S-1/A 1 fs12018a5_peerstreaminc.htm AMENDED REGISTRATION STATEMENT

As filed with the Securities and Exchange Commission on November 9, 2018.

Registration No. 333-226003

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________

Amendment No. 5

to

form s-1

registration statement

UNDER

THE SECURITIES ACT OF 1933

______________________________________________

PeerStream, Inc.

(Exact name of registrant as specified in its charter)
______________________________________________

Delaware

 

7389

 

20-3191847

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification Number)

______________________________________________

122 East 42nd Street

New York, NY 10168

(212) 594-5050

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

______________________________________________

Alexander Harrington

Chief Executive Officer

PeerStream, Inc.

122 East 42nd Street

New York, NY 10168

(Name, address, including zip code, and telephone number, including area code, of agent for service)

______________________________________________

Copies to:

Greg R. Samuel, Esq.
Michael M. Pritchard, Esq.
Haynes and Boone, LLP
2323 Victory Avenue, Suite 700
Dallas, TX  75219
(214) 651-5000

 

Lawrence J. Nusbaum III, Esq.

Andrew Russell, Esq.
Gusrae Kaplan Nusbaum PLLC

120 Wall Street

New York, New York 10005

(212) 269-1400 

______________________________________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

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

 

Large accelerated filer

 

£

 

Accelerated filer

 

£

   
   

Non-accelerated filer

 

þ

 

Smaller reporting company

 

þ

   
           

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 to Section 7(a)(2)(B) of the Securities Act. £

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered

 

Proposed
Maximum
Aggregate
Offering
Price(1)(2)

 

Amount of
Registration
Fee

Units, consisting of:

 

$

8,222,500

 

 

$

996.57

(3)

Shares of common stock, par value $0.001 per share(4)

 

 

 

 

 

 

Warrants to purchase shares of common stock(4)

 

 

 

 

 

 

Common stock issuable upon exercise of warrants(5)

 

 

9,343,750

(6)

 

$

1,132.46

(3)

Total

 

$

17,566,250

 

 

$

2,129.03

(3)

____________

(1)      Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)      Includes the price of additional shares of common stock and/or warrants to purchase shares of common stock that the underwriters have the right to purchase to cover overallotments, if any. See “Underwriting.”

(3)      The registrant paid $836.28 of the filing fee in connection with prior filings of this registration statement.

(4)      No additional registration fee is payable pursuant to Rule 457(i) under the Securities Act.

(5)      Pursuant to Rule 416 under the Securities Act of 1933, as amended, this registration statement also registers such indeterminate number of shares of common stock as may become issuable upon exercise of the warrants as the same may be adjusted as a result of stock splits, stock dividends, recapitalizations or similar transactions.

(6)      Pursuant to Compliance and Disclosure Interpretation 240.06 of the Securities Act Rules, represents the aggregate exercise price of the warrants.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED NOVEMBER 9, 2018

PRELIMINARY PROSPECTUS

1,300,000 Units

(Each unit consists of one share of common stock and one warrant to purchase one share of common stock)

PeerStream, Inc.

______________________________________________

We are offering 1,300,000 units of PeerStream, Inc., with each unit consisting of one share of our common stock, par value $0.001 per share, and a warrant to purchase one share of our common stock. Each warrant contained in a unit has an exercise price of $        per share of common stock. The warrants contained in the units will be exercisable immediately and will expire five years from the date of issuance. We are also offering the shares of common stock that are issuable from time to time upon exercise of the warrants contained in the units. The offering price is $        per unit.

The units offered hereby have no standalone rights and will not be certificated or issued as standalone securities. The common stock and warrants included in the units offered hereby can only be purchased together as a unit, but the common stock and warrants will be issued separately and will be immediately separable upon issuance.

Our common stock has been approved for listing on The Nasdaq Capital Market under the symbol “PEER,” subject to official notice of issuance, and we expect that our common stock will begin trading on The Nasdaq Capital Market immediately following the completion of this offering. Our common stock is currently listed on the OTCQB Marketplace (the “OTCQB”) under the symbol “PEER.” We have applied to list our warrants for trading on The Nasdaq Capital Market under the symbol “PEERW.” There is currently no established public trading market for the warrants and there can be no assurance that our listing application for the warrants will be approved or that an active trading market for the warrants will develop.

On November 8, 2018, the last reported sale price of our common stock on the OTCQB was $4.55 per share. We have assumed a public offering price of $5.50 per unit, the last reported sale price for our common stock as reported on the OTCQB on November 2, 2018. The actual public offering price per unit will be determined between us and the underwriter at the time of pricing and may be at a discount to the current market price. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final offering price.

The underwriters have the option to purchase up to an additional 195,000 shares of common stock and/or warrants to purchase up to 195,000 shares of common stock solely to cover overallotments, if any, at the public offering price, less underwriting discounts and commissions, within 45 days of the date of this prospectus. The overallotment option may be used to purchase shares of common stock, or warrants, or any combination thereof, as determined by the underwriters, but such purchases cannot exceed an aggregate of 15% of the number of units sold in the offering.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 16 of this prospectus and the risk factors in the documents incorporated by reference in this prospectus for information you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Per share

 

Total

Price to the public(1)

 

$

   

$

 

Underwriting discounts and commissions(1)(2)

 

$

   

$

 

Proceeds to us (before expenses)

 

$

   

$

 

____________

(1)      The public offering price and underwriting discount in respect of each unit corresponds to a public offering price per share of common stock of $        and a public offering price per warrant of $        .

(2)      See “Underwriting” for a description of the compensation payable to the underwriters.

Delivery of the securities offered hereby will be made on or about           , 2018.

Joint Book Running Managers

The Benchmark Company

 

ThinkEquity

a division of Fordham Financial Management,   Inc.

Prospectus dated                  , 2018

 

TABLE OF CONTENTS

MARKET AND INDUSTRY DATA

 

ii

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

 

ii

BASIS OF PRESENTATION

 

iii

NON-GAAP FINANCIAL MEASURES; KEY PERFORMANCE INDICATORS

 

iv

PROSPECTUS SUMMARY

 

1

THE OFFERING

 

12

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

 

14

RISK FACTORS

 

16

FORWARD-LOOKING STATEMENTS

 

38

USE OF PROCEEDS

 

40

DIVIDEND POLICY

 

41

PRICE RANGE OF COMMON STOCK

 

42

CAPITALIZATION

 

43

DILUTION

 

44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

46

MANAGEMENT

 

64

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

70

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

71

DESCRIPTION OF CAPITAL STOCK

 

73

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

79

UNDERWRITING

 

84

LEGAL MATTERS

 

87

EXPERTS

 

87

INCORPORATION BY REFERENCE

 

87

WHERE YOU CAN FIND MORE INFORMATION

 

88

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

F-1

You should rely only on the information contained, or incorporated by reference, in this prospectus or in any free writing prospectus that we authorize to be delivered to you. We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained, or incorporated by reference, in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. The underwriters are offering to sell, and seeking offers to buy, these securities only in jurisdictions where offers and sales are permitted. You should assume that the information contained, or incorporated by reference, in this prospectus or any free writing prospectus prepared by us or on our behalf is accurate only as of their respective dates or on the date or dates which are specified in such documents, and that any information in documents that we have incorporated by reference is accurate only as of the date of such document incorporated by reference. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: The underwriters are offering to sell, and seeking offers to buy, these securities only in jurisdictions where offers and sales are permitted. Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities offered hereby and the distribution of this prospectus outside the United States.

i

MARKET AND INDUSTRY DATA

Market data, industry statistics, and forecasts included or incorporated by reference in this prospectus, other than those provided by third party experts, are based on the good faith estimates of management, which in turn are based upon management’s reviews of independent industry publications, reports by market research firms, and other independent and publicly available sources. Data regarding the industry in which we compete and our market position and market share within this industry are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share within this industry. Our own estimates are based on internally-derived metrics, as well as data from trade and business organizations and other contacts in the markets we operate.

We are responsible for all of the disclosure included, or incorporated by reference, in this prospectus, and we believe these estimates to be accurate as of the date of this prospectus or such other date stated in this prospectus (or in documents we have incorporated by reference). However, this information may prove to be inaccurate because of the method by which we obtained some of the data for the estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. While we believe that each of the publications used throughout this prospectus (or in documents we have incorporated by reference) are prepared by reputable sources, neither we nor the underwriters have independently verified market and industry data from third party sources. While we believe our internal company research and estimates are reliable, such research and estimates have not been verified by any independent source. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018, which are incorporated by reference in this prospectus.

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This prospectus includes or incorporates by reference some of our trademarks, trade names and service marks, including PeerStream, FirstMet, Paltalk and the PeerStream logo. Each one of these trademarks, trade names or service marks is either (i) our registered trademark, (ii) a trademark for which we have a pending application, (iii) a trade name or service mark for which we claim common law rights or (iv) a registered trademark or application for registration which we have been authorized by a third party to use.

Solely for convenience, the trademarks, service marks and trade names included or incorporated by reference in this prospectus 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. This prospectus also includes or incorporates by reference additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names included or incorporated by reference in this prospectus are, to our knowledge, the property of their respective owners.

ii

BASIS OF PRESENTATION

Unless otherwise indicated or the context otherwise requires, financial data included, or incorporated by reference, in this prospectus reflects the business and operations of PeerStream, Inc. and its consolidated subsidiaries. Unless the context otherwise requires, all references herein to “PeerStream, Inc.,” “Peer,” the “Company,” “we,” “our” or “us” refer to PeerStream, Inc. and its consolidated subsidiaries.

Name Change

Effective March 12, 2018, we changed our name from “Snap Interactive, Inc.” to “PeerStream, Inc.” In connection with the name change, we also changed our trading symbol on the OTCQB from “STVI” to “PEER.”

Reverse Stock Split

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

AVM Merger

On October 7, 2016, we completed our merger with A.V.M. Software, Inc. (d/b/a Paltalk) (“AVM”), pursuant to which SAVM Acquisition Corporation, our wholly owned subsidiary, merged with and into AVM, with AVM surviving as our wholly owned subsidiary (the “AVM Merger”). As a result of the AVM Merger, the former shareholders of AVM received shares of our common stock representing approximately 77.9% of the outstanding shares of common stock of the post-AVM Merger combined company, and our former stockholders retained approximately 22.1% of the outstanding shares of common stock of the post-AVM Merger combined company.

The AVM Merger has been accounted for as a “reverse merger” under the acquisition method of accounting for business combinations with AVM being treated as the accounting acquirer of PeerStream. As such, the historical financial statements of AVM are treated as the historical financial statements of the combined company. Accordingly, our financial results for periods prior to October 7, 2016 represent the operations of AVM, and our financial results for periods after October 7, 2016 represent the operations of the combined company.

iii

NON-GAAP FINANCIAL MEASURES; KEY PERFORMANCE INDICATORS

This prospectus contains, or incorporates by reference, certain financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as well as certain unaudited key performance indicators. Specifically, we make use of the non-GAAP financial measure “Adjusted EBITDA” and the unaudited key performance indicators “active subscribers” and “subscription bookings.”

Non-GAAP Financial Measures

Non-GAAP financial measures are financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) adjusted to exclude interest (income) expense, net, other (income) expense, net, income tax expense (benefit), depreciation and amortization expense, loss on disposal of property and equipment, impairment loss on digital tokens and stock-based compensation 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.

Adjusted EBITDA is not a recognized term under GAAP and should not be considered as an alternative to net income or income from operations, as a measure of financial performance, or cash flows provided by operating activities, as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, this measure is not intended to be a measure of free cash flow available for management’s discretionary use as it does not consider certain cash requirements such as tax payments. The presentation of this measure has limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company. For a discussion of Adjusted EBITDA and a reconciliation of the most directly comparable GAAP measure, see “Prospectus Summary — Summary Historical Consolidated Financial Data.”

Key Performance Indicators

Unaudited key performance indicators are metrics that are used by our management to help us evaluate growth trends, establish budgets, measure the effectiveness of our advertising and marketing efforts and assess operational efficiencies. In this prospectus, we present the unaudited key performance indicators active subscribers and subscription bookings.

