UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For
the quarterly period ended
OR
For the transition period from ________ to ________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at August 4, 2022 | |
| Common Stock, par value $0.001 per share |
| * | Excludes 141,963 shares of common stock that are held as treasury stock by Paltalk, Inc. |
PALTALK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2022
Table of Contents
Unless the context otherwise indicates, references to “Paltalk,” “we,” “our,” “us” and the “Company” refer to Paltalk, Inc. and its subsidiaries on a consolidated basis.
Paltalk, our logo and other trademarks or service marks appearing in this report are the property of Paltalk, Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names included in this report are without the ®, or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
i
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on current expectations, estimates, forecasts and assumptions and are subject to risks and uncertainties. Words such as “anticipate,” “assume,” “began,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “would” and variations of such words and similar expressions are intended to identify such forward-looking statements. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:
| ● | our ability to effectively market and generate revenue from our applications; |
| ● | our ability to generate and maintain active users and to effectively monetize our user base; |
| ● | our ability to update our applications to respond to rapid technological changes; |
| ● | the intense competition in the industry in which our business operates and our ability to effectively compete with existing competitors and new market entrants; |
| ● | our ability to consummate favorable acquisitions and effectively integrate any companies, assets or properties that we acquire; | |
| ● | the impact of the COVID-19 pandemic on our results of operations and our business; |
| ● | the dependence of our applications on mobile platforms and operating systems that we do not control, including our heavy reliance on the platforms of Apple, Facebook and Google and their ability to discontinue, limit or restrict access to their platforms by us or our applications, change their terms and conditions or other policies or features (including restricting methods of collecting payments, sending notifications or placing advertisements), establish more favorable relationships with one or more of our competitors or develop applications or features that compete with our applications; |
| ● | our ability to develop, establish and maintain strong brands; |
| ● | our reliance on our executive officers and consultants; |
| ● | our ability to adapt or modify our applications for the international market and derive revenue therefrom; |
| ● | the ability of foreign governments to restrict access to our applications or impose new regulations; |
| ● | the reliance of our mobile applications on having a mobile data plan and/or Wi-Fi access to gain internet connectivity; |
| ● | the effect of security breaches, computer viruses and cybersecurity incidents; |
| ● | our reliance upon credit card processors and related merchant account approvals and the impact of chargeback liabilities that we may face from credit card processors; |
| ● | the possibility that our users or third parties may be physically or emotionally harmed following interaction with other users; |
ii
| ● | our ability to obtain additional capital or financing when and if necessary, to execute our business plan, including through offerings of debt or equity or sale of any of our assets; |
| ● | the risk that we may face litigation resulting from the transmission of information through our applications; |
| ● | the effects of current and future government regulation, including laws and regulations regarding the use of the internet, privacy, cybersecurity and protection of user data and cryptocurrency technology; |
| ● | the impact of any claim that we have infringed on intellectual property rights of others; |
| ● | our ability to protect our intellectual property rights; |
| ● | our ability to maintain effective internal controls over financial reporting; |
| ● | our ability to offset fees associated with the distribution platforms that host our applications; |
| ● | our reliance on internally derived data to accurately report user metrics and other measures of our performance; |
| ● | our ability to release new applications or improve upon or add features to existing applications on schedule or at all; |
| ● | our reliance on third-party investor relations firms to help create awareness of our Company and compliance by such third parties with regulatory requirements related to promotional reports; and |
| ● | our ability to attract and retain qualified employees and consultants. |
For a more detailed discussion of these and other factors that may affect our business, see the discussion in “Item 1A. Risk Factors” in Part II of this report and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I of this report and the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 23, 2022. We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this report, except to the extent required by applicable securities laws.
iii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALTALK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowances of $ | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total current assets | ||||||||
| Operating lease right-of-use asset | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Digital tokens | - | |||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Deferred subscription revenue | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, non-current portion | ||||||||
| Deferred tax liability | - | |||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 11) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $ | ||||||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
PALTALK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues: | ||||||||||||||||
| Subscription revenue | $ | $ | $ | $ | ||||||||||||
| Advertising revenue | ||||||||||||||||
| Technology service revenue | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Sales and marketing expense | ||||||||||||||||
| Product development expense | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Impairment loss on digital tokens | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
| Interest (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on extinguishment of term debt | ||||||||||||||||
| Realized gain from the sale of digital tokens | ||||||||||||||||
| Other expense, net | ( | ) | ( | ) | ||||||||||||
| (Loss) income from operations before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net (loss) income per share of common stock: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average number of shares of common stock used in calculating net (loss) income per share of common stock: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
PALTALK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
| Common | Stock | Treasury | Stock | Additional Paid- | Accumulated | Total Stockholders’ | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation expense | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Balance at December 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Repurchases of common stock | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PALTALK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income from operations to net cash (used in) provided by operating activities: | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Impairment loss on digital tokens | ||||||||
| Realized gain from the sale of digital tokens | ( | ) | ||||||
| Gain on extinguishment of term debt | ( | ) | ||||||
| Stock-based compensation | ( | ) | ||||||
| Bad debt expense | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Digital tokens | ( | ) | ||||||
| Accounts receivable | ||||||||
| Digital tokens receivable | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Digital tokens payable | ||||||||
| Deferred offering costs | ( | ) | ||||||
| Prepaid expense and other current assets | ( | ) | ||||||
| Accounts payable, accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Deferred subscription revenue | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of ManyCam assets | ( | ) | ||||||
| Acquisition related costs of ManyCam assets | ( | ) | - | |||||
| Proceeds from the sale of digital tokens | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Purchase of treasury stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Balance of cash and cash equivalents at beginning of period | ||||||||
| Balance of cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the periods: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Write-off of property and equipment | $ | $ | ||||||
| Deferred tax liability associated with the acquisition of ManyCam assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Description of Business
The accompanying condensed consolidated financial statements include Paltalk, Inc. and its wholly owned subsidiaries, A.V.M. Software, Inc., ManyCam ULC, Paltalk Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Fire Talk LLC and Vumber LLC (collectively, the “Company”).
