % 7.6 % 475,380 895,615 (420,235 ) (46.9 )% 8.6 % 16.1 %
Product development expense 3,051,905 2,596,031 455,874 17.6 % 54.8 % 38.2 % 2,412,222 3,051,905 (639,683 ) (21.0 )% 43.7 % 54.8 %
General and administrative expense 2,099,495 1,231,212 868,283 70.5 % 37.7 % 18.1 % 2,242,631 2,099,495 143,136 6.8 % 40.6 % 37.7 %
Impairment loss on digital tokens 7,262 184,737 (177,475 ) (96.1 )% 0.1 % 2.7 % - 7,262 (7,262 ) (100.0 )% 0.0 % 0.1 %
Total costs and expenses $ 7,367,921 $ 5,801,932 $ 1,565,989 27.0 % 132.3 % 85.4 % $ 6,706,736 $ 7,367,921 $ (661,185 ) (9.0 )% 121.5 % 132.3 %

Cost of revenue

Our cost of revenue for the six months ended June 30, ~~2022~~2023 increased by ~~$36,347,~~$262,859, or ~~2.8%~~20.0%, as compared to the six months ended June 30, ~~2021. The~~2022. This increase ~~for the six months ended June 30, 2022~~ was primarily ~~driven by~~due to an increase in ~~approximately $42,800~~hosting expenses related to the addition of the ManyCam product, which was purchased in ~~salary~~late June 2022, as well as increased usage and ~~salary-related expenses and an increase in approximately $25,400 of ManyCam expenses and was offset by a decrease in~~per unit cost from web hosting ~~expenses of approximately $44,400.~~providers.

Sales and marketing expense
Our sales and marketing expense for the six months ended June 30, ~~2022 increased~~2023 decreased by ~~$382,960,~~$420,235, or ~~74.7%~~46.9%, as compared to the six months ended June 30, ~~2021.~~2022. The ~~increase~~decrease in sales and marketing expense for the six months ended June 30, ~~2022~~2023 was primarily due to ~~an increase of approximately $362,900~~a decrease in marketing user acquisition expenses, including agent fees, as ~~we begin our focus on increasing user engagement spend through the efforts of our third-party~~well as a decrease in marketing ~~agencies.~~and branding expense.

Product development expense

Our product development expense for the six months ended June 30, ~~2022 increased~~2023 decreased by ~~$455,874,~~$639,683 or ~~17.6%~~21%, as compared to the six months ended June 30, ~~2021.~~2022. The ~~increase~~decrease was primarily due to ~~an increase~~a decrease of approximately ~~$316,500~~$354,189 in software expenses. We accomplished this reduction by streamlining our offshore development efforts and expect to realize further decreases in expense as a result of these actions. Additionally, during the six months ended June 30, 2023, we reduced our compensation related costs by $109,383 due to ~~software expenses~~headcount reductions, and ~~consulting services in support of~~we reduced our ~~processes to enhance user retention~~amortization expense by $51,475 and ~~improve monetization in the Paltalk application. In addition, there is an increase in subscription costs of approximately $100,400 related to user engagement monitoring.~~dues and subscriptions expense by $71,704.

General and administrative expense

Our general and administrative ~~expenses~~expense for the six months ended June 30, ~~2022~~2023 increased by ~~$868,283,~~$143,136, or ~~70.5%~~6.8%, as compared to the six months ended June 30, ~~2021.~~2022. The increase in general and administrative expense for the six months ended June 30, ~~2022~~2023 was due to an increase ~~of approximately $352,100~~ in ~~non-cash stock compensation expense from the issuance of employee stock options, an increase in~~global professional and tax fees ~~relating to corporate matters~~during such ~~as executive agreements of approximately $247,700, an increase in insurance expense of approximately $107,600 and increased amortization expense of approximately $40,200.~~
~~Impairment loss on digital tokens~~
We recorded a non-cash impairment loss on digital tokens of $7,262 and $184,737 for the six months ended June 30, 2022 and June 30, 2021, respectively, as a result of recent declines in the quoted market prices of certain digital tokens below the market price of their acquisition.period.