Active subscribers means users of our consumer applications that have prepaid a fee, redeemed credits or received an upgrade from another user as a gift for current unlocked application features such as enhanced voice and video access, elevated status in the community or unrestricted communication on our applications and whose subscription period has not yet expired. The metrics for active subscribers are based on internally-derived metrics across all platforms through which our applications are accessed. We assess the performance of our consumer applications by measuring active subscribers because we believe that this metric is the most reliable way to understand user engagement on our platform and estimate the future operational performance of our applications. We also believe that measuring active subscribers helps management estimate future subscription revenue. Because active subscribers generate the majority of our subscription revenue, as the number of active subscribers to our consumer applications increases, the amount of subscription revenue generated from our consumer applications also increases. Active subscribers is distinguished from active users, which represents the total number of free and paid users across all platforms during a certain period who access our various applications. We believe that active users are important to our operations because advertising revenue is largely dependent upon the volume of advertising impressions viewed by active users.

iv

Subscription bookings is a financial measure representing the aggregate dollar value of subscription fees and micro-transactions received during the period from our consumer applications. We calculate subscription bookings as subscription revenue recognized during the period plus the change in deferred subscription revenue recognized during the period. Deferred subscription revenue is recognized ratably over the length of the subscription term. 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 revenue more or less than such factors affect subscription bookings in any period. While we believe that subscription bookings is useful in evaluating the performance of our consumer applications, it should be considered as supplemental in nature and it is not meant to be a substitute for subscription revenue recognized in accordance with GAAP.

v

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus or incorporated by reference in this prospectus from our filings with the Securities and Exchange Commission (the “SEC”) listed in the section of the prospectus entitled “Incorporation by Reference” and does not contain all of the information you should consider before investing in shares of our common stock. You should read this entire prospectus, any free writing prospectus prepared by us or on our behalf and the information incorporated by reference in this prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in and incorporated by reference in this prospectus and the financial statements and the related notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018, which are included in this prospectus, before you decide to invest in shares of our common stock.

Our Company

We are a global internet solutions provider pioneering the real-world adoption of emerging blockchain technologies by developing software, services and applications for corporate clients and consumers. Our business solutions unit (“PeerStream Business Solutions”) is able to provide advisory and implementation services to enterprise clients to help them meet strategic objectives using blockchain technology. We also intend to offer support to enterprise clients seeking to transition to blockchain-based technologies through the licensing of proprietary blockchain software, such as our PeerStream Protocol (“PSP”), a protocol for decentralized multimedia communications and live video streaming that is currently in development. For 20 years, we have built and continue to operate innovative consumer applications, including Paltalk, one of the largest live video social communities, and Backchannel, a secure video messaging application built on blockchain technology expected to launch in private beta form in late 2018. The Company has a long history of technology innovation and holds 26 patents. Our common stock has been traded on the over-the-counter markets since 2006.

PeerStream Business Solutions

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

We believe that blockchain technology has a myriad of applications across a broad array of industries. Many businesses, however, are struggling to identify and realize the potential of blockchain technology, which can offer a host of benefits, including enhanced security, scalability, data integrity and cost efficiency. Through PeerStream Business Solutions, we plan to assist our clients in realizing the benefits of blockchain technology through three major service branches:

•        Blockchain Strategy Consulting: Through our strategy consulting services, we intend to assist clients from the initial state of identifying potential uses for blockchain technology through the deployment phase and beyond. We continue to build an expert team of seasoned blockchain strategists and technology architects that are positioned to help clients discover the most appropriate and powerful blockchain solutions for their business or government administration needs.

•        Blockchain Implementation: We believe our core team of talented developers and project managers, combined with our network of contractors and subcontractors, can build and execute all phases of a blockchain implementation plan, including software development, testing and deployment.

•        Support: Following implementation, we believe we have the capability to provide a wide range of ongoing technical support services for integration projects.

In March 2018, we secured our first major PeerStream Business Solutions client by entering into a technology services agreement with ProximaX Limited (“ProximaX”), a next generation blockchain-based, decentralized platform led by blockchain pioneer, Lon Wong, the former President of the NEM.io Foundation Ltd. (“NEM”). Under the terms of the agreement, we agreed to provide development and related services to ProximaX to facilitate the integration of

1

PSP, which is described in more detail below, into ProximaX’s proprietary blockchain protocol. In addition, we were recently selected to be a preferred North American integration partner for ProximaX. Pursuant to this partnership, we anticipate ProximaX will refer prospective adopters of its blockchain protocol to PeerStream Business Solutions for consulting and integration services.

We also believe that our ability to develop proprietary blockchain-based software will attract new potential PeerStream Business Solutions clients. For instance, we are currently in the process of developing PSP, a protocol for decentralized multimedia communications and live video streaming, which is supported by 15 years of multimedia streaming expertise and a battle-tested technology platform that has facilitated the delivery of over a billion multimedia messages to hundreds of millions of users. We believe we have the experience and ability to support numerous other application developers and corporate clients in integrating PSP and developing other blockchain-based solutions to power decentralized applications that provide live video entertainment, multimedia messaging, video conferencing, live streaming, amateur content creation and more.

Blockchain-Based Proprietary Software

We are developing software that we believe will extend the capabilities of foundational blockchain protocols and enable prospective adopters to better meet their business goals using blockchain technology, either by enhancing the value of integrating blockchain technology into existing platforms, or by reducing the resources required to perform such implementations. Our software is made available for license, and it is also our intention to bundle software licenses into service offerings we make available to PeerStream Business Solutions clients, similar to our arrangement with ProximaX. We may also integrate our software with new applications that we develop.

How PSP Works

PSP, which is our first blockchain-based software made available for license, is designed to be a multimedia communications and video streaming protocol to route live, rich media content over peer-to-peer networks and is being built for either third party developers or corporate clients.

PSP will operate exclusively on third party blockchain networks. A blockchain network is a foundational form of technology that assembles computers contributed by third parties into a network, each of which is called a “node.” A blockchain network can be thought of as the “bottom-layer” of a system, and software can be layered on top of, or integrated with, a blockchain network to direct the nodes within that network to perform certain functions. At the top layer of the system, applications, or client software, is developed that is intended to allow non-programmers to access and derive value from the whole system, typically through some form of a user interface.

PSP operates as part of the “middle” layer of this system of design in that it is integrated with an existing blockchain network and provides instructions to the nodes within that network on how to deliver multimedia communications. In this sense, PSP is comparable to traditional “middleware,” or software that acts as a bridge between an operating system or database and its applications, but is distinguishable from middleware in that it performs important independent networking functions and does not simply bridge the software layers on either side. Once integrated, PSP and the blockchain network will create a platform on which developers can build consumer applications for the top-layer of the design. Having PSP integrated into a blockchain network means that applications built to run on that network will have a system already in place that allows developers to focus on the end-user experience.

At its core, PSP will be integrated with a blockchain network to enable the blockchain network nodes to perform live video and communication streaming delivery services. In traditional content delivery platforms available today, such as those offered by Akamai Technologies, Inc. or Amazon, Inc.’s Amazon Web Services, this process is completed by having data routed through a centralized server architecture that is owned and operated by a third party. PSP, however, will not be hosted in a centralized architecture. Instead, PSP will be decentralized, meaning its data will be routed through the nodes existing on a third party blockchain network. Each of these nodes will contribute bandwidth to the PSP network and will capture data streamed from applications using PSP and share it directly with other nodes to reach the end point without passing through any centralized intermediary. Because the source of data and its destination is obfuscated and anonymous when transmitted through a decentralized network, it is more private, secure and resilient to cyberattacks than traditional networks that route data through a third party provider.

When PSP is integrated with a blockchain protocol, we believe the resulting platform will be able to power applications that require real-time data and video communications, such as the next generation of social networking,

2

messaging, group collaboration and live video streaming applications, and we believe that this decentralized platform will offer the potential for superior privacy, scalability and cost efficiency.

Consumer Applications

We operate a leading network of consumer applications that 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 products are generally available through Windows, Mac OS, iOS and Android platforms. The proprietary technology underlying our products allows us to operate thousands of simultaneous streams, including on mobile platforms, which support interactions on a one-on-one, one-to-many and many-to-many basis. We also have a worldwide established presence and brand identity in both live video chat and interactive dating, with users in over 180 countries as of November 2, 2018. Furthermore, our technology is supported by 75 developers, four technology centers and a portfolio of 26 issued patents.

Our existing consumer application product portfolio includes Paltalk and Camfrog, which together host one of the world’s largest collections of video-based communities, and FirstMet, an interactive dating brand serving users 35 and older. Our other consumer products include Tinychat, 50More, The Grade and Vumber. As of November 2, 2018, our applications supported an active subscriber base of approximately 147,000 active subscribers worldwide.

We are also currently developing Backchannel, a secure messaging application built on blockchain technology that we believe will be one of the first video messaging applications to eliminate a centralized intermediary responsible for hosting and storing user information, thereby reducing the risk that communications between users can be hacked, stolen or leaked. Backchannel is an end-user application that is being designed to be fully integrated with our PSP technology, which means that a user that downloads and utilizes Backchannel will have its multimedia data routed through a series of nodes existing on a blockchain network that receive instructions through our PSP software.

By utilizing PSP technology, data transmitted through Backchannel will never pass through third party servers, and we are developing Backchannel using crypto identity and authentication to ensure no personally identifiable user information is stored or shared without a user’s explicit permission. We believe Backchannel is one of the first secure, blockchain-enabled video messaging applications in development to promote free speech and serve both business and consumer end-users, and we expect to launch a private beta version of Backchannel in the fourth quarter of 2018 with a public release following shortly thereafter.

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

Industry

Blockchain Software and Services

The industry for blockchain technology is characterized by rapid technological changes, new product introductions, enhancements and evolving industry standards. For instance, IBM recently secured a $740 million agreement to provide blockchain services. In addition, a recent forecast by Global Market Estimates Research & Consultants (2018) shows the market for blockchain services growing from approximately $695 million in 2017 to more than $79 billion by 2025, with the media streaming blockchain services market increasing to $4.4 billion by 2025. We believe that this trend has the potential to continue as a result of the increasing demand of businesses to harness the power of distributed ledger technology to provide cost-efficient, traceable and secure transmissions of data.

Through our 20 years of building and operating innovative consumer applications, we have become uniquely aware of the challenges inherent in the traditional technology powering communications and multimedia applications, including network security risks, end-user privacy concerns, limited network scalability and costs that increase exponentially based on user scale. We believe that blockchain technology provides several key advantages over the traditional technology used to develop consumer and commercial applications:

•        Scalability: Blockchain-based networks are formed through community contribution of computing resources, and with compensation mediated through consensus protocols, these peer networks become professionalized. Because they can tap into millions of contributors around the world, these peer networks have the potential to scale far greater than any existing private networks.

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•        Cost-Efficiency: Because blockchain technology would eliminate the need for us to serve as an intermediary by hosting servers to transmit data between users, we expect that the transition to blockchain-based applications could significantly reduce our overhead by decreasing our hosting expenses. Though decentralized peer network hosts would require compensation, we expect that compensation costs will be lower than the cost of centralized hosting.

•        Security: The decentralized architecture of blockchain networks typically is not vulnerable to distributed denial of service (“DDoS”) attacks, cyber-attacks in which a centralized cluster of machines or networks are temporarily disrupted and service is halted, which represent one of the most common security issues of today’s internet. This architecture saves developers the high overhead of various security countermeasures, as well as offering improved uptime.

In addition, blockchain technology provides a secure, immutable form of transmitting data or payments from end-users. As a result, we believe blockchain technology offers an opportunity to reach the untapped market of unbanked adults, which refers to adults that lack an account at a financial institution or that do not have access to a mobile money provider, that according to the World Bank’s Global Findex Database consists of approximately 1.7 billion potential consumers. Through blockchain technologies, including cryptocurrencies, these individuals can pay for, and subscribe to, services without access to traditional financial institutions. Historically, in order to provide services to unbanked individuals, businesses such as ours have had to utilize costly and often inefficient methods involving resellers and prepaid service cards. Blockchain technology offers the opportunity to reach these consumers through a cost-efficient and secure means.

We believe the market for blockchain services and software is still in its infancy. As a result, we believe that by growing PeerStream Business Solutions and developing easy-to-use blockchain software that will support applications in many industry verticals, as well as leveraging our team’s experience obtained through our preferred integrator relationship with ProximaX, we are poised to establish our business as a leader in this rapidly expanding industry. We plan to grow PeerStream Business Solutions by focusing our service offerings on key industries where we expect blockchain services to grow. In addition, we plan to bundle our blockchain software offerings with our service packages in order to generate additional revenue from licensing fees, as well as grow client relationships by providing support and related services for our licensed products. Ultimately, if we establish ourselves as a leader within these key industries, we expect to increase our market awareness and develop expertise that will allow us to expand our business.

To support our growth efforts, we plan to invest significantly in business development, sales and marketing personnel for PeerStream Business Solutions to help establish a unique corporate branding, strong leadership and build market share. Concurrently, we plan to support sales growth by building out infrastructure for our support team, developers and project managers. In order to meet industry needs and grow our talent pool, we expect to host and contribute to blockchain educational programs, retrain our internal technical staff and affiliate with leading talent pools. In addition, we may accelerate our internal growth through strategic acquisitions, joint ventures and partnerships. In the near future, we hope to grow our client base to include not only new ventures in blockchain, such as ProximaX, but established corporate enterprises and governmental agencies seeking to improve their operations through the use of innovative technologies.