The Company is a communications software innovator that powers multimedia social applications. The Company’s product portfolio includes Paltalk, Camfrog and Tinychat, which together host and serve a large collection of video-based communities. The Company’s other products include ManyCam and Vumber. ManyCam is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools. Vumber is a telecommunications services provider that enables users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user’s existing telephone number. The Company has an over 20-year history of technology innovation and holds 14 patents.
On June 9, 2022 (the “Effective Date”), the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among the Company, ManyCam ULC, an unlimited liability company incorporated under the laws of the Province of Alberta and a wholly owned subsidiary of the Company (the “Purchaser”), Visicom Media Inc., a Canadian corporation (the “Visicom”), and 2434936 Alberta ULC, an unlimited liability company incorporated under the laws of the Province of Alberta (“Target NewCo”), pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo (the “ManyCam Acquisition”). Prior to the ManyCam Acquisition, Target NewCo held all assets related to, or used by Visicom in connection with, the business of developing and distributing virtual webcam driver software, including virtual backgrounds and/or “masks” or other camera effects (other than the Excluded Contracts (as defined in the Securities Purchase Agreement)), whether tangible or intangible, including, but not limited to, Target NewCo’s ManyCam software (“ManyCam”) and related source code, customer lists, customer relationships and all associated customer information, contracts with contractors and suppliers, brand names, trade secrets, trademarks, trade names, designs, copyrights, websites, all URLs, goodwill and intellectual property associated with each of the foregoing (collectively, the “Conveyed Assets”). The Company concluded that the acquisition of the Conveyed Assets is not considered a business under Regulation S-X and in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations.
The
purchase price for the Conveyed Assets was $
The condensed consolidated financial statements included in this report have been prepared on a going concern basis in accordance with generally accepted accounting principles in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The Company has not included certain information and notes required by GAAP for complete financial statements pursuant to those rules and regulations, although it believes that the disclosure included herein is adequate to make the information presented not misleading. The condensed consolidated financial statements contained herein should be read in conjunction with the Company’s audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 23, 2022 (the “Form 10-K”).
In the opinion of management, the accompanying unaudited condensed consolidated financial information contains all normal and recurring adjustments necessary to fairly present the condensed consolidated balance sheets and statements of operations, cash flows and changes in stockholders’ equity of the Company for the interim periods presented. The Company’s historical results are not necessarily indicative of future operating results, and the results for the six months ended June 30, 2022 are not necessarily indicative of results for the year ending December 31, 2022, or for any other period.
Macro-Economic Factors and COVID-19 Update
The Company’s results of operations have and may continue to be negatively impacted by the uncertainty regarding COVID-19 and macro-economic factors, including the timing of any economic recession and/or recovery and the overall inflationary environment.
The global spread of the COVID-19 pandemic and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions and potential quarantines. Although the Company’s core multimedia social applications were able to support the increased demand the Company experienced from the second quarter of 2020 through the year ended December 31, 2021, the extent of the future impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. Adverse economic and market conditions as a result of COVID-19 as well as the lifting of COVID-19 restrictions could also affect the demand for the Company’s applications and the ability of the Company’s users to satisfy their obligations to the Company. If the pandemic continues to cause significant negative impacts to economic conditions, the Company’s results of operations, financial condition and liquidity could be materially and adversely impacted.
On
April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, the Company applied for
a loan under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”), and on May 3, 2020, the Company entered into a promissory note
with an aggregate principal amount of $
5
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Summary of Significant Accounting Policies
During the six months ended June 30, 2022, there were no significant changes made to the Company’s significant accounting policies, except for the acquisition of the ManyCam assets which is discussed in Note 3 below.
For a detailed discussion about the Company’s significant accounting policies, see the Form 10-K.
Significant Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
Significant estimates relied upon in preparing these financial statements include the estimates used to determine the fair value of the stock options issued in share-based payment arrangements, subscription revenues net of refunds, credits, and known and estimated credit card chargebacks as well as valuation inputs used in determining the fair value of the ManyCam assets, described more fully below. Management evaluates these estimates on an ongoing basis. Changes in estimates are recorded in the period in which they become known. The Company bases estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates.
Revisions to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the condensed consolidated financial statements in the periods in which they are first identified. If the Company’s estimates indicate that a contract loss will be incurred, a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated. Contract losses are the amount by which the estimated costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of revenues in the Company’s condensed consolidated statements of operations. There were no contract losses for the periods presented.
Fair Value Measurements
The fair value framework under the guidance issued by the Financial Accounting Standards Board (“FASB’”) requires the categorization of assets and liabilities into three levels based upon the assumptions used to measure the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment. The three levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:
| ● | Level 1: Fair value measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2: Fair value measurement of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and |
| ● | Level 3: Fair value measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability. |
The Company reviews the appropriateness of fair value measurements including validation processes, and the reconciliation of period-over-period fluctuations based on changes in key market inputs. All fair value measurements are subject to the Company’s analysis. Review and approval by management is required as part of the validation process.
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short-term nature of these instruments.
6
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, revenue from contracts with customers is recognized when control of the promised services is transferred to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. Sales tax is excluded from reported revenue. The Company has elected the practical expedient allowable by the guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less.
Subscription Revenue
The Company generates subscription revenue primarily
from monthly premium subscription services. Subscription revenues are presented net of refunds, credits, and known and estimated credit
card chargebacks. During the three and six months ended June 30, 2022 and 2021, subscriptions were offered in durations of one-, three-,
six-, twelve- and twenty-four-month terms. All subscription fees, however, are paid by credit card at the origination of the subscription
regardless of the term of the subscription. Revenues from multi-month subscriptions are recognized on a straight-line basis over the period
where the service is offered to the customer, indicated by length of the subscription term purchased. The unearned portion of subscription
revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets. Deferred revenue at December 31, 2021
was $
Advertising Revenue
The Company generates advertising revenue from the display of advertisements on its products through contractual agreements with third parties that are based on the number of advertising impressions delivered. Measurements of impressions include when a customer clicks an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through the application (CPA basis). Advertising revenue is dependent upon traffic as well as the advertising inventory placed on the Company’s products.
