UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 20222023

OR

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

For the transition period from ________ to ________

Commission File Number 001-38717

PALTALK, INC.

(Exact name of registrant as specified in its charter)

(212) 967-5120

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically 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.

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.

PALTALK, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 20222023

Table of Contents

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

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

For a more detailed discussion of these and other factors that may affect our business, see the discussion in “Item 1A. Risk Factors” in Part II of this report, and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I of this report and the risk factors set forth in 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.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PALTALK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

PALTALK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

PALTALK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20222023 AND 20212022

(Unaudited)

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

PALTALK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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 Conveyed Assets were not considered a business for purposes of Regulation S-X and Accounting Standards Codification (“ASC”) 805, Business 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 purchase price forfair value of identifiable intangible assets was determined primarily using the Conveyed Assets was $2.7 million in cash consideration, plus“income approach,” which requires a potential earn-out paymentforecast of up to $600,000 upon the achievement of certain performance thresholds over the six-month period following the closingall of the ManyCam Acquisition. For more information regardingexpected 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:

The Company incurred approximately $242,000 of expenses in connection with the ManyCam Acquisition see Note 3.and capitalized them accordingly.

PALTALK, INC.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 was 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 nine-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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 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.

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 closures of certain banks in the first and second quarters of 2023 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 Accounting Standard 20, Accounting for 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 nine months ended September 30, 2023, the Company applied for the ERTC and recorded a receivable in the amount of $343,045, net of related costs, which is recognized in the Company’s condensed consolidated statement of operation as other income. As of September 30, 2023, the Company had received an aggregate of $294,833, which was accounted for as a reduction of the receivable on the Company’s condensed consolidated balance sheet at September 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, 20222023 (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 nine months ended September 30, 20222023 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 been and may continue to be negatively impacted by the uncertainty regarding COVID-19 and macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary environment. Prolonged periods of inflation may 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. Furthermore, the recent strength of the US dollar compared to foreign currencies could have a negative effect on the Company’s non-US customer base, as the Company’s subscription prices are based in US dollars.

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

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

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Summary of Significant Accounting Policies

During the nine months ended September 30, 2022,2023, there were no significant changes made to the Company’s significant accounting policies, except for the acquisition of the Conveyed 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 Financial Accounting Standards Board issued Accounting Standards Update (“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.

SignificantUse of Estimates and Assumptions

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 atin 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 amountsdetermination of revenueestimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and expenses duringsuch differences may be material to the reporting period.

Significantfinancial statements. The most significant accounting estimates relied uponinherent in preparing thesethe preparation of our financial statements include the valuation inputsdiscount rates and weighted average costs of capital used in determining the fair value of the ManyCam assets described more fully below. Management evaluates theseand 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:

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 nine months ended September 30, 20222023 and 2021,2022, subscriptions were offered in durations of one-, three-, six-, twelve-twelve-month and twenty-four-monthtwenty 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 subscription revenue in the accompanying condensed consolidated balance sheets. Deferred subscription revenue at December 31, 20212022 was $1,915,493, $1,529,597$2,257,452, of which $1,651,636 was subsequently recognized as subscription revenue during the nine months ended September 30, 2022.2023. The ending balance of deferred subscription revenue at September 30, 2023 and 2022 was $2,200,517 and 2021 was $2,060,867, and $1,858,955, respectively.

In addition, the Company offers virtual gifts to its users. Users may purchase credits in $5, $10 or $20 increments that can be redeemed for a host of 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 $1,110,396 and $966,757 for the three months ended September 30, 2023 and 2022, respectively, and virtual gift revenue was $3,432,709 and $3,327,781 for the three and nine months ended September 30, 2022, respectively. Virtual gift revenue was $1,450,7572023, and $4,259,933 for the three and nine months ended September 30, 2021,2022, respectively. The ending balance of deferred revenue from virtual gifts, which is included in deferred subscription revenue at September 30, 2023 and 2022 was $515,532 and 2021 was $372,559, and $305,767, respectively.