The market for blockchain services is still developing and therefore is subject to rapid change. We compete with large consulting and business services firms, many of which have substantially greater financial, managerial, technological and other resources than we do, including IBM, Accenture, Cognizant, Deloitte Touche Tohmatsu Limited, Wipro Limited, Microsoft Corporation and Oracle Corporation. In addition, we compete with smaller, specialized information technology and services companies including Virtusa, Saksoft, Mindtree and Larsen & Toubro Infotech Limited, as well as blockchain-specific consulting firms including ConsenSys, Vanbex Group and CanYa. There are relatively few barriers to entry into the blockchain services market, and, as a result, any organization that has adequate financial resources and access to technical expertise and skilled personnel may become one of our competitors.

Consumer Applications

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

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We believe that our leading consumer application product portfolio, which includes Paltalk and Camfrog, which together host one of the world’s largest collections of video-based communities, and FirstMet, a prominent interactive dating brand serving users 35 and older, creates a unique social media enterprise that is well-positioned to take advantage of key opportunities in the consumer application industry. In addition, we expect that our blockchain-based decentralized communications application will allow us to tap into the market of privacy-minded consumers, as well as business and government end users, looking for a secured communications solution.

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

There are relatively few significant barriers to entry in our industry and, as a result, any organization that has adequate financial resources and technical expertise may become a competitor. Nonetheless, we believe that users often utilize multiple applications for multiple purposes, and the use of one website or application is not necessarily to the exclusion of others.

In order to compete effectively within the consumer application industry, we seek to offer applications and features that are differentiated from existing products, superior in quality and more appealing than those of our competitors. We also believe that we have the tools and expertise to attract new users through Facebook and other sources at a lower cost per subscriber than certain of our traditional competitors. As social networking application platforms and mobile platforms continue to expand and the internet becomes ever more of a mainstream method for connecting and interacting with others, we believe that the consumer application industry offers substantial room for growth.

Our Business Strategy

Build on Blockchain Technology

During the remainder of 2018, we plan to continue pursuing a strategy of using blockchain technology to improve our existing technology platform, to build new proprietary software and applications and to offer technology solutions to third parties, in each case taking advantage of the enhanced security, scalability and cost-effectiveness that blockchain technology offers.

As described above, we are in the process of developing PSP, which is software that integrates with an existing blockchain network in order to provide instructions to the nodes on that network to route live, rich media content and power applications that require real time data and video communications. Once PSP has launched and is integrated with a third party blockchain network, we expect that it will allow third party developers to build the next generation of social networking, messaging, group collaboration and live video streaming applications on that network. In addition, we plan for our new application, Backchannel, to operate on a PSP-integrated blockchain network and to utilize PSP for routing the multimedia data fed through Backchannel. We believe that Backchannel will be one of the first video messaging application to eliminate a centralized intermediary responsible for hosting and storing user information, thereby reducing the risk that communications between users can be hacked, stolen or leaked.

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

•        developing our blockchain-based initiatives, including PSP and Backchannel;

•        extending business relationships and forming partnerships with blockchain influencers and innovators to help further our blockchain strategy, including the development of PSP and other elements of our blockchain technology portfolio; and

•        identifying potential strategic M&A with, or equity and token investments in, blockchain companies that can accelerate our execution ability or extend our market position.

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The members of the blockchain advisory board serve as consultants to the Company, and the membership of the blockchain advisory board may change from time to time as we identify new members whose experience, qualifications, attributes or skills may provide unique benefits to the Company. Set forth below is information regarding each of the current members of our Blockchain Advisory Board:

Mike Jones. Mr. Jones was appointed to the Blockchain Advisory Board on November 7, 2017. Mr. Jones is the Co-Founder & Chief Executive Officer of Science Inc., a venture capital startup studio that owns and operates Science Blockchain, an incubator for blockchain startups. Science Blockchain has partnered with blockchain companies such as BLOCKv, Civic and TaaS and recently announced blockchain reputation network SpringRole as its first portfolio company. Mr. Jones and Science Inc. have participated in more than $2.5 billion in successful exits, including FameBit (acquired by Google) and Dollar Shave Club (acquired by Unilever). Mr. Jones is a serial entrepreneur and digital industry executive, having served as CEO of MySpace prior to founding Science Inc.

Lou Kerner. Mr. Kerner was appointed to the Blockchain Advisory Board on November 28, 2017. Since 2013, Mr. Kerner has been a crypto enthusiast, investor, public speaker, advisor and thought leader. Mr. Kerner is ranked among the five most influential crypto bloggers on Medium and regularly holds conference calls with crypto industry innovators attended by hundreds of crypto enthusiasts and investors from around the world.

Mr. Kerner is a partner at Flight VC, where he manages The Israel Founders Syndicate, which invests in Israel-based technology companies. Prior to joining Flight VC, Mr. Kerner was the managing partner of The Social Internet Fund and an angel investor, best known for investing in Facebook and writing the first Wall Street style research report on Facebook in 2010. Prior to start-up investing, Mr. Kerner ran two digital companies, including Bolt (the largest social network before MySpace) and .tv, which commercialized the “.tv” top-level domain and was acquired by Verisign. Mr. Kerner also had a distinguished career as an equity analyst for Goldman Sachs and Merrill Lynch following media and technology companies.

Lon Wong. Mr. Wong was appointed to the Blockchain Advisory Board on January 3, 2018. Mr. Wong is a globally recognized blockchain pioneer and innovator. He is the former President of NEM, which actively educates, develops and promotes the use of the NEM blockchain technology platform on an international scale. Earlier this year, Mr. Wong founded and launched ProximaX.

Sheri Kaiserman. Ms. Kaiserman was appointed to the Blockchain Advisory Board on June 11, 2018. Ms. Kaiserman is an accomplished finance professional with over 25 years of equity sales and leadership experience. She is a founder and principal advisor at Maco.la, a dynamic new blockchain venture capital, advisory and talent resource firm. Maco.la utilizes its team’s extensive experience and global network to invest capital and resources into innovative enterprises seeking to provide solutions that enable the broader adoption of blockchain technology into the global economy. Ms. Kaiserman previously served as the Head of the Equities Division at Wedbush Securities, which she built and ran for 16 years. In 2013 under Ms. Kaiserman’s leadership, Wedbush published the first Wall Street research report on the topic of bitcoin and blockchain. Wedbush was also one of the first financial services firms to start investing in the blockchain sector.

In addition to forming our Blockchain Advisory Board, we have also identified several third party blockchain companies and innovators whose products we believe could assist us in improving our existing consumer applications and building our future blockchain applications. For instance, in December 2017, we initiated a relationship with blockchain security innovator, Gladius Network, LLC (“Gladius”) and made a small investment in Gladius’ initial coin offering to support the development of Gladius’ blockchain-based security solutions. Gladius is building a decentralized solution to protect against DDoS attacks that we believe we could license and integrate into our social video consumer applications to improve their security and prevent costly disruptions of service.

More recently, in April 2018, we formed a strategic partnership with Kochava Labs SEZC (“Kochava”) as an OnXCHNG partner for Kochava’s XCHNG platform, a blockchain-based platform being built to connect advertisers looking to buy, and publishers looking to sell, digital advertising space, or “advertising inventory.” The XCHNG network acts as an intermediary between advertisers and publishers, allowing publishers to post, and advertisers to view, their available digital advertising inventory. If an advertiser offers to purchase a publisher’s advertising inventory, the publisher and advertiser can use the XCHNG network to create an advertising contract outlining the terms of the relationship, which is then recorded on a digital ledger. Unlike traditional advertising vendors or intermediaries that charge commission-based fees for sales of our advertising inventory, Kochava does not receive commission for the sales that take place on the XCHNG platform.

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The XCHNG platform is expected to allow advertising inventory to be sold for cash or XCHNG tokens, and we understand that Kochava expects to launch a beta version of the XCHNG platform by the end of the first quarter of 2019. As an OnXCHNG partner, we will have the ability to list our advertising inventory on the XCHNG network in order to be matched with potential advertisers, and we expect that listing our advertising inventory on the XCHNG network will allow us to sell, or “monetize,” the advertising space on our consumer applications in a more cost-efficient and secure manner compared to traditional digital advertising sales networks. To the extent we are able to effectively utilize the XCHNG platform to sell our advertising inventory, we expect to sell such advertising inventory for cash.

We are actively seeking additional relationships and partnerships that we believe could strategically enhance our consumer applications and our other blockchain products.

Grow PeerStream Business Solutions

As described above, we recently launched PeerStream Business Solutions to provide technology licensing, services and support related to blockchain implementation for third party developers and corporate clients. We believe the growth of PeerStream Business Solutions is largely dependent upon our ability to successfully integrate PSP into the ProximaX blockchain protocol. As a result, a substantial portion of our resources are devoted to fulfilling the terms of our technology services agreement with ProximaX. Following the integration of PSP into the ProximaX platform, we plan to leverage our successful relationship as one means for generating new clients and expanding the range of services that we provide through PeerStream Business Solutions. In the future, we plan to offer a full suite of blockchain strategy consulting, blockchain implementation and support services to a range of clients across different industries that are looking to harness the superior scalability and security of decentralized solutions.

Develop PSP as an Open Source Media Streaming Protocol

Strategy for PSP. We believe our video technology has broad applications to many other industries beyond video social networking. Additionally, we believe that our multimedia streaming technology is scalable and applicable to a large array of applications for consumer and business end users. The most popular video and messaging applications today are centralized, meaning that they use corporate servers to send messages across the network. As a result, these applications suffer from the deficiencies associated with centralization: downtime, latency, and security and privacy breaches. We believe that PSP, which is designed from the ground up as a decentralized platform for multimedia streaming and communications, represents a potentially disruptive innovation in the marketplace.

As described above, PSP is intended to integrate with an existing third party blockchain network to serve as a protocol for providing instructions to the nodes on that blockchain network on how to route multimedia communications. Unlike traditional servers used for routing multimedia communications today, PSP will be fully decentralized, meaning that data will only pass through blockchain network nodes that are owned and operated by third parties. Private user communications will never pass through servers owned or managed by PeerStream. Because the source of data and its destination is obfuscated and anonymous when transmitted through a decentralized network, it is more private, secure and resilient to cyberattacks than traditional networks that route data through a third party provider.

Through the development of PSP, we intend to explore opportunities to contribute technology to and collaborate with leading companies in other industries seeking to integrate multimedia communication or improve their existing service. For instance, as described above, through our relationship with ProximaX we have agreed to integrate PSP into ProximaX’s proprietary blockchain platform. We believe that future partnerships may take many different forms, all of which ultimately may help us to drive the value of our technology and build our business. We expect that future applications that we develop may also utilize PSP, including Backchannel, although at this time we do not have any current plans to retrofit our existing consumer applications to utilize PSP.

Status of PSP Development. The ProximaX blockchain protocol is being designed by ProximaX as a new blockchain platform that will provide two major functional services: data storage and multimedia communications. Through our technology services agreement with ProximaX, we have agreed to license and integrate PSP as the layer of the ProximaX blockchain protocol responsible for providing multimedia communications. As a result, PSP’s development status is significantly reliant upon the development status of the ProximaX platform as the two are intended to launch together as a complete project. However, the ProximaX blockchain protocol is being developed exclusively by ProximaX, and PSP is being developed exclusively by PeerStream. We currently expect ProximaX to launch together with PSP in the summer of 2019.

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We have separated our PSP development progress into three stages based on the development roadmap set forth in our technology services agreement with ProximaX. The first stage consisted mainly of the initial design and architectural planning work related to PSP and is complete. The two remaining development stages are expected to be completed in the first quarter of 2019 and third quarter of 2019, respectively. The second development stage, which we refer to as the “Second Development Milestone,” relates principally to the completion of PSP’s ability to provide instructions to the node ecosystem of an existing blockchain network, as well as ensuring that PSP is designed to integrate with existing widely-adopted blockchain protocols other than the ProximaX blockchain protocol. The third development stage, which we refer to as the “Third Development Milestone,” relates principally to the completion and launch of the full-feature PSP product, as well as the launch of client side software development kits and application programming interfaces. Although we hope to complete the development of PSP within the timeframes specified in this prospectus, PSP is a new form of technology and its development may be subject to unanticipated delays.

Although PSP is initially being designed to be integrated into the ProximaX blockchain protocol, it is our goal, as stated above, to develop it in a way such that it can easily be modified to be integrated with other widely-adopted blockchain protocols. Although the adaption of PSP to blockchain protocols outside of the ProximaX protocol would require custom development, we have taken steps to minimize the amount of effort that such development would entail. In addition, because PSP is open source, these modifications would not need to be completed by PeerStream. Any developer can take the PSP code and undertake custom modifications to integrate it into other blockchain protocols.

Enhance Existing Applications; Introduce New Proprietary Software and Applications

Our software and application strategy is principally focused on three major goals:

•        enhancing our existing applications to integrate the benefits of blockchain technologies;

•        introducing new blockchain-based applications around our core video chat technologies; and

•        expanding our offerings of blockchain-based software beyond PSP, focusing on the development of software designed to facilitate the adoption of, and enhance the capabilities of, blockchain protocols.