7
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Technology Service Revenue
Technology service revenue was historically generated under service and partnership agreements that the Company negotiated with third parties which included development, integration, engineering, licensing or other services that the Company provided.
During 2021, the Company recorded technology service revenue in connection with its agreement to serve as a launch partner with Open Props, Inc. (formerly YouNow, Inc., and referred to herein as “YouNow”) and to integrate YouNow’s props infrastructure (the “Props platform”) into the Company’s Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).
Pursuant to the terms of the YouNow Agreement, once the integration of Props tokens into the Company’s Paltalk and Camfrog applications was completed, the Company began receiving Props tokens for providing a validator service and for allowing users to participate in the loyalty platform. The loyalty platform was intended to drive engagement and incentivize users financially by providing users with the ability to earn Props tokens while using the Paltalk and Camfrog applications.
In August 2021, the Company received notice from YouNow that it was terminating the YouNow Agreement, and that it would no longer support the Props platform past the end of calendar year 2021. As a result of the termination of the YouNow Agreement, the Company notified its users that it would no longer be issuing Props starting October 15, 2021, and would be replacing any user’s outstanding Props with a new internal rewards program. The new rewards loyalty program for Paltalk and Camfrog allowed users to keep their existing rewards earned from the former Props program as internal rewards and also have the opportunity to earn new internal rewards points. In connection with the internal rewards points, the Company added 25 new reward tiers, including specialty coins, subscriptions, stickers, flair, and other popular buttons.
Given the trading availability of Props tokens
in various active markets, the Company calculated the fair value of digital tokens based on the observable daily quoted market prices
(Level 1 inputs) on multiple international exchanges, as recorded on CoinmarketCap. The total net revenue value recognized as earned was
$
The Company did not generate any technology service revenue during the three and six months ended June 30, 2022.
3. Asset Acquisition – Securities Purchase Agreement
As discussed above, on June 9, 2022, the Company entered into the Securities Purchase Agreement by and among the Company, the Purchaser, Visicom and Target NewCo, pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo.
The Purchaser acquired the Conveyed Assets for
a cash purchase price of $
8
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As part of a valuation analysis, the Company identified intangible assets, including internally developed software, subscriber relationships/customer list and intellectual property (trade names, trademarks, URLs). The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. Final allocation was determined by a third-party valuation specialist hired by Company management. The following table summarizes the fair value of the identifiable intangible assets and their respective useful lives:
| Estimated Fair Value |
Estimated Useful Life in Years | |||||
| Internally developed software | $ | |||||
| Intellectual property (trade names, trademarks, URLs) | $ | |||||
| Subscriber Relationships/Customer List | $ | |||||
| Total acquired assets | $ | |||||
The
estimated aggregate amortization expense for each of the next five years and thereafter will approximate $
The Company incurred approximately $
As part of the accounting for the ManyCam assets,
the Company provisionally recorded a deferred tax liability of $
On June
30, 2022, the Company entered into a License Agreement with Visicom (the “License Agreement”), pursuant to which the Company
agreed to distribute, at the discretion and direction of Visicom, a specified number of ManyCam software updates to certain license holders
to whom Visicom has previously granted a “lifetime” license to ManyCam software. As consideration for distributing the software
updates, Visicom paid the Company an initial upfront nonrefundable payment of $
4. Property and Equipment, Net
Property and equipment, net consisted of the following at June 30, 2022 and December 31, 2021:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Computer equipment | $ | $ | ||||||
| Website development | ||||||||
| Furniture and fixtures | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three and six months ended June 30, 2022 was $
9
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Intangible Assets, Net
Intangible assets, net consisted of the following at June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
| Gross | Net | Gross | Net | |||||||||||||||||||||
| Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
| Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
| Patents | $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Trade names, trademarks product names, URLs | ( |
) | ( |
) | ||||||||||||||||||||
| Internally developed software | ( |
) | ( |
) | ||||||||||||||||||||
| Subscriber/customer relationships | ( |
) | ( |
) | ||||||||||||||||||||
| Total intangible assets | $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
Amortization
expense for the three and six months ended June 30, 2022 was $
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following for the periods presented:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Compensation, benefits and payroll taxes | $ | $ | ||||||
| Income tax payable | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
7. Income Taxes
The Company’s provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. As of June 30, 2022, our conclusion regarding the realizability of our US deferred tax assets did not change and we have recorded a full valuation allowance against them.
On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to PPP loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740, the effects of new legislation are recognized upon enactment. The enactment of the American Rescue Plan did not impact on the Company’s income tax provision.
For
the three and six months ended June 30, 2022, the Company recorded an income tax provision of $
For
the three and six months ended June 30, 2021, the Company recorded an income tax provision of $
10
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Stockholders’ Equity
The
Paltalk, Inc. Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”) was terminated as to future awards on
May 16, 2016. A total of
Stock Repurchase Plan
On
March 21, 2022, the Board of Directors of the Company approved a stock repurchase plan for up to $
Stock Options
The following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted during the six months ended June 30, 2022:
| Expected volatility | % | |||
| Expected life of option (in years) | ||||
| Risk free interest rate | % | |||
| Expected dividend yield | % |
The expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior to exercise. The expected life of options has been determined using the “simplified” method as prescribed by Staff Accounting Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term. The volatility of the Company’s common stock is calculated using the Company’s historical volatilities beginning at the grant date and going back for a period of time equal to the expected life of the award. The Company estimates potential forfeitures of stock awards and adjusts recorded stock-based compensation expense accordingly. The Company estimates pre-vesting forfeitures primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the stock-based awards vest.