Advertising Revenue

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

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Technology Service Revenue

Technology service revenue was historically generated under service and partnership agreements that the Company 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 $77,507 and $451,755 for the three and nine months ended September 30, 2021, respectively. As of September 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 nine months ended September 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 Conveyed Assets were not considered a business for purposes of Regulation S-X and ASC 805, Business Combinations. Based on performance as of September 30, 2022, the Company determined that it was likely that Gross Sales during the Earn Out Period would exceed $600,000 but be less than $700,000, and as a result, the Company recorded a liability in the amount of $150,000 for payment to the Seller, with a corresponding adjustment to the cost basis of the Conveyed Assets, as it is likely that the contingency will be resolved.

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The estimated aggregate amortization expense for each of the next five years and thereafter will approximate $161,315 for the remainder of 2022, $645,260 in 2023, $645,260 in 2024, $558,562 in 2025, $490,748 in 2026 and $1,196,880 thereafter.

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

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

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

4. Property and Equipment, Net

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

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

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Intangible Assets, Net

Intangible assets, net consisted of the following at September 30, 20222023 and December 31, 2021:2022:

Amortization expense for the three and nine months ended September 30, 20222023 was $206,725$205,583 and $339,247,$616,750 respectively, as compared to $46,167$206,725 and $138,500$339,247 for the three and nine months ended September 30, 2021,2022, respectively. The aggregate amortization expense for each of the next five years and thereafter is estimated to be $217,558$205,584 for the remainder of 2022, $663,260 in 2023, $662,615$821,687 in 2024, $561,062$568,529 in 2025, $493,248$382,133 in 2026, $382,133 in 2027 and $1,203,130$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:

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 September 30, 2022, our2023, the Company’s conclusion regarding the realizability of ourits US deferred tax assets didhad not changechanged, and we have recordedthe Company has continued to maintain a full valuation allowance against them.

On March 11, 2021,For the American Rescue Plan Actthree and nine months ended September 30, 2023, the Company recorded an income tax (benefit) expense of 2021 (“American Rescue Plan”)$(37,915) and $13,590, respectively, primarily related to foreign, state and local taxes. The effective tax rate for the three and nine months ended September 30, 2023 was signed into law to provide additional relief in connection with17.27% and (1.76)%, respectively. The effective tax rate differed from 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, andstatutory rate of 21% as the repeal of the election to allocate interest expenseCompany has concluded that its deferred tax assets are not realizable on a worldwidemore-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 nine months ended September 30, 2022, the Company recorded an income tax provision of $9,712 and $30,496, respectively, primarily related to foreign, state and local taxes. The effective tax rate for the three and nine months ended September 30, 2022 was (0.95)% and (1.06)%, respectively. The effective tax rate differsdiffered from the statutory rate of 21% as the Company has concluded that its deferred tax assets are not realizable on a more-likely-than-not basis.

For the three and nine months ended September 30, 2021, the Company recorded an income tax provision of $6,166 and $9,466, respectively, primarily related to state and local taxes. The effective tax rate for the three and nine months ended September 30, 2021 was (1.51)% and 0.70%, respectively. The effective tax rate differs from the statutory rate of 21% as the Company has concluded that itsUS 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 36,40228,964 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 September 30, 2022,2023, there were 773,921766,020 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 September 30, 2022, 317,089 shares of common stock had been repurchased by the Company pursuant to the Stock Repurchase Plan.

Stock Options

The following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted during the nine months ended September 30, 2022:2023:

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

The following table summarizes stock option activity during the nine months ended September 30, 2022:2023:

At September 30, 2022,2023, there was $403,847$231,362 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 3.282.01 years.