We have recently taken significant steps towards enhancing our existing applications to integrate blockchain technologies. For example, we have in the past accepted bitcoin as a form of payment for purchases on our applications, and we may in the future accept bitcoin or other cryptocurrencies as a form of payment for purchases on our applications. By integrating bitcoin as a payment method in our applications, we believe we are facilitating user adoption of blockchain-based technologies while also allowing our business to more easily meet the needs of unbanked individuals who have limited options for paying for services through our applications.

In addition, we recently formed relationships with blockchain development companies Gladius and Kochava to help further our blockchain strategy and enhance the features of our existing consumer applications. Gladius is developing a blockchain-based solution to protect against DDoS attacks that we believe we can integrate into our existing application portfolio to greatly improve the security of our applications. Traditional DDoS attacks use mass requests to make websites and applications unavailable to their intended users by overloading centralized servers and preventing legitimate requests from being processed. Gladius’ platform is intended to provide a decentralized, blockchain-based system that allows unused bandwidth to be pooled and rented out to third parties to absorb the superfluous requests associated with DDoS attacks. Kochava is building a decentralized network to connect advertisers looking to buy, and publishers looking to sell, digital advertising space, or “advertising inventory,” that we believe could result in a more cost-efficient and secure means for selling advertising space on our consumer applications, as well as eliminate the need for us to maintain third party arrangements with advertising vendors that charge commission-based fees for sales of our advertising inventory. While we believe that incorporating blockchain technology into our existing application portfolio has the potential to greatly enhance our existing products, blockchain is a new form of technology and its applications within our consumer products are novel and largely untested. As a result, our use of blockchain technology is subject to certain risks, including the risk that we may devote substantial time and resources to develop or implement these technologies, putting us at a competitive disadvantage, as well as the fact that our anticipated uses for blockchain technologies may not work as intended or at all.

With respect to the introduction of new blockchain-based applications, we recently started development of Backchannel, a secure messaging application built on blockchain technology targeting privacy-minded consumers as well as business and government end users, which we expect to launch in a private beta form in the fourth quarter of

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2018, with a public release following shortly thereafter. Backchannel is expected to enable real-time text, voice, and video messaging between individuals and among small groups and to leverage blockchain and other decentralization technologies to offer unique security and privacy benefits.

Following the completion of PSP, we plan to focus our efforts on the development of new blockchain-based software to power decentralized applications that we expect to make available for license to clients either through bundles with services offered by PeerStream Business Solutions or on a standalone basis.

For information concerning the risks associated with our use of blockchain technology in our existing consumer application portfolio, as well as risks associated with our development of new blockchain technologies and software, please see “Risk Factors — Our shift in focus towards the utilization and development of blockchain-based applications and technologies could have a material adverse effect on our business, financial condition or results of operations.”

Defend our Intellectual Property

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

Potentially Explore Strategic Alternatives for Non-Core Assets

We remain committed to maximizing our stockholder value, and as our business grows and develops, we are continuously evaluating the performance of our existing applications and assets. As a result, we may in the future initiate a review of strategic alternatives with respect to one or more of our dating properties, Vumber or certain of our patents, which we refer to collectively as our non-core properties.

Our Products

Blockchain Initiatives

PeerStream Business Solutions. PeerStream Business Solutions was launched in March 2018 to tap into a potential new business-to-business revenue stream and support the efforts of a broad range of prospective corporate clients to adopt blockchain technology. On March 21, 2018, as a first step in providing services through PeerStream Business Solutions, we entered into a technology services agreement with ProximaX whereby we agreed to provide certain development and related services to ProximaX to facilitate the integration of PSP into ProximaX’s proprietary blockchain protocol that is currently under development. Pursuant to the terms of the agreement, ProximaX agreed to pay us up to an aggregate of $10.0 million either in cash or in certain highly liquid cryptocurrencies in exchange for our services, with (i) $5.0 million due upon the successful consummation of ProximaX’s initial coin offering, (ii) $2.5 million due upon the completion of PSP’s Second Development Milestone and (iii) $2.5 million due upon the completion of PSP’s Third Development Milestone. In addition, ProximaX agreed to issue us a number of tokens equal to 2.4% of all outstanding tokens on the day of its planned initial coin offering and to reserve an additional 2% of such tokens to be issued as payment for future services provided by us, subject, in each case, to such initial coin offering generating aggregate gross proceeds of at least $30.0 million.

On April 30, 2018, ProximaX closed its initial coin offering, which generated aggregate gross proceeds in excess of $30.0 million for purposes of our technology services agreement. On May 6, 2018, as agreed under the terms of the technology services agreement, ProximaX paid us the $5.0 million fee due upon consummation of its initial coin offering in Ethereum, which we immediately converted into cash. On June 2, 2018, we received 216.0 million XPX tokens from ProximaX, representing 2.4% of the XPX tokens issued by ProximaX in its initial coin offering and generating approximately $3.4 million of contract revenue. XPX tokens began trading on the Kryptono Exchange on June 2, 2018 and the quoted market price of $0.01559 was used to determine the initial fair value of the tokens. As of September 30, 2018 at approximately 5:00 PM, Eastern Time, during the impairment period, XPX tokens were trading at a price equal to $0.00386 per token, and our 216.0 million XPX tokens had an aggregate fair value of $0.8 million. We currently expect to hold our XPX tokens until at least June 2, 2019, at which time we may determine to opportunistically resell the tokens in open market transactions from time to time.

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PeerStream Protocol. PSP is our in-development proprietary software designed to be an open source, decentralized, peer-to-peer multimedia and messaging protocol that, when coupled with blockchain technology, increases scalability, cost efficiency and security for real-time communication applications in such areas as video conferencing, messaging and workforce collaboration. We expect PSP’s Second Development Milestone to be completed in the first quarter of the 2019, and PSP’s Third Development Milestone, as well as the complete PSP product, to be completed in the third quarter of 2019, but our development schedule for PSP may be subject to unanticipated delays and could change. PSP is presently being licensed by and integrated with the ProximaX blockchain protocol.

While ProximaX is currently the only customer for PeerStream Business Solutions, we believe that we have the infrastructure and personnel in place to handle multiple PeerStream Business Solutions clients and that our services could be useful to a wide range of corporate clients. We are currently in discussion with a number of potential clients, and we anticipate that at least one of these discussions will result in letters of intent and/or contracts for services beginning before the end of 2018. Future potential clients could include businesses in various industries, such as the health care, financial services and media/communications industries. We may also work with blockchain advisory businesses that are interested in integrating PSP and adding development capabilities to support integration with blockchain protocols.

Backchannel. Backchannel is a blockchain-based video-enabled secure messaging service we are developing that we plan to release in a private beta form in the fourth quarter of 2018, with a public release following shortly thereafter. The private beta release of Backchannel is expected to be a hybrid version, and thus only partially decentralized, with the fully-decentralized version to come in 2019 following the complete launch of PSP. Backchannel is expected to enable real-time text, voice, and video messaging between individuals and among small groups and to leverage blockchain and other decentralization technologies to offer unique security and privacy benefits. We plan to market Backchannel to privacy-minded consumers around the world, as well as business, legal and government end-users.

Backchannel is being designed to be fully integrated with PSP, and PSP will be the core technology powering Backchannel’s voice, video, text and data transmission. Because Backchannel will utilize PSP, the transmission of data through Backchannel’s network will be fully decentralized, meaning that communications will never pass through servers operated by us, making the application more resistant to censorship, disruption and eavesdropping than traditional communication platforms. In addition, we anticipate that Backchannel will use blockchain technology to validate and authenticate users with a crypto identity that does not require any personally identifiable information from the user. As a result, we anticipate that Backchannel will never request or hold the real world identity of its users, and therefore will not have any personal information that could be stolen by hackers.

Live Video Chat

We have three existing products in the video chat space: Paltalk, Camfrog and Tinychat. The major revenue-generating live video chat products are Paltalk and Camfrog. Each product enables individuals to self-organize around topics and users with common affinities. Tinychat enables adaptations of our video technology for alternative uses and opportunities in the future.

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

In the first half of 2017, we founded an innovation lab to leverage our technology and commercial platform to support growth initiatives in the live video markets. Through the support of our innovation lab, we recently updated Camfrog to support one-to-many live streaming video capabilities through the launch of Camfrog Live. Camfrog Live offers a wide variety of live video broadcasting entertainment while allowing spontaneous, real-time engagement at a more personal level. The platform offers these viewing users a unique way of connecting and sharing through live interaction with content creators, allowing them to offer feedback and appreciation, including cash donations and tips. Camfrog will continue to support its industry-leading traditional group video chat service, which we believe is

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complemented by the addition of live streaming entertainment. We expect to offer similar one-to-many live streaming video capabilities within our Paltalk application by the end of 2018.

Dating

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

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

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

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

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

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

Recent Developments

Our common stock has been approved for listing on The Nasdaq Capital Market under the symbol “PEER,” subject to official notice of issuance, and we expect that our common stock will begin trading on The Nasdaq Capital Market immediately following the completion of this offering.

We have applied to list our warrants for trading on The Nasdaq Capital Market under the symbol “PEERW.” If our listing application for the warrants is approved, we expect that the warrants will begin trading on The Nasdaq Capital Market immediately following the completion of this offering.

Corporate Information

We were founded in 2005 and we completed our merger with AVM, which was founded in 1998, in 2016. Our principal executive offices are located at 122 East 42nd Street, New York, New York, 10168 and our telephone number is (212) 594-5050. Our website is www.peerstream.com. Information contained on our website or that can be accessed through our website is not incorporated by reference in this prospectus.

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THE OFFERING

Units offered by us

 

1,300,000 units, each consisting of one share of common stock and one warrant to purchase a share of common stock.

Warrants offered as part of our units

 

Each unit includes a warrant representing the right to purchase a share of common stock. Each warrant will have an exercise price of $      per share, will be immediately exercisable and will expire on the fifth anniversary of the original issuance date. This prospectus also relates to the offering of the shares of common stock issuable upon exercise of the warrants.

Option to purchase additional shares of common stock

 


We have granted the underwriters a 45-day option to purchase up to an additional 195,000 shares of common stock and/or warrants to purchase up to an additional 195,000 shares of common stock at the public offering price, less underwriting discounts and commissions. Unless we indicate otherwise or the context otherwise requires, all information assumes no exercise of the underwriters’ overallotment option.

Common stock outstanding

 

6,730,108 shares (as of September 30, 2018 and excluding 158,571 shares of unvested restricted stock).

Common stock outstanding after this offering

 

8,030,108 shares (based on outstanding shares as of September 30, 2018, and excluding 158,571 shares of unvested restricted stock and assuming no exercise of any warrants issued in this offering).

Use of proceeds

 

We intend to use the net proceeds of this offering for general corporate purposes and working capital. In addition, we may use a portion of the net proceeds of this offering to repurchase shares of common stock held by existing stockholders of the Company, including certain of the Company’s affiliates, in privately negotiated transactions from time to time. See “Use of Proceeds.”

Dividend policy

 

We do not currently, and have no current plans, to pay dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our Board of Directors and will depend on, among other things, general and economic conditions, our financial condition, and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions, implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our Board of Directors may deem relevant.

Risk factors

 

See “Risk Factors” beginning on page 16 and the other information included elsewhere or incorporated by reference in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

12

Trading symbol

 

Our common stock has been approved for listing on The Nasdaq Capital Market under the symbol “PEER,” subject to official notice of issuance, and we expect that our common stock will begin trading on The Nasdaq Capital Market immediately following the completion of this offering. Our common stock is currently listed on the OTCQB under the symbol “PEER.”

We have applied to list our warrants for trading on The Nasdaq Capital Market under the symbol “PEERW.” If our listing application for the warrants is approved, we expect that the warrants will begin trading on The Nasdaq Capital Market immediately following the completion of this offering. There is currently no established public trading market for the warrants and there can be no assurance that our listing application for the warrants will be approved or that an active trading market for the warrants will develop.

In this prospectus, unless otherwise indicated, the number of shares of common stock is based on 6,730,108 outstanding shares of common stock as of September 30, 2018, and the number of shares of common stock outstanding and the other information based thereon:

•        excludes 158,571 outstanding shares of restricted common stock that were subject to time-based vesting conditions as of September 30, 2018;

•        excludes 1,067,527 shares of our common stock that are issuable upon the exercise of stock options awarded under our 2016 Long-Term Incentive Plan (the “2016 Plan”) and 2011 Long-Term Incentive Plan that were outstanding as of September 30, 2018;

•        excludes 408,508 shares of our common stock reserved for future issuance under the 2016 Plan;

•        does not reflect any exercise by the underwriters of their option to purchase 195,000 additional shares of our common stock and/or warrants representing the right to purchase an additional 195,000 shares of our common stock; and

•        does not reflect any exercise of the warrants to be issued to investors in this offering.