The following table summarizes stock option activity during the six months ended June 30, 2022:
| Weighted | ||||||||
| Average | ||||||||
| Number of | Exercise | |||||||
| Options | Price | |||||||
| Stock Options: | ||||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Forfeited or canceled, during the period | ( | ) | ||||||
| Expired, during the period | ( | ) | ||||||
| Outstanding at June 30, 2022 | $ | |||||||
| Exercisable at June 30, 2022 | $ | |||||||
At
June 30, 2022, there was $
On June 30, 2022, the aggregate intrinsic value
of stock options that were outstanding and exercisable was $
11
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During
the six months ended June 30, 2022, the Company granted stock options to members of the Board of Directors to purchase an aggregate of
Stock-based compensation expense for the Company’s stock options included in the condensed consolidated statements of operations was as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cost of revenue | $ | $ | - | $ | $ | |||||||||||
| Sales and marketing expense | ||||||||||||||||
| Product development expense | ||||||||||||||||
| General and administrative expense | ( |
) | ( |
) | ||||||||||||
| Total stock compensation expense | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||
Treasury Shares
On
April 29, 2019, the Company implemented a stock repurchase plan to repurchase up to $
As
discussed above, on March 29, 2022, the Company implemented the Stock Repurchase Plan to repurchase up to $
As of June 30, 2022 and December 31, 2021, the Company had
9. Net (Loss) Income Per Share
Basic
earnings and net (loss) income per share are computed by dividing the net (loss) income available to common stockholders by the weighted
average number of common shares outstanding during the period as defined by ASC Topic 260, Earnings Per Share. Diluted earnings
per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during
the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury
stock method). To the extent stock options are antidilutive, they are excluded from the calculation of diluted income per share. For
the three and six months ended June 30, 2022,
The following table summarizes the net (loss) income per share calculation for the periods presented:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net (loss) income from operations – basic and diluted | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Weighted average shares outstanding – basic | ||||||||||||||||
| Weighted average shares outstanding – diluted | ||||||||||||||||
| Per share data: | ||||||||||||||||
| Basic from operations | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Diluted from operations | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
12
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Leases
As of June 30, 2022, the Company had no long-term leases that were classified as financing leases. As of June 30, 2022, the Company did not have additional operating and financing leases that had not yet commenced.
At
June 30, 2022, the Company had operating lease liabilities of approximately $
Total
rent expense for the six months ended June 30, 2022 was $
The following table summarizes the Company’s operating leases for the periods presented:
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of operating lease liabilities: | $ | $ | ||||||
| Weighted average assumptions: | ||||||||
| Remaining lease term | ||||||||
| Discount rate | % | % | ||||||
As of June 30, 2022, future minimum payments under non-cancelable operating leases were as follows:
| For the year ending December 31, | Amount | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total | $ | |||
| Less: present value adjustment | ( | ) | ||
| Present value of minimum lease payments | $ | |||
13
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Commitments and Contingencies
Officer Employment Agreements
On
March 23, 2022, the Company entered into Amended and Restated Employment Agreements with the Company’s Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”), which amends and restates their existing employment agreements with
the Company dated October 7, 2016 and December 9, 2019, respectively. The agreements are each for terms of one year with auto renewal
provisions. Except for adjustments to base salaries, all other terms and conditions of the prior employment agreements between the Company
and the CEO and CFO will remain in full force and effect. The CEO agreement is retroactive to February 2021. The CFO agreement is retroactive
to January 2022. Aggregate commitments of base salaries under the agreements for 2022 total $
Patent Litigation
On July 23, 2021, a wholly owned subsidiary of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit against WebEx Communications, Inc., Cisco WebEx LLC, and Cisco Systems, Inc. (collectively, “Cisco”), in the U.S. District Court for the Western District of Texas. The Company alleges that Cisco’s Webex products have infringed U.S. Patent No. 6,683,858, and that the Company is entitled to damages. A Markman hearing took place on February 24, 2022 and a trial is scheduled for February 2023.
Other Legal Proceedings
The Company may be included in legal proceedings, claims and assessments arising in the ordinary course of business. The Company evaluates the need for a reserve for specific legal matters based on the probability of an unfavorable outcome and the reasonability of an estimable loss. No reserve was deemed necessary as of June 30, 2022.
12. Subsequent Events
Management has evaluated subsequent events or transactions occurring through the date the condensed consolidated financial statements were issued and determined that no events or transactions are required to be disclosed herein.
14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three and six months ended June 30, 2022 and 2021, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2021 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2022 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-K. Aside from certain information as of December 31, 2021, all amounts herein are unaudited.
Forward-Looking Statements
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” in Part II of this report and “Item 1A. Risk Factors” in the Form 10-K.
Overview
We are a communications software innovator that powers multimedia social applications. We operate a network of consumer applications that we believe create a unique social media enterprise where users can meet, see, chat, broadcast and message in real time in a secure environment with others in our network. Our consumer applications generate revenue principally from subscription fees and advertising arrangements.
Our product portfolio includes Paltalk, Camfrog and Tinychat, which together host and serve a large collection of video-based communities. Our other products include ManyCam and Vumber. ManyCam is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools. Vumber is a telecommunications services provider that enables users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user’s existing telephone number. We have an over 20-year history of technology innovation and hold 14 patents.
We believe that the scale of our user base presents a competitive advantage in the video social networking industry and provides growth opportunities to advance our existing products with up-sell opportunities and build future brands with cross-sell offers. We also believe that our proprietary consumer app technology platform can scalably support large communities of users in activities such as video, voice and text chat, online card and board games and provide robust user monetization tools.
Our continued growth depends on attracting new consumer application users through the introduction of new applications, features and partnerships and further penetration of our existing markets. Our principal growth strategy is to invest in the development of proprietary software, expand our sales and marketing efforts with respect to such software, and increase our consumer application user base through potential platform partnerships and new and existing advertising campaigns that we run through internet and mobile advertising networks, all while balancing the capital needs of the business. Our strategy also includes the acquisition of, or investment in, technologies, solutions or businesses that complement our business.
Our strategy is to approach these opportunities in a measured way, being mindful of our resources and evaluating factors such as potential revenue, time to market and amount of capital needed to invest in the opportunity.