On September 30, 2023, the aggregate intrinsic value of stock options that were outstanding and exercisable was $20,430 and $19,867, respectively. On September 30, 2022, the aggregate intrinsic value of stock options that were outstanding and exercisable was $12,980 and $12,980, respectively. On September 30, 2021, the aggregateThe intrinsic value of stock options that were outstanding and exercisable was $3,186,961 and $2,578,975, respectively. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the fair value of such awards as of the period-end date.

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the nine months ended September 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 20222023 and have a term of ten years. During the nine months ended September 30, 2022,2023, the Company also granted options to employees to purchase an aggregate of 224,50025,000 shares of common stock. These options have varying vesting dates ranging between the grant date and up to four years, from the grant date, 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 nine months ended September 30, 2023 and 2022 was $90,380 and 2021 was $636,957, and $145,522, respectively.

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

Treasury Shares

On April 29, 2019,The Board of Directors of the Company implementedapproved a stock repurchase plan to repurchasefor up to $500,000$1,750,000 of itsthe Company’s outstanding common stock for cash. The repurchase plan(the “Stock Repurchase Plan”), effective as of March 29, 2022, which expired on AprilMarch 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 September 30, 2023 and December 31, 2022, the Company had purchased 9,950641,963, and 636,771, shares of its common stock, under the repurchase plan as of April 29, 2020 and hasrespectively, classified them as treasury shares on the Company’s condensed consolidated balance sheets. In addition, duringDuring the yearnine 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 September 30, 2022, 317,0892023, 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.

Asat an average purchase price of September 30, 2022 and December 31, 2021, the Company had 349,052 and 31,963 shares, respectively, of its common stock classified as treasury shares.$1.39.

9.

7. Net (Loss) IncomeLoss Per Share

Basic earnings and net (loss) incomeloss per share areis computed by dividing the net (loss) incomeloss 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 earningsnet loss 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 nine months ended September 30, 2023 and 2022, 642,749 and 640,207 shares issuable upon the exercise of outstanding stock options, were not included in the computation of diluted net loss per share from operations because their inclusion would be anti-dilutive. For the three and nine months ended September 30, 2021, 517,972 and 496,421 shares issuable upon the exercise of outstanding stock options, respectively, were not included in the computation of diluted net incomeloss per share because their inclusion would be antidilutive. For the nine months ended September 30, 2021, 21,551 shares issuable upon the exercise of outstanding stock options, respectively, were included in the computation of diluted net income per share from operations because their inclusion would be dilutive.

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

PALTALK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. 8. 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 September 30, 2022,2023, the Company had no long-term leases that were classified as financing leases. As of September 30, 2022,2023, the Company did not have additional operating andor financing leases that had not yet commenced.

AtAs of September 30, 2022,2023, the Company had operating lease liabilities of approximately $179,000$98,000 and ROU assets of approximately $179,000,$98,000, which are included in the accompanying condensed consolidated balance sheets.

Total rent expense for the nine months ended September 30, 20222023 was $62,819,$61,529, of which $3,000$4,500 was sublease income. Total rent expense for the nine months ended September 30, 20212022 was $64,782,$62,819, of which $3,000 was sublease income. Rent expense is recorded under general and administrative expense in the accompanying condensed consolidated statements of operations.

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

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

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 amended and restated their existing employment agreements with the Company dated October 7, 2016 and December 9, 2019, respectively. The agreements are each for a termterms of one year with auto renewal provisions. Except for adjustments to base salaries, all other terms and conditions of the prior employment agreements between the Company and the CEO and CFO remained in full force and effect. The 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 agreementsAmended and Restated Employment Agreements for each of 2022 and 2023 total $490,000. Should theThe agreements bewere renewed for 2023through March of 2024, and beyond,if they are subsequently renewed in future years, the aggregate base salary commitments wouldwill 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 somecertain of Cisco’s Webex products have infringed U.S. Patent No. 6,683,858, and that the Company is entitled to damages.

A Markman hearing took place on February 24, 2022 and a trial is currently scheduled for the first quarter of 2023.