13

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth our summary historical consolidated financial data for the periods presented below. The summary consolidated financial data as of December 31, 2017 and 2016 and for each of the years in the two-year period ended December 31, 2017 have been derived from our audited consolidated financial statements included herein. The summary unaudited condensed consolidated financial data as of September 30, 2018 and the nine-month periods ended September 30, 2018 and 2017 has been derived from our unaudited condensed consolidated financial statements included herein.

Our historical results are not necessarily indicative of the results of operations for future periods. You should read the following summary consolidated financial data in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus, as well as our latest Annual Report on Form 10-K and Quarterly Report on Form 10-Q, incorporated by reference herein. See “Where You Can Find More Information.”

 

Year Ended
December 31,

 

Nine Months Ended
September 30,

2017

 

2016

 

2018

 

2017

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

24,841,283

 

 

$

20,988,429

 

 

$

19,825,224

 

 

$

18,886,016

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

4,861,315

 

 

 

5,015,565

 

 

 

3,581,794

 

 

 

3,753,522

 

Sales and marketing

 

 

7,847,235

 

 

 

5,099,956

 

 

 

4,266,434

 

 

 

6,310,931

 

Product development

 

 

8,918,409

 

 

 

8,600,688

 

 

 

6,052,098

 

 

 

6,635,561

 

General and administrative

 

 

8,874,389

 

 

 

4,016,068

 

 

 

6,679,349

 

 

 

6,735,737

 

Total costs and expenses

 

 

30,501,348

 

 

 

22,732,277

 

 

 

20,579,675

 

 

 

23,435,751

 

Loss before provision for income taxes

 

 

(5,665,281

)

 

 

(1,452,776

)

 

 

(3,241,373

)

 

 

(4,528,002

)

Income tax expense

 

 

(228,972

)

 

 

 

 

 

1,864

 

 

 

 

Net loss

 

$

(5,894,253

)

 

$

(1,452,776

)

 

$

(3,243,237

)

 

$

(4,528,002

)

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA(1)

 

$

(1,930,574

)

 

$

11,805

 

 

$

2,007,009

 

 

$

(1,880,607

)

Subscription bookings(2)

 

$

22,623,529

 

 

$

18,168,008

 

 

$

14,937,329

 

 

$

17,208,702

 

Active subscribers (as of period end)(3)

 

 

170,962

 

 

 

(4)

 

 

150,400

 

 

 

179,800

 

Balance Sheet Data (at end of period):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,137,050

 

 

$

4,162,596

 

 

$

7,217,354

 

 

$

3,300,267

 

Total assets

 

 

22,764,447

 

 

 

27,524,151

 

 

 

25,418,064

 

 

 

22,641,677

 

Total stockholders’ equity

 

 

17,430,722

 

 

 

20,843,462

 

 

 

15,421,378

 

 

 

17,366,687

 

Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(730,758

)

 

$

(406,651

)

 

$

3,301,115

 

 

$

(660,277

)

Net cash used in investing activities

 

 

(219,227

)

 

 

(2,084,576

)

 

 

(249,021

)

 

 

(139,277

)

Net cash provided by (used in) financing activities

 

 

924,439

 

 

 

(22,734

)

 

 

28,210

 

 

 

(62,775

)

____________

(1)      Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net income (loss) adjusted to exclude interest (income) expense, net, other (income) expense, net, income tax expense (benefit), depreciation and amortization expense, loss on disposal of property and equipment, impairment loss on digital tokens and stock-based compensation 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.

14

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:

•        Adjusted EBITDA does not reflect cash capital expenditures for assets underlying depreciation and amortization expense that may need to be replaced or for new capital expenditures;

•        Adjusted EBITDA does not reflect our working capital requirements;

•        Adjusted EBITDA does not reflect the impairment loss on digital tokens;

•        Adjusted EBITDA does not consider the potentially dilutive impact of stock-based compensation; and

•        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, net loss and our other GAAP results. The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated:

 

Year Ended
December 31,

 

Nine Months Ended September 30,

   

2017

 

2016

 

2018

 

2017

Reconciliation of Net loss to Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(5,894,253

)

 

$

(1,452,776

)

 

$

(3,243,237

)

 

$

(4,528,002

)

Interest (income) expense, net

 

 

(41,717

)

 

 

60,030

 

 

 

(48,313

)

 

 

(39,643

)

Other expense (income), net

 

 

46,933

 

 

 

(351,102

)

 

 

 

 

 

17,910

 

Income tax expense

 

 

228,972

 

 

 

 

 

 

1,864

 

 

 

 

Depreciation and amortization expense

 

 

2,132,496

 

 

 

1,402,533

 

 

 

1,555,778

 

 

 

1,618,911

 

Loss on disposal of property and equipment

 

 

17,074

 

 

 

 

 

 

 

 

 

17,074

 

Impairment loss on digital tokens

 

 

 

 

 

 

 

 

2,535,235

 

 

 

 

Stock-based compensation expense

 

 

1,579,921

 

 

 

353,120

 

 

 

1,205,682

 

 

 

1,033,143

 

Adjusted EBITDA

 

$

(1,930,574

)

 

$

11,805

 

 

$

2,007,009

 

 

$

(1,880,607

)

(2)      Subscription bookings is a financial measure representing the aggregate dollar value of subscription fees and micro-transactions 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. Deferred subscription revenue is recognized ratably over the length of the subscription term. 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 revenue more or less than such factors affect subscription bookings in any period. While we believe that subscription bookings is useful in evaluating the performance of our consumer applications, it should be considered as supplemental in nature and it is not meant to be a substitute for subscription revenue recognized in accordance with GAAP.

(3)      Active subscribers means users of our consumer applications that have prepaid a fee, redeemed credits or received an upgrade from another user as a gift for current unlocked application features such as enhanced voice and video access, elevated status in the community or unrestricted communication on our applications and whose subscription period has not yet expired. The metrics for active subscribers are based on internally-derived metrics across all platforms through which our applications are accessed. We assess the performance of our consumer applications by measuring active subscribers because we believe that this metric is the most reliable way to understand user engagement on our platform and estimate the future operational performance of our applications. We also believe that measuring active subscribers helps management estimate future subscription revenue. Because active subscribers generate the majority of our subscription revenue, as the number of active subscribers to our consumer applications increases, the amount of subscription revenue generated from our consumer applications also increases.

(4)      Prior to the AVM Merger, AVM did not track the total number of active subscribers for its consumer applications in a manner consistent with the metric as presently defined by the Company. As a result, it is impracticable for us to provide accurate information concerning the number of our active subscribers for periods prior to the time we reconciled the recordation of active subscribers between PeerStream and AVM.

15

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before making a decision to invest in our common stock. Our business, operating results or financial condition could be adversely affected by any of these risks. The risks described below are not the only ones we face. The occurrence of any of the following risks or future or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial position, results of operations or cash flows. The trading price of our common stock could also decline due to any of these risks, and, as a result, you may lose all or part of your investment. Before deciding whether to invest in our common stock, you should also refer to the other information included or incorporated by reference in this prospectus, including our consolidated financial statements and the related notes.

Risks Related to Our Business

Our shift in focus towards the utilization and development of blockchain-based applications and technologies could have a material adverse effect on our business, financial condition or results of operations.

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

We may face significant challenges in launching PeerStream Business Solutions.

On March 8, 2018, we launched PeerStream Business Solutions, which provides blockchain-based licensing, services and support related to blockchain implementation for third party developers and corporate clients. The launch of PeerStream Business Solutions poses risks and challenges that could materially impact our business, financial condition and results of operations. Currently, all of the revenue generated from PeerStream Business Solutions has been derived from our technology services agreement with ProximaX. However, the success of PeerStream Business Solutions substantially depends upon our ability to expand our client base beyond ProximaX, and our failure to do so would have a material negative impact on our ability to generate revenue and our financial condition.

In addition, our management only recently determined to shift our corporate focus towards providing business solutions services. While we intend to expand our staff with individuals with more experience in the business solutions industry and will closely scrutinize individuals we engage, we cannot provide assurance that we will be able to retain or continue to hire well-qualified and experienced individuals or that our assessment of individuals we retain will be correct.

The further development and acceptance of blockchain technologies, which are part of a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of blockchain technologies or assets would have a material adverse effect on our business.

The growth of the blockchain industry in general, as well as the blockchain networks on which our technologies may rely, is subject to a high degree of uncertainty. The factors affecting the further development of the blockchain industry and networks, include, without limitation:

•        worldwide growth in the adoption and use of blockchain and distributed ledger technologies, including cryptocurrencies and digital tokens, cryptosecurities and digital tokens;

•        government and quasi-government regulation of blockchain assets, including cryptocurrencies, and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems;

16

•        the maintenance and development of the open-source software protocol of blockchain networks;

•        changes in consumer demographics and public tastes and preferences;

•        general economic conditions and the regulatory environment relating to cryptocurrencies; and

•        a decline in the popularity or acceptance of blockchain-based technologies, including cryptocurrencies and tokens.

The blockchain industry as a whole is in its infancy and has been characterized by rapid changes and innovations. Although it has experienced significant growth in recent years, the slowing or stopping of the development, general acceptance and adoption and usage of blockchain networks and blockchain assets may materially adversely affect our business plans, financial results and prospects.

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

As of November 2, 2018, our applications supported an active subscriber base of approximately 147,000 active subscribers worldwide. However, compared to the total number of users in any given period, only a small portion of our users are active subscribers or purchasers of virtual currency. We primarily generate revenue through the sale of subscriptions and virtual currency to this small portion of users and secondarily generate revenue through paid advertisements. Accordingly, the success of our consumer applications is substantially dependent on our ability to convert our users into active subscribers and to sell our users virtual currency.

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

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

•        users may adopt competing products instead of ours;

•        we may fail to introduce new products and services or those we introduce may be poorly received;

•        our products may fail to operate effectively on mobile or other platforms;

•        we may be unable to combat spam or other hostile or inappropriate usage on our products;

•        there may be adverse changes in user sentiment about the quality or usefulness of our existing products;

•        there may be concerns about the privacy implications, safety or security of our products;

•        technical or other problems may frustrate the experience of our users, particularly if those problems prevent us from delivering our products in a fast and reliable manner;

•        we may fail to provide adequate service to our users;

•        we or other companies in our industry may be the subject of adverse media reports or other negative publicity;

•        we may not maintain our brand image or our reputation may be damaged; and

•        we may be subject to denial of service or other attacks from hackers that result in service downtime.

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

17

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

The blockchain services and consumer application industries are highly competitive and have few barriers to entry. If we are unable to efficiently and effectively attract new users or clients as a result of intense competition or a saturated market, we may not be able to continue the provision, development and enhancement of our services and applications or become profitable on a consistent basis in the future.

Important factors affecting our ability to successfully compete include:

•        the usefulness, novelty, performance and reliability of our products compared to our competitors;

•        the timing and market acceptance of our products, including developments and enhancements of our competitors’ products;

•        our ability to effectively monetize our services and products and the availability of free or cheaper alternatives from our competitors;

•        our ability to hire and retain talented employees, including technical employees, executives, and marketing experts;

•        the success of our customer service and support efforts;

•        our reputation and brand strength compared to our competitors;

•        with respect to consumer applications, competition for acquiring users that could result in increased user acquisition costs;

•        reliance upon the platforms through which our consumer applications are accessed and the platform owner’s ability to control our activities on such platforms;

•        the effectiveness of the marketing and advertisement of our services and products;

•        our ability to maintain advertisers’ interests in advertising through our products;

•        our ability to innovate in the ever-changing industries in which we operate;

•        changes as a result of new legislation or regulation within our industries; and

•        acquisitions or consolidations within our industries.

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

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

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

18

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

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

We have recently formed strategic partnerships with third parties and entered into service agreements that provided us with cryptocurrencies as compensation for our services. In addition, we have in the past accepted bitcoin as a form of payment for purchases on our applications, and we may in the future accept bitcoin or other cryptocurrencies as a form of payment for purchases on our applications. Historically, under our arrangement with our payment processor, bitcoin payments were automatically converted into U.S. dollars so that we received payment for transactions entirely in U.S. dollars. However, if we determine to accept cryptocurrencies as a method of payment in the future, we may also determine to hold those cryptocurrencies directly.

Cryptocurrencies are not considered legal tender or backed by any government and have experienced price volatility, technological glitches and various law enforcement and regulatory interventions. The use of cryptocurrency such as bitcoin has been prohibited or effectively prohibited in some countries. If we fail to comply with prohibitions applicable to us, we could face regulatory or other enforcement actions and potential fines and other consequences.