15
Recent Developments
ManyCam Asset Acquisition
On June 9, 2022 (the “Effective Date”), we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among the Company, ManyCam ULC, an unlimited liability company incorporated under the laws of the Province of Alberta and a wholly owned subsidiary of the Company (the “Purchaser”), Visicom Media Inc., a Canadian corporation (the “Visicom”), and 2434936 Alberta ULC, an unlimited liability company incorporated under the laws of the Province of Alberta (“Target NewCo”), pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo (the “ManyCam Acquisition”). Prior to the ManyCam Acquisition, Target NewCo held all assets related to, or used by Visicom in connection with, the business of developing and distributing virtual webcam driver software, including virtual backgrounds and/or “masks” or other camera effects (other than the Excluded Contracts (as defined in the Securities Purchase Agreement)), whether tangible or intangible, including, but not limited to, Target NewCo’s ManyCam software (“ManyCam”) and related source code, customer lists, customer relationships and all associated customer information, contracts with contractors and suppliers, brand names, trade secrets, trademarks, trade names, designs, copyrights, websites, all URLs, goodwill and intellectual property associated with each of the foregoing (collectively, the “Conveyed Assets”).
The Purchaser acquired the Conveyed Assets for a cash purchase price of $2.7 million (the “Cash Consideration”). In addition to the Cash Consideration, Visicom is entitled to receive an additional payment of up to $600,000 (the “Earn-Out Payment”) based on the sales of the ManyCam software less chargebacks and refunds (“Gross Sales”) in the six-month period following the Closing (the “Earn-Out Period”) as follows: (i) if the Gross Sales during the Earn-Out Period are greater than $800,000, the Earn-Out Payment shall be $600,000, (ii) if the Gross Sales during the Earn-Out Period are greater than $700,000 but less than $800,000, the Earn-Out Payment shall be $300,000, (iii) if the Gross Sales during the Earn-Out Period are greater than $600,000 but less than $700,000, the Earn-Out Payment shall be $150,000 and (iv) if the Gross Sales during the Earn-Out Period do not exceed $600,000, then the Seller will not be paid any portion of the Earn-Out Payment.
As part of the accounting for the ManyCam assets, the Company provisionally recorded a deferred tax liability of $0.8 with an offset to intangible assets related to the excess financial reporting basis over the tax basis of the Conveyed Assets.
On June 30, 2022, we entered into a License Agreement with Visicom (the “License Agreement”), pursuant to which we agreed to distribute, at the discretion and direction of Visicom, a specified number of ManyCam software updates to certain license holders to whom Visicom has previously granted a “lifetime” license to ManyCam software. As consideration for distributing the software updates, Visicom paid us an initial upfront nonrefundable payment of $65,000. The License Agreement provides that Visicom may purchase additional licenses at prices specified therein. Other than providing a one-time, limited license to Visicom for the distribution of ManyCam software updates pursuant to the terms of the License Agreement, we do not have any obligation to provide support or service to the licensee end users.
Macro-Economic Factors and COVID-19 Update
Our results of operations have and may continue to be negatively impacted by the uncertainty regarding macro-economic factors, including the timing of any economic recession and/or recovery and the overall inflationary environment and COVID-19.
The global spread of the COVID-19 pandemic and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions and potential quarantines. Although our core multimedia social applications were able to support the increased demand we experienced from the second quarter of 2020 through the year ended December 31, 2021, the extent of the future impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. Adverse economic and market conditions as a result of COVID-19 as well as the lifting of COVID-19 restrictions could also affect the demand for our applications and the ability of our users to satisfy their obligations to us. If the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be materially and adversely impacted.
On April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, we applied for a loan under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and on May 3, 2020, we entered into a promissory note with an aggregate principal amount of $506,500 (the “Note”) in favor of Citibank, N.A., as lender (the “Lender”). On January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act. We do not expect to incur additional indebtedness under the CARES Act.
We continue to serve as a form of safe and entertaining communication during this global pandemic, and in order to help those affected in hardest hit countries, will continue to offer some of its group video conferencing services free of charge to select countries.
16
Operational Highlights and Objectives
During the three and six months ended June 30, 2022, we executed key components of our objectives:
| ● | acquired the core assets of ManyCam, a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools; |
| ● | released the Windows version of ManyCam 8.0, an upgrade to the newly acquired asset; |
| ● | engaged Roth Capital Partners, LLC (“Roth”) as our financial advisor and investment banker to explore strategic initiatives focused on buy-side acquisitions; |
| ● | selected two marketing companies, to lead our increased marketing efforts for our Paltalk and Camfrog applications; and |
| ● | partnered with Hive Automated Content Moderation Solutions to roll out new content moderation software for increased user experience. |
For the near term, our business objectives include:
| ● | Adjusting our spend to better align with overall macro-economic conditions and investing in a measured way that ensures responsible cash management; |
| ● |
working with Roth to continue to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our business; | |
| ● |
optimizing our acquisition of the ManyCam software to not only maximize subscription revenue but to integrate and cross-sell with our existing customer base and explore business-to-business sales opportunities; | |
| ● | continuing to implement several enhancements to our live video chat applications as well as the integration of card and board games and other features focused on user retention and monetization, which collectively are intended to increase user engagement and revenue opportunities; |
| ● | continuing to develop our consumer application platform strategy by seeking potential partnerships with large third-party communities to whom we could promote a co-branded version of our video chat products and potentially share in the incremental revenues generated by these partner communities; and |
| ● | continuing to defend our intellectual property. |
Sources of Revenue
Our main sources of revenue are subscription, advertising and other fees generated from users of our core video chat products. We expect that the majority of our revenue in future periods will continue to be generated from our core video chat products. We also have historically generated technology service revenue under licensing and service agreements that we negotiate with third parties which includes development, integration, engineering, licensing or other services that we provide.