Non-Operating Income (Loss) ~~Income~~
The following table presents the components of non-operating income (loss) for the six months ended June 30, 2023 and the six months ended June 30, 2022, the increase between those periods and the percentage increase between those periods and the percentage of total revenue that each represented for those periods:
% Revenue

Six Months Ended
Six Months Ended
June 30, $ % June 30,
2023 2022 Increase Increase 2023 2022
Interest income (expense), net $ 292,508 $ (3,457 ) $ 295,965 8,561.3 % 5.3 % (0.1 )%
Other income (expense), net
$ 343,045 (46,658 ) 389,703 835.2 % 6.2 % (0.7 )%
Total non-operating income (loss) $ 635,553 $ (50,115 ) $ 685,668 1,368.2 % 11.5 % (0.8 )%
Non-operating income for the six months ended June 30, ~~2022 and the six months ended June 30, 2021, the decrease between those periods, the percentage decrease between those periods and the percentage~~2023 was $635,553, an increase of ~~total revenues that each represented for those periods:~~
% Revenue
Six Months Ended Six Months Ended
June 30, $ % June 30,
2022 2021 (Decrease) (Decrease) 2022 2021
Interest (expense) income $ (3,457 ) $ 2,047 $ (5,504 ) (268.9 )% (0.1 )% 0.0 %
Other expense, net (46,658 ) - (46,658 ) (100.0 )% (0.7 )% - %
Realized gain from sale of digital tokens - 247,293 (247,293 ) (100.0 )% - % 3.6 %
Gain on extinguishment of term debt - 506,500 (506,500 ) (100.0 )% - % 7.5 %
Total non-operating (loss) income $ (50,115 ) $ 755,840 $ (805,955 ) (106.6 )% (0.8 )% 11.1 %
~~Non-operating loss for the six months ended June 30, 2022 increased by $805,955,~~$685,668 or ~~106.6%~~1,368.2%, as compared to non-operating ~~income~~loss of ~~$755,840~~$50,115 for the six months ended June 30, 2021. The increase in non-operating loss was primarily attributed to the gain on extinguishment of term debt of the $506,500 of proceeds from the Note and the gain from sale of digital tokens of $247,293 during the six months ended June 30, 2021 that were not similarly recognized during the six months ended June 30, 2022. The ~~Note~~increase was ~~entered into to help ensure adequate liquidity~~primarily the result of recording the ERTC, as well as an increase resulting from the interest earned in ~~light of the uncertainties posed by the COVID-19 pandemic.~~a high yield bank account.

Income Taxes

~~Our provision for income~~Income taxes consists of federal and state taxes, as applicable, in amounts necessary to align ~~the Company’s~~our year-to-date tax provision with the effective rate that ~~it expects~~we expect to achieve for the full year. For the six months ended June 30, 2023 and 2022, ~~and 2021, the Company~~we recorded an income tax ~~provision~~expense of ~~$20,784~~$51,505 and ~~$3,300,~~$20,784, respectively, consisting primarily to a discrete item related to the filing of ~~state and local taxes.~~our Canadian tax return.

As of June 30, ~~2022,~~2023, our conclusion regarding the realizability of our US deferred tax assets ~~did~~had not ~~change~~changed and we have recorded a full valuation allowance against them.

Liquidity and Capital Resources

Six Months Ended
June 30,
2022 2021
Condensed Consolidated Statements of Cash Flows Data:
Net cash (used in) provided by operating activities $ (1,643,934 ) $ 611,988
Net cash (used in) by investing activities (2,928,928 ) 304,304
Net cash used in financing activities (213,180 ) -
Net (decrease) increase in cash and cash equivalents $ (4,786,042 ) $ 916,292

Six Months Ended
June 30,
2023 2022
Condensed Consolidated Statements of Cash Flows Data:
Net cash used in operating activities $ (996,778 ) $ (1,643,934 )
Net cash used in investing activities (85,000 ) (2,928,928 )
Net cash used in financing activities (7,213 ) (213,180 )
Net decrease in cash and cash equivalents $ (1,088,991 ) $ (4,786,042 )

Currently, our primary source of liquidity is cash on hand, and ~~based on our plans,~~ we believe ~~the Company has adequate~~that our cash ~~on hand as~~and cash equivalents balance and our expected cash flows from operations will be sufficient to meet all of ~~June 30, 2022 to fund its~~our financial obligations for ~~at least~~ one year from the date ~~of issuance of~~ these financial ~~statements.~~statements are issued. As of June 30, ~~2022,~~2023, we had ~~$16,850,818~~$13,650,942 of cash and cash equivalents.