As part of our strategy of forming strategic alliances with blockchain companies, we may make limited investments in initial coin or token offerings or negotiate that we receive cryptocurrency tokens as compensation for services. For instance, as part of our technology services agreement with ProximaX, a portion of our compensation was paid in XPX tokens. The prices of cryptocurrency tokens, including our XPX tokens, are typically highly volatile and subject to exchange rate risks, as well as the risk that regulatory or other developments may adversely affect their value. As of September 30, 2018 at approximately 5:00 PM, Eastern Time, during the impairment period, our 216.0 million XPX tokens had an aggregate fair value of $0.8 million. However, our XPX tokens shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired, and therefore, fluctuations in the market value of XPX tokens could directly impact our balance sheet and statements of operations. We currently expect to hold our XPX tokens until at least June 2, 2019, at which time we may determine to opportunistically resell the tokens in open market transactions from time to time.

In particular, our XPX tokens may experience periods of extreme volatility due to (i) XPX tokens having a very limited trading history, (ii) the limited public supply of XPX tokens and (iii) XPX tokens trading on a limited number of cryptocurrency exchanges, all of which have limited operating histories. Speculators and investors who seek to profit from trading and holding XPX tokens currently account for a significant portion of XPX token demand. Such speculation regarding the potential future appreciation in the value of XPX tokens may artificially inflate their price. Fluctuations in the value of our XPX tokens or any other cryptocurrencies that we hold may also lead to fluctuations in the value of our common stock. In addition, because of the limited trading volumes in XPX tokens on these cryptocurrency exchanges, converting our holdings to fiat currency would likely take an extended period of time. If exchanges where XPX tokens trade were to cease operations or no longer quote XPX tokens, there would be no trading platform for XPX tokens and it would likely be impossible to convert XPX tokens into fiat currency.

We may also face risks as a result of our business partners or clients having exposure to risks associated with cryptocurrencies. For instance, fluctuations in the value of cryptocurrencies could negatively impact the ability of these third parties to fulfill their obligations under their agreements with us.

In addition, there is substantial uncertainty regarding the future legal and regulatory requirements relating to cryptocurrency or transactions utilizing cryptocurrency. For instance, governments may in the near future curtail or outlaw the acquisition, use or redemption of cryptocurrencies. Ownership of, holding or trading in cryptocurrencies may then be considered illegal and subject to sanction. These uncertainties, as well as future accounting and tax developments, or other requirements relating to cryptocurrency, could have a material adverse effect on our business.

The cryptocurrency exchanges on which our XPX tokens trade have limited operating histories and, in most cases, are largely unregulated and, therefore, may be more exposed to fraud and failure than established, regulated exchanges for traditional securities and other products. To the extent that any of these exchanges are involved in fraud or experience security failures or other operational issues, it may result in a reduction in the trading price, or the loss or destruction of, our XPX tokens.

The cryptocurrency exchanges on which the XPX tokens trade have limited operating histories and, in most cases, are largely unregulated. Furthermore, these cryptocurrency exchanges do not provide the public with significant

19

information regarding their ownership structure, management team, corporate practices or regulatory compliance. As a result, the marketplace may lose confidence in or may experience problems relating to one or more of these exchanges. Cryptocurrency exchanges may impose daily, weekly, monthly or customer-specific transaction or distribution limits, or they may suspend withdrawals entirely, rendering the exchange of XPX tokens for other digital assets or for fiat currency difficult or impossible.

Over the past few years, a number of cryptocurrency exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such exchanges were not compensated or made whole for the partial or complete losses of their account balances in such exchanges. The Kryptono Exchange, which is the principal exchange for the XPX tokens, launched in June 2018 and is less likely to have the infrastructure and capitalization that make larger cryptocurrency exchanges more stable. As a result, the Kryptono Exchange may be at risk for cybersecurity attacks or may suffer from a greater exposure to technical failure.

A lack of stability in the Kryptono Exchange or the other exchanges upon which XPX tokens trade and their closure or temporary shutdown due to fraud, business failure, hackers or malware, or government-mandated regulation could result in us losing all or a portion of our XPX tokens or may reduce confidence in the XPX tokens and result in greater volatility in their pricing. If the XPX tokens are delisted from the Kryptono Exchange or any other cryptocurrency exchange, or if any of the cryptocurrency exchanges that list XPX tokens shut down or cease to continue operations, there may cease to be a liquid market for XPX tokens. These potential consequences could also have a material adverse impact on the trading price of our common stock and our financial results. Moreover, the majority of the cryptocurrency exchanges that list XPX tokens operate outside of the United States. Accordingly, in the event of fraud, we may have difficulty successfully pursuing claims against these exchanges in the courts of the countries in which they are organized.

Currently, there are no regulated trading markets for our XPX tokens or the other tokens that we hold, and therefore our ability to sell such tokens may be limited.

As of the date of this prospectus, the online trading platforms on which the tokens we hold trade, including, with respect to our XPX tokens, the Kryptono Exchange, do not qualify as registered exchanges within the meaning of federal securities laws or regulated alternative trading systems. To the extent the tokens trading on these platforms meet the definition of a security under federal securities laws, the platform is generally required to register with the SEC as a national securities exchange or be exempt from such registration requirements. The failure of these platforms to register as national securities exchanges or properly comply with registration exemptions could result in the SEC bringing an enforcement action seeking to prohibit, suspend or limit their operations. In such event, the tokens we hold may be tradable on a very limited range of venues, or not at all, and there may be periods where trading activity in tokens that we hold is minimal or non-existent. These potential consequences could have a material adverse impact on the trading price of the tokens that we hold and could render the exchange of our tokens for other digital assets or fiat currency difficult or impossible.

Technology that we provide as part of our blockchain services, including PeerStream Protocol, may not function properly.

The technology that we provide as part of our blockchain services, including PSP, may not function properly, which would have a material adverse effect on our business plans, operations and financial condition. PSP is in the preliminary stages of development, but if the technology does not work as anticipated, we may be unable to develop an alternative blockchain-based multimedia delivery platform. PSP is planned to be the initial piece of proprietary technology offered through PeerStream Business Solutions, and accordingly, any problems in its functionality would have a direct materially adverse effect on our reputation and our plans and expectations for revenues from blockchain-based applications. PSP and other blockchain-based technologies that we develop may malfunction because of internal problems or as a result of cyber-attacks or external security breaches. Any such technological problems would have a material adverse effect on the prospects of our business.

Our XPX tokens and other cryptocurrencies that we hold may be subject to loss, theft or restriction on access.

There is a risk that some or all of our cryptocurrencies could be lost or stolen. Access to our coins could also be restricted by cybercrime. We currently hold all of our XPX tokens and other cryptocurrencies in cold storage. Cold storage refers to any cryptocurrency wallet that is not connected to the internet. Cold storage is generally more secure, but is not ideal for quick or regular transactions. We expect to continue to hold the majority of our cryptocurrencies in cold storage to reduce the risk of malfeasance, but this risk cannot be eliminated.

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Hackers or malicious actors may launch attacks to steal, compromise or secure cryptocurrencies, such as by attacking the cryptocurrency network source code, exchange servers, third party platforms, cold and hot storage locations or software, or by other means. We are in control and possession of one of the more substantial holdings of XPX tokens, and we may in the future hold substantial positions in other cryptocurrencies. As we increase in size, we may become a more appealing target of hackers, malware, cyber-attacks or other security threats. Any of these events may adversely affect our operations and, consequently, our investments and profitability. The loss or destruction of a private key required to access our digital wallets may be irreversible and we may be denied access for all time to our cryptocurrency holdings or the holdings of others. Our loss of access to our private keys or our experience of a data loss relating to our digital wallets could adversely affect our investments and assets.

Cryptocurrencies are controllable only by the possessor of both the unique public and private keys relating to the local or online digital wallet in which they are held, which wallet’s public key or address is reflected in the network’s public blockchain. We will publish the public key relating to digital wallets in use when we verify the receipt of transfers and disseminate such information into the network, but we will need to safeguard the private keys relating to such digital wallets. To the extent such private keys are lost, destroyed or otherwise compromised, we will be unable to access our cryptocurrency coins and such private keys may not be capable of being restored by any network. Any loss of private keys relating to digital wallets used to store our cryptocurrencies could have a material adverse effect on our business, prospects or operations and the value of any XPX tokens or other cryptocurrencies we hold for our own account.

Because there has been limited precedent set for financial accounting of cryptocurrencies and other digital assets, the determination that we have made for how to account for our XPX tokens and any other digital assets we may acquire may be subject to change.

Because there has been limited precedent set for the accounting classification and measurement of cryptocurrency and other digital tokens and related revenue recognition, it is unclear how companies may in the future be required to account for digital asset transactions and assets and related revenue recognition. We are currently accounting for our XPX tokens as indefinite-lived intangible assets in accordance with ASC 350: Intangibles — Goodwill and Other. Indefinite-lived intangible assets are recorded at cost and are not subject to amortization, but shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. However, a change in regulatory or financial accounting standards could result in the necessity to change our accounting methods and restate our financial statements.  Such a restatement could adversely affect the accounting for our XPX tokens or other cryptocurrencies that we may acquire and may more generally negatively impact our business, prospects, financial condition and results of operation.

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

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

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

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

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from the storefront is non-operational for a prolonged period of time, it could have a material adverse effect on our business, results of operations or financial condition.

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

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

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

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

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

We may conduct a portion of our operations through partnerships, strategic alliances or joint ventures. For instance, as part of our blockchain strategy, we are exploring forming partnerships with blockchain companies and identifying potential strategic equity or small investments in blockchain companies. As part of this strategy, we entered into our technology services agreement with ProximaX and we may enter into similar arrangements in the future.

In the future, we may depend on third parties for elements of these arrangements that are important to the success of the relationship, such as the development of features or technologies to be incorporated into our applications. The performance of these third party obligations or the ability of third parties to meet their obligations under these arrangements would be outside of our control. If these third parties do not meet or satisfy their obligations under these arrangements, the performance and success of these arrangements, and their value to us, would be adversely affected. If our current or future partners are unable to meet their obligations, we may be forced to undertake the obligations ourselves and/or incur additional expenses in order to have some other party perform such obligations. In such cases we may also be required to seek legal enforcement of our rights, the outcome of which would be uncertain. If any of these events occur, they may adversely impact us, our financial performance and results of operations, and/or adversely impact our ability our ability to enter into similar relationships in the future.

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

•        third parties may share certain approval rights over major decisions within the scope of the relationship;

•        the possibility that these third parties might become insolvent or bankrupt;

•        the possibility that we may incur liabilities as a result of an action taken by one of these third parties;

•        these third parties may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; and

•        disputes between us and these third parties may result in litigation or arbitration that would increase our expenses, delay or terminate projects and prevent our officers and directors from focusing their time and effort on our business.

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We may in the future explore strategic alternatives for our non-core properties, but there can be no assurance that we will be successful in identifying or completing any strategic alternative or that any such strategic alternative will yield additional value for stockholders.

We continuously evaluate the performance of our existing applications and assets and we may in the future engage in a review of strategic alternatives for our non-core properties, which include our dating properties, Vumber and certain of our patents. These strategic alternatives may result in, among other things, a sale of all or a portion of these assets. If our Board of Directors determines to proceed with such a review, it may be suspended or terminated at any time without notice, and there can be no assurance that any such process will result in the identification or consummation of any transaction. In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives and transactions. Furthermore, any attractive strategic alternative may be limited or prohibited by applicable regulatory regimes. Any potential transaction would be dependent upon a number of factors that may be beyond our control. If we are unable to effectively manage the process, the business, financial condition, and results of operations of the Company could be adversely affected. We also cannot assure that any potential transaction or strategic alternative, if identified, evaluated and consummated, will be successful in enhancing our business or financial conditions, or provide greater value to our stockholders than that reflected in the current stock price.

If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings, which could seriously harm our business.

We are required to test goodwill for impairment at least annually or more frequently if there are indicators that the carrying amount of the goodwill exceeds its carried value. As of September 30, 2018, we had recorded a total of $13.1 million of goodwill, $2.7 million of other intangible assets and $0.8 million of digital tokens. An adverse change in domestic or global market conditions, particularly if such change has the effect of changing one of our critical assumptions or estimates made in connection with the impairment testing of goodwill or intangible assets, could result in a change to the estimation of fair value that could result in an impairment charge to our goodwill or other intangible assets. If we divest or discontinue product categories or products that we previously acquired, or if the value of those parts of our business become impaired, we also may need to evaluate the carrying value of our goodwill. Any such material charges may have a negative impact on our operating results.