Subscription Revenue
Our video chat platforms generate revenue primarily through subscription fees. Our tiers of subscriptions provide users with unlimited video windows and levels of status within the community. Multiple subscription tiers are offered in different durations depending on the product from one-, six-, twelve- and twenty-four-month terms, which continue to vary as we continue to test and optimize length and pricing. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates. Levels of membership benefits are offered in tiers, with the least membership benefits in the lowest paid tier and the most membership benefits in the highest paid tier. Our membership tiers are “Plus,” “Extreme,” “VIP” and “Prime” for Paltalk and “Pro,” “Extreme” and “Gold” for Camfrog. We also hold occasional promotions that offer discounted subscriptions and virtual gifts.
We recognize revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated. Revenues from multi-month subscriptions are recognized on a gross and straight-line basis over the length of the subscription period. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets.
17
We also offer virtual gifts to our users. Users may purchase credits that can be redeemed for a host of virtual gifts such as a rose, a beer, or a car, among other items. Virtual gift revenue is recognized upon the users’ utilization of the virtual gift and included in subscription revenue. The unearned portion of virtual gifts revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets.
Advertising Revenue
We generate a portion of our revenue through advertisements on our video platforms. Advertising revenue is dependent upon the volume of advertising impressions viewed by active users as well as the advertising inventory we place on our products. We recognize advertising revenue as earned on a click-through, impression, registration or subscription basis. Measurements of impressions include when a user clicks on an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through our application (CPA basis).
Technology Service Revenue
Technology service revenue was historically generated under service and partnership agreements that we negotiated with third parties, which included development, integration, engineering, licensing or other services that we provided.
In 2021, we recorded technology service revenue in connection with our agreement to serve as a launch partner with Open Props, Inc. (formerly YouNow, Inc., and referred to herein as “YouNow”) and to integrate YouNow’s props infrastructure (the “Props platform”) into our Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).
Pursuant to the terms of the YouNow Agreement, once the integration of Props tokens into our Paltalk and Camfrog applications was completed, we began receiving Props tokens for providing a validator service and for allowing users to participate in the loyalty platform. The loyalty platform was intended to drive engagement and incentivize users financially by providing users with the ability to earn Props tokens while using the Paltalk and Camfrog applications. The net revenue earned was recorded under “technology service revenue” in the condensed consolidated statements of operations. The total net revenue value was recognized as earned.
We determined the fair value of the Props tokens using observable daily quoted market prices on multiple international exchanges, as recorded on CoinmarketCap.
In August 2021, we received notice from YouNow that it was terminating the YouNow Agreement, and that it would no longer support the Props platform past the end of calendar year 2021. The YouNow Agreement was terminated effective on November 23, 2021. We expect that the majority of our future technology service revenue, if any, will result from opportunistic collaborations with third parties, however, any such collaborations are not a primary focus for the Company.
18
Costs and Expenses
Cost of revenue
Cost of revenue consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent and bandwidth costs. Cost of revenue also includes compensation and other employee-related costs for technical personnel, consultants and subcontracting costs relating to technology service revenue.
Sales and marketing expense
Sales and marketing expense consist primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel and consultants engaged in sales and sales support functions. Advertising and promotional spend includes online marketing, including fees paid to search engines, and offline marketing, which primarily consists of partner-related payments to those who direct traffic to our brands.
Product development expense
Product development expense, which relates to the development of technology of our applications, consists primarily of compensation (including stock-based compensation) and other employee-related and consultant-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of service offerings as well as amortization of capitalized website development costs.
General and administrative expense
General and administrative expense consists primarily of compensation (including non-cash stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources and facilities costs and fees for other professional services and cost of insurance. General and administrative expense also includes depreciation of property and equipment and amortization of intangible assets.
Impairment loss on digital tokens
Impairment loss on digital tokens results from the daily assessment of the Props tokens’ quoted market prices, as reflected on CoinmarketCap, and adjusting the recorded carrying amount to the amount equal to the lowest quoted market price during the period in which the Props tokens are held. During the three and six months ended June 30, 2022 and June 30, 2021, we recorded a non-cash impairment charge in the amount of $7,262 and $184,737, respectively, which is reported in our accompanying condensed consolidated statements of operations, as a result of recent decline in the quoted market prices below the market price of their acquisition.
Key Metrics
Our management relies on certain non-GAAP and/or unaudited performance indicators to manage and evaluate our business. The key performance indicators set forth below help us evaluate growth trends, establish budgets, measure the effectiveness of our advertising and marketing efforts and assess operational efficiencies. We also discuss net cash (used in) provided by operating activities under the ‟Results of Operations” and “Liquidity and Capital Resources” sections below. Subscription bookings and Adjusted EBITDA are discussed below.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Subscription bookings | $ | 2,554,702 | $ | 3,109,478 | $ | 5,331,401 | $ | 6,213,916 | ||||||||
| Net cash (used in) provided by operating activities | $ | (410,980 | ) | $ | 515,933 | $ | (1,643,934 | ) | $ | 611,988 | ||||||
| Net (loss) income | $ | (1,128,706 | ) | $ | 821,684 | $ | (1,867,651 | ) | $ | 1,738,413 | ||||||
| Adjusted EBITDA | $ | (908,999 | ) | $ | 668,649 | $ | (1,393,430 | ) | $ | 1,203,825 | ||||||
| Adjusted EBITDA as percentage of total revenues | (34.4 | )% | 19.6 | % | (25.0 | )% | 17.7 | % | ||||||||
19
Subscription Bookings
Subscription bookings is a financial measure representing the aggregate dollar value of subscription fees and virtual gifts purchases received during the period. We calculate subscription bookings as subscription revenue recognized during the period plus the change in deferred subscription revenue recognized during the period. We record subscription revenue from subscription fees as deferred subscription revenue and then recognize that revenue ratably over the length of the subscription term or ratably over usage for virtual gifts. Our management uses subscription bookings internally in analyzing our financial results to assess operational performance and to assess the effectiveness of, and plan future, user acquisition campaigns. We believe that this financial measure is useful in evaluating the performance of our consumer applications because we believe, as compared to subscription revenue, it is a better indicator of the subscription activity in a given period. We believe that both management and investors benefit from referring to subscription bookings in assessing our performance and when planning, forecasting and analyzing future periods.