Our primary use of working capital is related to product development resources and an investment in marketing activities in order to maintain and create new services and features in applications for our clients and users. In particular, a significant portion of our working capital has been allocated to the improvement of our products. In the future, we may ~~continue to~~ seek to grow our business by expending our capital resources to fund strategic acquisitions, investments and partnership opportunities.

Operating Activities

Net cash used in operating activities was $996,778 for the six months ended June 30, 2023, as compared to net cash used in operating activities of $1,643,934 for the six months ended June 30, ~~2022, as compared~~2022. Changes in accounts payable and accrued expenses and other current liabilities contributed to ~~net~~the use of cash ~~provided by operating activities of $611,988~~flows from operations for the six months ended June 30, ~~2021.~~2023 of $381,523, compared to $29,932 for the six months ended June 30, 2022. The ~~decrease in~~reduction of cash flows ~~from~~used in operations resulted mainly from an increase in total revenue and a decrease in ~~subscription revenue and an increase in~~ overall operating ~~expenses as we focused on and invested in user retention and engagement.~~expenses.

Investing Activities

Net cash used in investing activities was $85,000 for the six months ended June 30, 2023 compared to $2,928,928 for the six months ended June 30, ~~2022, as compared~~2022. This decrease in cash used in investing activities was primarily due to ~~net cash provided by operating activities~~the payment of ~~$304,304 for~~the Adjusted Earn-Out Payment during the six months ended June 30, ~~2021. The decrease~~2023 in ~~cash flows from investing activities resulted mainly from~~connection with the ManyCam ~~Acquisition.~~
asset acquisition, compared to $2,928,928 spent during the six months ended June 30, 2022 in connection with the acquisition of the ManyCam assets.

Financing Activities

Net cash used in financing activities was ~~$213,180~~$7,213 for the six months ended June 30, ~~2022, as compared~~2023. This increase in cash used in financing activities was primarily due to ~~no net cash provided by operating activities for~~purchases made under the Stock Repurchase Plan, which terminated on March 29, 2023, in accordance with its terms. During the six months ended June 30, ~~2021. This increase is attributed to the 110,000~~2023, we repurchased 5,192 shares of common stock ~~that were repurchased by the Company pursuant to the Company’s stock repurchase plan.~~for an aggregate purchase price of $7,213.

Contractual Obligations and Commitments
On March 23, 2022, we entered into Amended and Restated Employment Agreements with our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which amends and restates their existing employment agreements with the Company dated October 7, 2016 and December 9, 2019, respectively. The agreements are each for terms 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 will remain 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.

There have been no other material changes to our contractual obligations and commitments disclosed in the contractual obligations and commitments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.

Off-Balance Sheet Arrangements

As of June 30, ~~2022,~~2023, we did not have any off-balance sheet arrangements.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimate inherent in the preparation of our financial statements include the discount rates and weighted average costs of capital used in the fair value of the ManyCam Intangible Assets and in assigning their respective useful lives. These fair values and estimates were based on a number of factors, including a valuation from an independent third party.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, our chief executive officer recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Based on the evaluation as of June 30, ~~2022,~~2023, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
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.~~Texas (the “Court”). The Company alleges that certain 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. On September 7, 2022, the United States Patent Office issued a reexamination of U.S. Patent No. 6,683,858, and on January 19, 2023, the Examiner issued an Ex Parte Reexamination Certificate, ending the reexamination and confirming the patentability of claims 1-10 of U.S. Patent No. 6,683,858. On June 29, 2023, the Court held a pretrial conference with the parties and denied Cisco’s motion for summary judgment. The trial is expected to be scheduled for ~~February~~late in the fourth quarter of 2023.
~~To our knowledge, other than as described above, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.~~

ITEM 1A. RISK FACTORS

There were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in the Form ~~10-K.~~10-K during the six months ended June 30, 2023. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in the Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sale of Equity Securities

There were no sales of unregistered securities during the quarter ended June 30, ~~2022~~2023 that were not previously reported on a Current Report on Form 8-K.