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

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

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

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

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

We regularly review metrics, including our active subscribers, to evaluate growth trends, measure our performance, and make strategic decisions. These metrics are calculated using internal Company data and have not been validated by an independent third party. While these numbers are based on what we believe to be reasonable

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estimates of our user base for the applicable period of measurement, there are inherent challenges in measuring how our products are used across large populations globally.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Presently, we derive a significant portion of revenue from international territories and we plan to continue expanding our business operations abroad. In addition, we rely on outsourced services based in Russia, India and elsewhere. We may enter new international markets where we have limited or no experience in marketing, selling and deploying our products. If we fail to deploy or manage our operations in international markets successfully, our business may suffer. As our international operations increase our operating results may become more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. In addition, we are subject to a variety of risks inherent in doing business internationally, including:

•        political, social, and economic instability;

•        risks related to the legal and regulatory environment in foreign jurisdictions, including with respect to privacy, and unexpected changes in laws, regulatory requirements, and enforcement;

•        potential damage to our brand and reputation due to compliance with local laws, including potential censorship and requirements to provide user information to local authorities;

•        fluctuations in currency exchange rates;

•        higher levels of credit risk and payment fraud;

•        complying with multiple tax jurisdictions;

•        reduced protection for intellectual-property rights in some countries;

•        difficulties in staffing and managing global operations and the increased travel, infrastructure and compliance costs associated with multiple international locations;

•        regulations that might add difficulties in repatriating cash earned outside the United States and otherwise preventing us from freely moving cash;

•        import and export restrictions and changes in trade regulation;

•        complying with statutory equity requirements;

•        complying with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws in other jurisdictions; and

•        export controls and economic sanctions administered by the Department of Commerce Bureau of Industry and Security and the Treasury Department’s Office of Foreign Assets Control.

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

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

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

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

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

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

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

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

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

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

Our applications rely heavily on email campaigns. We face a risk that any disruptions in or restrictions on the sending or receipt of emails, or any increase in the associated costs could adversely affect our business, results of operations or financial condition.

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

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

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

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

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

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

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

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

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

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

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public knowledge and seriously harm our reputation or lead to lawsuits or attention from regulators. If these activities increase, our reputation, user growth and user engagement, and operational cost structure could be seriously harmed.

If there are changes in laws or regulations regarding privacy and the protection of user data, or if we fail to comply with such laws or regulations, we may face claims brought against us by regulators or users that could adversely affect our business, results of operations or financial condition.

State, federal and international laws and regulations govern the collection, use, retention, sharing and security of data that we receive from and about our users. These laws can be particularly restrictive in countries outside of the United States. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industries in which we operate.

Any failure, or perceived failure, by us to comply with such laws and regulations, including Federal Trade Commission requirements or industry self-regulatory principles, could result in proceedings or actions against us by governmental entities or others, which could potentially have an adverse effect on our business. As a result of such a failure, or perceived failure, we may be subject to a claim or class-action lawsuit regarding our online services. The successful assertion of a claim against us, or a regulatory action against us, could result in significant monetary damages, diversion of management resources and require us to make significant payments and incur substantial legal expenses. Any claims with respect to violation of privacy or misappropriation of user data brought against us may have a material adverse effect on our business, results of operations and financial condition.

Several proposals are pending before federal, state, and foreign legislative and regulatory bodies or have recently been enacted that could significantly affect our business. For example, the European Union’s General Data Protection Regulation (“GDPR”), which went into effect on May 25, 2018, required us to change our policies and procedures regarding the handling of personal and sensitive data in the European Union. The failure to comply with the GDPR could, in certain instances, result in penalties of up to 4% of our worldwide revenues. As a result, a failure to comply with the GDPR could seriously harm our business.

Continued privacy concerns may result in new or amended laws and regulations. Future laws and regulations with respect to the collection, compilation, use and publication of information and consumer privacy could result in limitations on our operations, increased compliance or litigation expense, adverse publicity or loss of revenue, which any of which could have a material adverse effect on our business, financial condition and results of operations. It is also possible that we could be prohibited from collecting or disseminating certain types of data, which could affect our ability to meet our users’ needs.

Changes in laws or regulations that impact the use of the internet, including internet neutrality laws, could adversely affect our business, results of operations or financial condition.

The adoption of any laws or regulations that adversely affect the growth or use of the internet, including laws governing internet neutrality, could decrease the demand for our products and increase our cost of doing business. Current Federal Communications Commission “open internet rules” prohibit internet providers in the United States from impeding access to most content, or otherwise unfairly discriminating against content providers like us. These rules also prohibit mobile providers from entering into arrangements with specific content providers for faster or better access over their data networks. The European Union similarly requires equal access to internet content. If the Federal Communications Commission, Congress, the European Union or courts modify these open internet rules, mobile providers may be able to limit our users’ ability to access our applications or make our applications a less attractive alternative to our competitors’ applications, which could materially adversely affect our business, results of operations and financial condition.

We have faced, and we expect that we will continue to face, chargeback liability when our credit card providers resolve chargebacks in favor of their customers. We cannot accurately anticipate the extent of these liabilities, and if not properly addressed, these liabilities could increase our operating expenses or preclude us from accepting certain credit cards as a method of payment, either of which would materially adversely affect our results of operations and financial condition.

We depend on the ability to accept credit and debit card payments from our subscribers and our ability to maintain the good standing of our merchant account with our credit card providers to process subscription payments. In the event that one of our customers initiates a billing dispute and one of our credit card providers resolves the dispute in the customer’s favor, the transaction is normally “charged back” to us and the purchase price is credited or otherwise

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refunded to the customer. In addition, under current credit card practices, a merchant is liable for fraudulent credit card transactions when, as is the case with the transactions we process, that merchant does not obtain a cardholder’s signature.

We have suffered losses and we expect that we will continue to suffer losses as a result of subscriptions placed with fraudulent credit card data, as well as users who chargeback their purchases. Any failure to adequately control fraudulent credit card transactions or keep our chargebacks under an acceptable threshold would result in significantly higher credit card-related costs and, therefore, materially increase our operating expenses.

If we are subject to intellectual property infringement claims, it could cause us to incur significant expenses, pay substantial damages or royalties and prevent us from offering our applications.

From time to time, third parties may claim that our applications infringe or violate their intellectual property rights. Any claims of infringement could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages and prevent us from using licensed technology that may be fundamental to our applications. Even if we were to prevail, any litigation regarding intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. We maintain insurance to protect against intellectual property infringement claims and resulting litigation, but such insurance may not cover or may not be sufficient to cover all potential claims, liability or expenses. We may also be obligated to indemnify our business partners in any such litigation, which could further exhaust our resources. Furthermore, as a result of an intellectual property challenge, we may be prevented from offering our applications unless we enter into royalty, license or other agreements. We may not be able to obtain such agreements at all or on terms acceptable to us, and as a result, we may be precluded from offering our applications and services.

We may make acquisitions in the future, which could require significant management attention, disrupt our business, dilute our stockholders and seriously harm our business.

As part of our business strategy, we have made and intend to make acquisitions to add specialized employees and complementary companies, products and technologies. In the future, we may not be able to find other suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. Our previous and future acquisitions may not achieve our goals, and any future acquisitions we complete could be viewed negatively by users, advertisers or investors. In addition, if we fail to successfully close transactions or integrate new teams, or integrate the products and technologies associated with these acquisitions into our company, our business could be seriously harmed. Any integration process may require significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or use the acquired products, technology and personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may also incur unanticipated liabilities that we assume as a result of acquiring companies. We may have to pay cash, incur debt or issue equity securities to pay for any acquisition, any of which could negatively impact our business and financial condition. Issuing equity to finance any such acquisitions would also dilute our existing stockholders. Incurring debt would increase our fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations.

We face risks of litigation and regulatory actions if we are deemed a dating service or internet dating service.

In certain states, companies that provide dating services or internet dating services are subject to various regulations. Because our applications provide online dating features, we could be exposed to regulation as a dating or internet dating service. If we were considered to be a dating service or internet dating service in any of the jurisdictions in which we operate, we might be required to comply with regulations that would require us to, among other things, provide disclosure regarding our screening practices and warnings on our applications regarding the dangers associated with the use of our applications. If a legal authority determines that we have provided and are providing dating services or internet dating services that are regulated by certain states, we could be deemed to be out of compliance with such regulations and could be liable for any damages as a result of our past non-compliance, either of which could have a material adverse effect on our business, financial condition or results of operations.

We face certain risks related to the physical and emotional safety of users and third parties.

We cannot control the actions of our users in their communications or physical actions. There is a possibility that users or third parties could be physically or emotionally harmed following interaction with another user. We warn our users that we do not screen other users and, given our lack of physical presence, we do not take any action to ensure

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personal safety on a meeting between users or subscribers arranged following contact initiated via our applications or ensure personal safety of our users against self-harming following contact with other users initiated via our applications. If an unfortunate incident of this nature occurred in a meeting of two people following contact initiated on our applications or that of one of our competitors, any resulting negative publicity could materially and adversely affect us or the online video chat and dating industries in general. Any such incident involving our applications could damage our reputation and our brand, which could have a material adverse effect on our business, results of operations or financial condition. In addition, the affected users or third parties could initiate legal action against us, which could divert management attention from operations, cause us to incur significant expenses, whether we are successful or not, and damage our reputation.

We may be liable as a result of information retrieved from or transmitted over the internet.

We may be sued for defamation, civil rights infringement, negligence, copyright or trademark infringement, invasion of privacy, personal injury, product liability or under other legal theories relating to information that is published or made available on our websites or applications. These types of claims have been brought, sometimes successfully, against online services in the past. We also offer messaging services on our applications and we send emails directly and through third parties to our users, which may subject us to potential risks, such as liabilities or claims resulting from unsolicited email or spamming, lost or misdirected messages, security breaches, illegal or fraudulent use of email or personal information or interruptions or delays in email service. Our insurance does not specifically provide for coverage of these types of claims and, therefore, may be inadequate to protect us against them. In addition, we could incur significant costs in investigating and defending such claims, even if we ultimately are not held liable. If any of these events occur, our revenue could be materially adversely affected or we could incur significant additional expense, and the market price of our securities may decline.

We may need additional capital to execute our business plan. If we do not obtain additional financing, it could have a material adverse effect on our business, results of operations or financial condition.

We might need to raise additional capital or financing through debt or equity offerings to support our expansion, marketing efforts and application development programs in the future. We might require additional capital or financing to:

•        expand our blockchain initiatives, including growing PeerStream Business Solutions;

•        hire and retain talented employees, including technical employees, executives, and marketing experts;

•        effectuate our long-term growth strategy and expand our application development programs; and

•        market and advertise our applications to attract more paying subscribers.

We may be unable to obtain future capital or financing on favorable terms or at all. If we cannot obtain additional capital or financing, we may need to reduce, defer or cancel application development programs, planned initiatives, marketing or advertising expenses or costs and expenses. The failure to obtain necessary additional capital or financing on favorable terms, if at all, could have a material adverse effect on our business, results of operations or financial condition.

We may not be effective in protecting our internet domain names.

We currently hold various internet domain names related to our brands and in the future may acquire new internet domain names. The regulation of domain names in the United States and in foreign countries is subject to change. Governing bodies may establish additional top level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names in all countries in which we conduct business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our existing trademarks and other proprietary rights or those we may seek to acquire. Any such inability to protect ourselves could cause us to lose a significant portion of our members and paying subscribers to our competitors.

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Risks Related to this Offering and Ownership of Our Common Stock and Warrants

You may experience immediate and substantial dilution.

Because the effective price per share of common stock included in the units or issuable upon exercise of the warrants included in the units being offered may be substantially higher than the net tangible book value per share of our common stock, you may experience substantial dilution to the extent of the difference between the effective offering price per share of common stock you pay in this offering and the net tangible book value per share of our common stock immediately after this offering. Our net tangible book value as of September 30, 2018, was approximately $(1,154,865) million, or $(0.17) per share of common stock. Net tangible book value per share is equal to our total tangible assets minus total liabilities, all divided by the number of shares of common stock outstanding. See “Dilution.”

Our results of operations are volatile and difficult to predict, and our stock price may decline if we fail to meet the expectations of stockholders.

Our revenue and results of operations could vary significantly from period-to-period and year-to-year and may fail to match our past performance because of a variety of factors, many of which are outside of our control. Any of these events could cause the market price of our common stock to fluctuate. Factors that may contribute to the variability of our results of operations include:

•        our shift in focus towards the utilization and development of blockchain-based applications and technologies and the launch of our business solutions unit;

•        changes in expectations as to our future financial performance;

•        announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships or capital commitments;

•        market acceptance of our new applications and enhancements to our existing applications;

•        the amount of advertising and marketing that is available and spent on user acquisition campaigns;

•        disruptions in the availability of our applications on third party platforms;

•        actual or perceived violations of privacy obligations and compromises of subscriber data;

•        the entrance of new competitors in our market whether by established companies or the entrance of new companies;

•        additions or departures of key personnel and the cost of attracting and retaining application developers and other software engineers; and

•        general market conditions, including market volatility.

Given the rapidly evolving industries in which we operate, our historical results of operations may not be useful in predicting our future results of operations. In addition, metrics available from third parties regarding our industry and the performance of our applications may not be indicative of our future financial performance.

Our common stock is usually thinly traded, you may be unable to sell at or near ask prices or at all and the price of our common stock may be volatile.