While the factors that affect subscription bookings and subscription revenue are generally the same, certain factors may affect subscription bookings more or less than such factors affect subscription revenue in any period. While we believe that subscription bookings is useful in evaluating our business, it should be considered as supplemental in nature and it is not meant to be a substitute for subscription revenue recognized in accordance with generally accepted accounting principles in the United States (“GAAP”).
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net (loss) income adjusted to exclude interest expense (income), net, provision for income taxes, gain on extinguishment of term debt, depreciation and amortization expense, other expense, net, stock-based compensation expense, realized gain from sale of digital tokens and impairment loss on digital tokens.
We present Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to develop short- and long-term operational plans and to allocate resources to expand our business. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of the cash operating income generated by our business. We believe that Adjusted EBITDA is useful to investors and others to understand and evaluate our operating results, and it allows for a more meaningful comparison between our performance and that of competitors.
Limitations of Adjusted EBITDA
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA does not reflect: cash capital expenditures for assets underlying depreciation and amortization expense that may need to be replaced or for new capital expenditures; interest income (expense), net; other income, net; the potentially dilutive impact of stock-based compensation; gain on the extinguishment of term debt; and the provision for income taxes. Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
20
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various metrics of cash flows, net (loss) income and our other GAAP results. The following table presents a reconciliation of net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Reconciliation of net (loss) income to Adjusted EBITDA: | ||||||||||||||||
| Net (loss) income | $ | (1,128,706 | ) | $ | 821,684 | $ | (1,867,651 | ) | $ | 1,738,413 | ||||||
| Interest expense (income), net | 1,595 | 420 | 3,457 | (2,047 | ) | |||||||||||
| Other expense, net | 38,772 | - | 46,658 | - | ||||||||||||
| Gain on extinguishment of term debt | - | - | - | (506,500 | ) | |||||||||||
| Provision for income taxes | 4,753 | 2,200 | 20,784 | 3,300 | ||||||||||||
| Realized gain from sale of digital tokens | - | (247,293 | ) | - | (247,293 | ) | ||||||||||
| Impairment loss on digital tokens | 7,262 | 184,737 | 7,262 | 184,737 | ||||||||||||
| Depreciation and amortization expense | 108,176 | 99,243 | 184,440 | 194,189 | ||||||||||||
| Stock-based compensation expense | 59,149 | (192,342 | ) | 211,620 | (160,974 | ) | ||||||||||
| Adjusted EBITDA | $ | (908,999 | ) | $ | 668,649 | $ | (1,393,430 | ) | $ | 1,203,825 | ||||||
Results of Operations
The following table sets forth condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenues:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Total revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue | 25.0 | % | 18.5 | % | 23.6 | % | 18.8 | % | ||||||||
| Sales and marketing expense | 18.3 | % | 7.5 | % | 16.1 | % | 7.6 | % | ||||||||
| Product development expense | 57.5 | % | 38.0 | % | 54.8 | % | 38.2 | % | ||||||||
| General and administrative expense | 39.8 | % | 13.7 | % | 37.7 | % | 18.1 | % | ||||||||
| Impairment loss on digital tokens | 0.3 | % | 5.4 | % | 0.1 | % | 2.7 | % | ||||||||
| Total costs and expenses | 140.9 | % | 83.1 | % | 132.3 | % | 85.4 | % | ||||||||
| (Loss) income from operations | (40.9 | )% | 16.9 | % | (32.3 | )% | 14.6 | % | ||||||||
| Interest (expense) income, net | (0.1 | )% | (0.0 | )% | (0.1 | )% | 0.0 | % | ||||||||
| Gain on extinguishment of term debt | - | % | - | % | - | % | 7.5 | % | ||||||||
| Realized gain from sale of digital tokens | - | % | 7.2 | % | - | % | 3.6 | % | ||||||||
| Other expense, net | (1.5 | )% | - | % | (0.7 | )% | - | % | ||||||||
| (Loss) income from operations before provision for income taxes | (42.5 | )% | 24.1 | % | (33.1 | )% | 25.7 | % | ||||||||
| Provision for income taxes | (0.2 | )% | (0.1 | )% | (0.4 | )% | (0.0 | )% | ||||||||
| Net (loss) income | (42.7 | )% | 24.0 | % | (33.5 | )% | 25.7 | % | ||||||||
21
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Revenue
Total revenue decreased by 22.6% to $2,644,468 for the three months ended June 30, 2022 from $3,415,803 for the three months ended June 30, 2021. This decrease was primarily driven by a decrease in subscription revenue and a decrease in technology service revenue driven by the termination of the YouNow Agreement.
The following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenue for the three months ended June 30, 2022 and June 30, 2021, the increase or decrease between those periods, the percentage increase or decrease between those periods, and the percentage of total revenue that each represented for those periods:
| % Revenue | ||||||||||||||||||||||||
| Three Months Ended | $ | % | Three Months Ended | |||||||||||||||||||||
| June 30, | Increase | Increase | June 30, | |||||||||||||||||||||
| 2022 | 2021 | (Decrease) | (Decrease) | 2022 | 2021 | |||||||||||||||||||
| Subscription revenue | $ | 2,560,706 | $ | 3,121,909 | $ | (561,203 | ) | (18.0 | )% | 96.8 | % | 91.4 | % | |||||||||||
| Advertising revenue | 83,762 | 75,462 | 8,300 | 11.0 | % | 3.2 | % | 2.2 | % | |||||||||||||||
| Technology service revenue | - | 218,432 | (218,432 | ) | (100.0 | )% | - | % | 6.4 | % | ||||||||||||||
| Total revenues | $ | 2,644,468 | $ | 3,415,803 | $ | (771,335 | ) | (22.6 | )% | 100.0 | % | 100.0 | % | |||||||||||
Subscription Revenue
Our subscription revenue for the three months ended June 30, 2022 decreased by $561,203, or 18.0%, as compared to the three months ended June 30, 2021. The decrease in subscription revenue was primarily driven by a decrease in new subscribers as well as a decrease in virtual gift revenue across the Paltalk and Camfrog applications. We attribute this decrease to the overall macro-economic environment that may limit a customer’s access to discretionary spending, as well as, to a lesser degree, the lifting of various COVID-19 related restrictions in certain of our target markets that prohibited individuals from leaving their homes and ,as a result, customers are devoting less time to their social applications.