Issuer ~~Repurchases~~Purchases of Common Stock

~~The following table details our repurchases of common stock during~~During the three months ended June 30, ~~2022:~~2023, the Company did not repurchase any shares of common stock.
Period Total
Number of
Shares
Purchased (1) Average
Price Paid
Per Share Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs Maximum
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
(in millions)
April 1, 2022 – April 30, 2022 — $ — — $ —
May 1, 2022 – May 31, 2022 110,000 $ 1.94 110,000 $ 1.53
June 1, 2022 – June 30, 2022 — $ — — $ —
Total 110,000 $ 1.94 110,000 $ 1.53
~~(1)~~ On March 23, 2022, we announced that our Board of Directors approved a stock repurchase plan, effective March 29, 2022, to repurchase up to $1,750,000 of our outstanding common stock for cash. The stock repurchase plan expires on March 29, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits required to be filed by Item 601 of Regulation S-K.

The following exhibits are included herein or incorporated herein by reference:

Exhibit
Number Description
2.1# Asset Purchase Agreement, by and between Paltalk, Inc. and The Dating Company, LLC, dated as of January 31, 2019 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of the Company filed on February 4, 2019 by the Company with the SEC).
~~2.2#~~ Amended and Restated Asset Purchase Agreement, dated as of May 29, 2020, by and between Paltalk, Inc. and SecureCo, LLC (incorporated by reference to Exhibit 2.2 to the Quarterly Report on Form 10-Q of the Company filed on August 6, 2020 by the Company with the SEC).
~~2.3#~~ Securities Purchase Agreement, dated June 9, 2022, by and among ManyCam ULC, Visicom Media Inc., 2434936 Alberta ULC and Paltalk, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of the Company filed June 10, 2022 by the Company with the SEC).
~~3.1~~3.1* Certificate of Incorporation of Paltalk, Inc. (as amended through May ~~15, 2020)~~11, 2023).
3.2 Amended and Restated Bylaws of Paltalk, Inc. (incorporated by reference to Exhibit 3.1 to the ~~Quarterly~~Current Report on Form ~~10-Q~~8-K of the Company filed ~~November 9, 2021~~on March 17, 2023 by the Company with the SEC).
~~3.2~~ Amended and Restated By-Laws of Paltalk, Inc. (as amended through May 15, 2020) (as amended through May 15, 2020) (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of the Company filed November 9, 2021 by the Company with the SEC).
4.1 Specimen Stock Certificate of Paltalk, Inc. (incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K of the Company filed on March 23, ~~2022~~2023 by the Company with the SEC).
31.1* Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Schema Document.
101.CAL Inline XBRL Calculation Linkbase Document.
101.DEF Inline XBRL Definition Linkbase Document.
101.LAB Inline XBRL Label Linkbase Document.
101.PRE Inline XBRL Presentation Linkbase Document.
104 Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101).

# Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Paltalk, Inc. hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.

* Filed herewith.

** The certification attached as Exhibit 32.1 is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Paltalk, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of the Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Paltalk, Inc.

Date: August 8, ~~2022~~2023 By: /s/ Jason Katz
Jason Katz
Chief Executive Officer
(Principal Executive ~~Officer)~~Officer and duly authorized officer)

Paltalk, Inc.

Date: August 8, ~~2022~~2023 By: /s/ Kara Jenny
Kara Jenny
Chief Financial Officer
(Principal Financial and Accounting ~~Officer)~~Officer and duly authorized officer)

31
26

0001355839 us-gaap:CommonStockMember 2022-01-01 2022-03-31 iso4217:USD xbrli:shares

	Estimated Fair Value		Estimated Useful Life in Years
Internally developed software	$	1,504,000	7
Intellectual property (trade names, trademarks, URLs)	$	321,000	3
Subscriber Relationships/Customer List	$	875,000	7
Total acquired assets	$	2,700,000

	June 30, 2022							December 31, 2021
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Patents	$	50,000	$	(32,500	)	$	17,500	$	50,000	$	(31,251	)	$	18,749
Trade names, trademarks product names, URLs		999,100		(526,571	)		472,529		555,000		(509,148	)		45,852
Internally developed software		4,070,768		(2,009,216	)		2,061,552		1,990,000		(1,990,000	)		-
Subscriber/customer relationships		3,489,553		(2,241,692	)		1,247,861		2,279,000		(2,147,058	)		131,942
Total intangible assets	$	8,609,421	$	(4,809,979	)	$	3,799,442	$	4,874,000	$	(4,677,457	)	$	196,543