The shares of our common stock have usually been thinly-traded on the OTCQB, meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on stock price. In addition, we may experience unusual or infrequent trading events that cause the price of our common stock to fluctuate wildly. For example, in February 2017, a number of third party publications reported that the trading price of our common stock increased by over 100% when investors inadvertently purchased our common stock thinking it was the common stock of Snap Inc., a camera company that, among other things, owns the application Snapchat.

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A broader or more active public trading market for our common stock may not develop or be sustained, and the current trading level of our common stock may not be sustained. Due to these conditions, you may be unable to sell your common stock at or near ask prices or at all if you desire to sell shares of common stock.

Because of the limited trading market for our common stock, and because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so. The inability to sell your shares in a rapidly declining market may substantially increase your risk of loss because of such illiquidity and because the price for our common stock may suffer greater declines because of its price volatility.

The warrants are speculative in nature.

The warrants do not confer any rights of common stock ownership on its holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price of $        per share of common stock, subject to certain adjustments, prior to five years from the date of issuance, after which date any unexercised warrants will expire and have no further value. Moreover, following this offering, the market value of the warrants, if any, is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their imputed offering price. There can be no assurance that the market price of the common stock will ever equal or exceed the exercise price of the warrants, and consequently, it may not ever be profitable for holders of the warrants to exercise the warrants.

There is no established public market for the warrants being offered by us in this offering.

The warrants being offered hereby are a new issue and accordingly there is no established public trading market for the warrants. Although we have applied to list the warrants on The Nasdaq Capital Market, we cannot guarantee that our application will be approved. If our warrants are not approved for listing on The Nasdaq Capital Market, an active market may never develop and the liquidity of the warrants will be limited.

Holders of warrants purchased in this offering will have no rights as common stockholders until such holders exercise their warrants and acquire our common stock.

Until holders of the warrants acquire shares of our common stock upon exercise thereof, such holders will have no rights with respect to the shares of our common stock underlying the warrants. Upon exercise of the warrants, the holders will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.

The ownership of our common stock is significantly concentrated in a small number of investors, some of whom are affiliated with our Board of Directors and management, which could prevent stockholders from having input on the course of our operations or otherwise lead to actual or potential conflicts of interest.

As of November 2, 2018, Jason Katz, our Chairman of the Board of Directors and Chief Operating Officer, beneficially owned approximately 10.7% of our outstanding common stock, including shares of common stock held directly by Mr. Katz’s spouse, and The J. Crew Delaware Trust A, a trust formed by Mr. Katz for the benefit of certain of his family members, also beneficially owned approximately 34.3% of our outstanding common stock as of November 2, 2018. Mr. Katz is not a beneficiary of the trust and does not hold voting or dispositive power over the shares held by the trust.

Mr. Katz, The J. Crew Delaware Trust A and others that have significant beneficial ownership of our common shares have substantial influence regarding matters submitted for stockholder approval, including proposals regarding:

•        any merger, consolidation or sale of all or substantially all of our assets;

•        the election of members of our Board of Directors; and

•        any amendment to our Certificate of Incorporation, as amended (the “Certificate of Incorporation”).

The current or increased ownership position of any of these stockholders and/or their respective affiliates could delay, deter or prevent a change of control or adversely affect the price that investors might be willing to pay in the future for our common shares. In addition, the interests of these stockholders and/or their respective affiliates may

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significantly differ from the interests of our other stockholders and they may vote the common shares they beneficially own in ways with which our other stockholders disagree.

The issuance of shares upon the exercise of derivative securities, including the warrants offered hereby, may cause immediate and substantial dilution to our existing stockholders.

As of September 30, 2018, we had approximately 559,232 shares of common stock that were issuable upon the exercise of vested outstanding stock options. The issuance of shares upon the exercise of these options or the exercise of the warrants issued in this offering may result in substantial dilution to the equity interest and voting power of holders of our common stock.

In the future, we may also issue additional shares of common stock or other securities convertible into or exchangeable for shares of common stock. Our Certificate of Incorporation currently authorizes us to issue up to 25,000,000 shares of common stock, of which 6,730,108 were outstanding as of September 30, 2018, which excludes 158,571 of unvested restricted shares, and 10,000,000 shares of preferred stock with such designations, preferences and rights as determined by our Board of Directors, of which none were outstanding as of September 30, 2018. The issuance of additional shares of our common stock may substantially dilute the ownership interests of our existing stockholders. Furthermore, sales of a substantial amount of our common stock in the public market, or the perception that these sales may occur, could reduce the market price of our common stock. This could also impair our ability to raise additional capital through the sale of our securities.

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

We intend to use the net proceeds to us from this offering for general corporate purposes and working capital. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business. While we do not have agreements or binding commitments for any specific acquisitions at this time, we continually evaluate potential acquisition candidates to enhance our product and services offerings.

In addition, we may use a portion of the net proceeds of this offering to repurchase shares of common stock held by existing stockholders of the Company, including certain of the Company’s affiliates, in privately negotiated transactions from time to time.

Our management generally will have broad discretion to use the net proceeds we receive in this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply the net proceeds in ways that increase the value of your investment. Until we use the net proceeds to us from this offering, we plan to invest them, and these investments may not yield a favorable rate of return. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

Our Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or stockholders.

Our Certificate of Incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of our Company, (ii) action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee, agent, or stockholder of our Company to the Company or the Company’s stockholders, (iii) action asserting a claim against the Company or any director, officer, employee, agent, or stockholder of the Company arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”) or our Certificate of Incorporation or our Amended and Restated By-Laws, as amended (the “By-Laws”), or (iv) action asserting a claim against the Company or any director, officer, employee, agent, or stockholder of the Company governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our Certificate

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of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

Our Certificate of Incorporation, as amended, includes provisions limiting the personal liability of our directors for breaches of fiduciary duty under the DGCL.

Our Certificate of Incorporation contains a provision eliminating a director’s personal liability to the fullest extent permitted by the DGCL for monetary damages resulting from a breach of fiduciary duty; provided that such provision will not eliminate or limit a director’s liability for:

•        any breach of the director’s duty of loyalty;

•        acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;

•        Section 174 of the DGCL (unlawful dividends); or

•        any transaction from which the director derives an improper personal benefit.

The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an action for monetary damages against a director unless the stockholder can demonstrate a basis for liability for which indemnification is not available under the DGCL. This provision, however, should not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s fiduciary duty. This provision will not alter a director’s liability under federal securities laws. The inclusion of this provision in our Certificate of Incorporation may discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited us and our stockholders.

Delaware law and our Certificate of Incorporation and By-Laws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Under our Certification of Incorporation, our Board of Directors is authorized to issue shares of preferred stock in one or more series and to fix the voting powers, preferences and the qualifications, limitations or restrictions of the preferred stock. Accordingly, we may issue shares of preferred stock with a preference over our common stock with respect to dividends or distributions on liquidation or dissolution, or that may otherwise adversely affect the voting or other rights of the holders of common stock. Issuances of preferred stock, depending upon the rights, preferences and designations of the preferred stock, may have the effect of delaying, deterring or preventing a change of control, even if that change of control might benefit our stockholders.

We are also subject to Section 203 of the DGCL, which generally prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless (i) prior to the date of the transaction, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to the date of the transaction, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.

If we fail to remain current on our reporting requirements, we could be removed from the OTCQB, which would limit the ability of broker-dealers to sell our common stock and the ability of stockholders to sell their common stock in the secondary market.

Companies trading on the OTCQB must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and must be current in their filings under the Exchange Act to maintain price quotation privileges on the OTCQB. If we fail to remain current on our reporting requirements, we could be removed

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from the OTCQB. As a result, the liquidity for our common stock could be adversely affected by limiting the ability of broker-dealers to sell our common stock and the ability of stockholders to sell their common stock in the secondary market.

If we are not able to comply with the applicable continued listing requirements or standards of the Nasdaq Capital Market, Nasdaq could delist our securities.

Our common stock has been approved for listing on The Nasdaq Capital Market under the symbol “PEER,” subject to official notice of issuance, and we expect that our common stock will begin trading on The Nasdaq Capital Market immediately following the completion of this offering. In addition, we have applied to list our warrants for trading on The Nasdaq Capital Market under the symbol “PEERW.” If our listing application for the warrants is approved, we expect that the warrants will begin trading on The Nasdaq Capital Market immediately following the completion of this offering.

Although after giving effect to this offering we expect to meet the minimum initial listing standards set forth in the NASDAQ Listing Standards, we cannot assure you that our securities will be, or will continue to be, listed on The Nasdaq Capital Market in the future. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing standards.

We cannot assure you that our common stock, if delisted from The Nasdaq Capital Market, will be listed on another national securities exchange. If our common stock is delisted by The Nasdaq Capital Market, our common stock would likely trade on the OTCQB where an investor may find it more difficult to sell our shares or obtain accurate quotations as to the market value of our common stock. In addition, the warrants offered hereby are a new issue and there are no currently established trading markets for the warrants. If our application to list the warrants on The Nasdaq Capital Market is rejected, or the warrants are approved for listing but are subsequently delisted, we cannot assure you that an active trading market for the warrants will develop. Without an active market, liquidity in the warrants would be limited.

Because we have no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We do not anticipate that we will declare or pay any dividends on our common stock in the foreseeable future. Consequently, stockholders will only realize an economic gain on their investment in our common stock if the price appreciates. Stockholders should not purchase our common stock expecting to receive cash dividends. Because we currently do not pay dividends, and there may be limited trading in our common stock, stockholders may not have any manner to liquidate or receive any payment on their common stock. Therefore, our failure to pay dividends may cause stockholders to not see any return on their common stock even if we are successful in our business operations. In addition, because we do not pay dividends we may have trouble raising additional funds which could affect our ability to expand our business operations.

Investor relations activities, nominal “float” and supply and demand factors may affect the price of our common stock.

We have engaged an investor relations firm to create investor awareness for our Company. These campaigns may include non-deal road shows and personal, video and telephone conferences with investors and prospective investors in which our business and business practices are described. We provide compensation to our investor relations firm, and may in the future provide compensation to additional investor relations firms or financial advisory firms, for these services, and pay for newsletters, websites, mailings and email campaigns that are produced by third parties based upon publicly available information concerning us. We do not intend to review or approve of the content of such analyst reports or other writings and communications that are based upon analysts’ own research or methods. Investor relations firms are generally required to disclose when they are compensated for their efforts and the source of such compensation, but whether such disclosure is made or in compliance with applicable laws is not under our control. In addition, investors in the Company may, from time to time, take steps to encourage investor awareness through similar activities that may be undertaken at the expense of such investors. Investor awareness activities may also be suspended or discontinued which may impact the trading market of our common stock.

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The SEC and the Financial Industry Regulatory Authority (“FINRA”) enforce various statutes and regulations intended to prevent manipulative or deceptive devices in connection with the purchase or sale of any security and carefully scrutinize trading patterns and company news and other communications for false or misleading information, particularly in cases where the hallmarks of “pump and dump” activities may exist, such as rapid share price increases or decreases. We and our stockholders may be subjected to enhanced regulatory scrutiny due to the fact that our affiliates hold a majority of our outstanding common stock and we have a limited number of shares of common stock that are publicly available for resale. The limited trading markets in which our shares of common stock may be offered or sold have often been associated with improper activities concerning penny-stocks, such as the OTCQB or the pink sheets.

The Supreme Court of the United States has stated that manipulative action is a term of art connoting intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities. Often times, manipulation is associated by regulators with forces that upset the supply and demand factors that would normally determine trading prices. Securities regulators have often cited thinly-traded markets, small numbers of holders and awareness campaigns as components of their claims of price manipulation and other violations of law when combined with manipulative trading, such as wash sales, matched orders or other manipulative trading timed to coincide with false or touting press releases. There can be no assurance that our activities or the activities of third parties, or the small number of potential sellers or small percentage of stock in our public float, or determinations by purchasers or holders as to when or under what circumstances or at what prices they may be willing to buy or sell stock, will not artificially impact (or would be claimed by regulators to have affected) the normal supply and demand factors that determine the price of our common stock.

If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires management to evaluate and assess the effectiveness of our internal control over financial reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. As reported in “Management’s Annual Report on Internal Control Over Financial Reporting” in Item 9A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, management determined that we did not maintain effective internal control over financial reporting for the fiscal year ended December 31, 2016, due to a material weakness consisting of the lack of an audit committee. On February 2, 2017, we formed an audit committee consisting of three independent members of our Board of Directors, as independence is defined by the rules of The Nasdaq Stock Market. Although management has since determined that our disclosure controls and procedures are effective, we cannot provide any assurance that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.

With respect to the year ended December 31, 2017, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, our management concluded that our disclosure controls and procedures over financial reporting were effective as of December 31, 2017.

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FORWARD-LOOKING STATEMENTS

Certain statements c