2022. On September 7, 2022, the United States Patent Office (“USPTO”) 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 September 16, 2022, Cisco filedJune 29, 2023, the Court held a pretrial conference and denied Cisco’s motion for summary judgment. The trial is expected to stay the lawsuit pending the re-examination.be held in May of 2024.

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 September 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.herein, except as follows.

On October 9, 2023, the Company’s Board of Directors increased the size of the Board of Directors from five (5) directors to six (6) directors and filled the newly created vacancy by appointing Geoffrey Cook as a director of the Company, effective as of October 10, 2023. In connection with the appointment of Mr. Cook to the Board of Directors, on October 10, 2023, the Company granted Mr. Cook a non-qualified stock option to purchase 100,000 shares of common stock of the Company, with an exercise price equal to $1.86 per share of common stock. The shares of common stock underlying such option will vest and become exercisable in four equal annual installments on each anniversary of the date of grant.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three and nine months ended September 30, 20222023 and 2021,2022, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 20212022 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, 20222023 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 acquiring,the acquisition of, or investinginvestment in, technologies, solutions or businesses that complement our 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 AcquisitionDirector Appointment

On JuneOctober 9, 2022 (the “Effective Date”), we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among2023, our Board of Directors increased the Company, ManyCam ULC, an unlimited liability company incorporated under the lawssize of the ProvinceBoard of AlbertaDirectors from five (5) directors to six (6) directors and filled the newly created vacancy by appointing Geoffrey Cook as a wholly owned subsidiarydirector of the Company, (the “Purchaser”), Visicom Media Inc., a Canadian corporation (“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, allOctober 10, 2023. Mr. Cook was also appointed to serve as a member of the issuedNominating and outstanding sharesCorporate Governance Committee of Target NewCo (the “ManyCam Acquisition”). Priorthe Board of Directors and the Strategic Transactions Committee of the Board of Directors. We believe Mr. Cook is qualified to the ManyCam Acquisition, Target NewCo held all assets relatedserve on our Board of Directors due 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 definedhis experience in the Securities Purchase Agreement)), whether tangible or intangible, including, but not limited to, Target NewCo’s ManyCam software (“ManyCam”)social media and related source code, customer lists, customer relationshipsconsumer internet industries as well as his insights regarding corporate strategy 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”).growth.

The Purchaser acquired the Conveyed Assets for a cash purchase priceImpact 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 Visicom will not be paid any portion of the Earn-Out Payment.

Based on performance as of September 30, 2022, we determined that it was likely that Gross Sales during the Earn-Out Period would exceed $600,000 but be less than $700,000 and as a result, we recorded a liability in the amount of $150,000 for payment to the seller, with a corresponding adjustment to the cost basis of the Conveyed Assets, as it is likely that the applicable Gross Sales threshold of $600,000 will be met and the contingency will be resolved.

As part of the accounting for the ManyCam assets, we provisionally recorded a deferred tax liability of $0.9 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 COVID-19 and macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary environment. Prolonged periods of inflation have affected, and may continue to affect, our ability to target new customers as well as keep existing customers engaged and may ultimately have a correlating effect on our users’ discretionary spending. Furthermore,Additionally, the recent strengthclosures of certain banks in the US dollar comparedfirst and second quarters of 2023 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 foreign currenciesspecific financial institutions or the broader financial services industry may create additional market and economic uncertainty, which could have a negative effect onaffect our non-US customer base, as our subscription prices are based in US dollars.industry.

The global spreadUnder 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 well as the lifting of COVID-19 restrictions could also affect the demand for our applications. 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 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. During the nine months ended September 30, 2023, 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 September 30, 2023, we entered into a promissory note withreceived an aggregate principal amount of $506,500 (the “Note”) in favor of Citibank, N.A.,$294,833, 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 provisionsa reduction of the CARES Act. We do not expect to incur additional indebtedness under the CARES Act.