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2022		2021			2022		2021
Cost of revenue	$	2,192	$	-		$	15,056	$	182
Sales and marketing expense		637		96			756		103
Product development expense		7,270		2,740			10,739		5,784
General and administrative expense		49,050		(195,178	)		185,069		(167,043	)
Total stock compensation expense	$	59,149	$	(192,342	)	$	211,620	$	(160,974	)

											% Revenue																% Revenue
	Three Months Ended				$			%			Three Months Ended						Three Months Ended				$			%			Three Months Ended
	June 30,				Increase			Increase			June 30,						June 30,				Increase			Increase			June 30,
	2022		2021		(Decrease)			(Decrease)			2022			2021			2023		2022		(Decrease)			(Decrease)			2023			2022
Subscription revenue	$	2,560,706	$	3,121,909	$	(561,203	)		(18.0	)%		96.8	%		91.4	%	$	2,884,989	$	2,560,706	$	324,283			12.7	%		97.6	%		96.8	%
Advertising revenue		83,762		75,462		8,300			11.0	%		3.2	%		2.2	%		71,013		83,762		(12,749	)		(15.2	)%		2.4	%		3.2	%
Technology service revenue		-		218,432		(218,432	)		(100.0	)%		-	%		6.4	%
Total revenues	$	2,644,468	$	3,415,803	$	(771,335	)		(22.6	)%		100.0	%		100.0	%	$	2,956,002	$	2,644,468	$	311,534			11.8	%		100.0	%		100.0	%

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
April 1, 2022 – April 30, 2022		—	$	—		—	$	—
May 1, 2022 – May 31, 2022		110,000	$	1.94		110,000	$	1.53
June 1, 2022 – June 30, 2022		—	$	—		—	$	—
Total		110,000	$	1.94		110,000	$	1.53

Exhibit
Number		Description

2.1#		Asset Purchase Agreement, by and between Paltalk, Inc. and The Dating Company, LLC, dated as of January 31, 2019 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of the Company filed on February 4, 2019 by the Company with the SEC).
~~2.2#~~		Amended and Restated Asset Purchase Agreement, dated as of May 29, 2020, by and between Paltalk, Inc. and SecureCo, LLC (incorporated by reference to Exhibit 2.2 to the Quarterly Report on Form 10-Q of the Company filed on August 6, 2020 by the Company with the SEC).
~~2.3#~~		Securities Purchase Agreement, dated June 9, 2022, by and among ManyCam ULC, Visicom Media Inc., 2434936 Alberta ULC and Paltalk, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of the Company filed June 10, 2022 by the Company with the SEC).
~~3.1~~3.1*		Certificate of Incorporation of Paltalk, Inc. (as amended through May ~~15, 2020)~~11, 2023).
3.2		Amended and Restated Bylaws of Paltalk, Inc. (incorporated by reference to Exhibit 3.1 to the ~~Quarterly~~Current Report on Form ~~10-Q~~8-K of the Company filed ~~November 9, 2021~~on March 17, 2023 by the Company with the SEC).
~~3.2~~		Amended and Restated By-Laws of Paltalk, Inc. (as amended through May 15, 2020) (as amended through May 15, 2020) (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of the Company filed November 9, 2021 by the Company with the SEC).
4.1		Specimen Stock Certificate of Paltalk, Inc. (incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K of the Company filed on March 23, ~~2022~~2023 by the Company with the SEC).
31.1*		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Schema Document.
101.CAL		Inline XBRL Calculation Linkbase Document.
101.DEF		Inline XBRL Definition Linkbase Document.
101.LAB		Inline XBRL Label Linkbase Document.
101.PRE		Inline XBRL Presentation Linkbase Document.
104		Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101).

	Paltalk, Inc.

Date: August 8, ~~2022~~2023	By:	/s/ Jason Katz
		Jason Katz
		Chief Executive Officer
		(Principal Executive ~~Officer)~~Officer and duly authorized officer)

	Paltalk, Inc.

Date: August 8, ~~2022~~2023	By:	/s/ Kara Jenny
		Kara Jenny
		Chief Financial Officer
		(Principal Financial and Accounting ~~Officer)~~Officer and duly authorized officer)