Advertising Revenue
Our advertising revenue for the three months ended June 30, 2022 increased by $8,300, or 11.0%, as compared to the three months ended June 30, 2021. The increase in advertising revenue was primarily due to an increase in the volume of advertising impressions related to changes in and the optimization of third-party advertising partners.
Technology Service Revenue
Our technology service revenue for the three months ended June 30, 2022 decreased by $218,432, or 100.0%, as compared to the three months ended June 30, 2021. The decrease in technology service revenue was driven by the termination of the YouNow Agreement, effective November 23, 2021. We do not expect to generate a material amount of technology service revenue in future periods.
22
Costs and Expenses
Total costs and expenses for the three months ended June 30, 2022 increased by $889,262, or 31.3%, as compared to the three months ended June 30, 2021. The following table presents our costs and expenses for the three months ended June 30, 2022 and 2021, the increase or decrease between those periods and the percentage increase or decrease between those periods and the percentage of total revenue that each represented for those periods:
| % Revenue | ||||||||||||||||||||||||
| Three Months Ended | $ | % | Three Months Ended | |||||||||||||||||||||
| June 30, | Increase | Increase | June 30, | |||||||||||||||||||||
| 2022 | 2021 | (Decrease) | (Decrease) | 2022 | 2021 | |||||||||||||||||||
| Cost of revenue | $ | 661,548 | $ | 630,582 | $ | 30,966 | 4.9 | % | 25.0 | % | 18.5 | % | ||||||||||||
| Sales and marketing expense | 484,133 | 255,204 | 228,929 | 89.7 | % | 18.3 | % | 7.5 | % | |||||||||||||||
| Product development expense | 1,521,764 | 1,298,767 | 222,997 | 17.2 | % | 57.5 | % | 38.0 | % | |||||||||||||||
| General and administrative expense | 1,053,347 | 469,502 | 583,845 | 124.4 | % | 39.8 | % | 13.7 | % | |||||||||||||||
| Impairment loss on digital tokens | 7,262 | 184,737 | (177,475 | ) | (96.1 | )% | 0.3 | % | 5.4 | % | ||||||||||||||
| Total costs and expenses | $ | 3,728,054 | $ | 2,838,792 | $ | 889,262 | 31.3 | % | 140.9 | % | 83.1 | % | ||||||||||||
Cost of revenue
Our cost of revenue for the three months ended June 30, 2022 increased by $30,966, or 4.9%, as compared to the three months ended June 30, 2021. The increase in cost of revenue expenses was primarily attributed to an increase in approximately $15,000 of salary and salary-related expenses and an increase of approximately $25,400 of expenses related to ManyCam sales and was partially offset by a decrease in web hosting expenses of approximately $14,400.
Sales and marketing expense
Our sales and marketing expense for the three months ended June 30, 2022 increased by $228,929, or 89.7%, as compared to the three months ended June 30, 2021. The increase in sales and marketing expense for the three months ended June 30, 2022 was primarily due to an increase of approximately $217,600 in marketing user acquisition expenses, including agent fees, as we began our focus on increasing user engagement spend through the efforts of our third-party marketing agencies.
Product development expense
Our product development expense for the three months ended June 30, 2022 increased by $222,997, or 17.2%, as compared to the three months ended June 30, 2021. The increase was primarily due to an increase of approximately $155,200 related to software expenses and consulting services in support of our processes to enhance user retention and improve monetization in the Paltalk application.
General and administrative expense
Our general and administrative expense for the three months ended June 30, 2022 increased by $583,845, or 124.4%, as compared to the three months ended June 30, 2021. The increase in general and administrative expense for the three months ended June 30, 2022 was due to an increase of approximately $244,200 in non-cash stock compensation expense from the issuance of employee stock options, an increase in professional fees relating to corporate matters of approximately $105,300, an increase in insurance expense of approximately $123,600 and increased amortization expense of approximately $40,200.
Impairment loss on digital tokens
We recorded a non-cash impairment loss on digital tokens of $7,262 and $184,737 for the three months ended June 30, 2022 and June 30, 2021, respectively, as a result of recent declines in the quoted market prices of certain digital tokens below the market price of their acquisition.
23
Non-Operating (Loss) Income
The following table presents the components of non-operating (loss) income for the three months ended June 30, 2022 and the three months ended June 30, 2021, the decrease between those periods and the percentage decrease between those periods and the percentage of total revenue that each represented for those periods:
| % Revenue | ||||||||||||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||
| June 30, | $ | % | June 30, | |||||||||||||||||||||
| 2022 | 2021 | (Decrease) | (Decrease) | 2022 | 2021 | |||||||||||||||||||
| Interest expense, net | $ | (1,595 | ) | $ | (420 | ) | $ | (1,175 | ) | (279.8 | )% | (0.1 | )% | (0.0 | )% | |||||||||
| Realized gain from sale of digital tokens | - | 247,293 | (247,293 | ) | (100.0 | )% | - | % | 7.2 | % | ||||||||||||||
| Other expense, net | (38,772 | ) | - | (38,772 | ) | (100.0 | )% | (1.5 | )% | - | % | |||||||||||||
| Total non-operating (loss) income | $ | (40,367 | ) | $ | 246,873 | $ | (287,240 | ) | (116.4 | )% | (1.6 | )% | 7.2 | % | ||||||||||
Non-operating loss for the three months ended June 30, 2022 was $40,367, an increase of $287,240, or 116.4%, as compared to non-operating income of $246,873 for the three months ended June 30, 2021. The increase in non-operating loss primarily resulted from the gain from sale of digital tokens during the three months ended June 30, 2021 that was not similarly recognized during the three months ended June 30, 2022.
Income Taxes
Our provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. For the three months ended June 30, 2022 and June 30, 2021, we recorded an income tax provision of $4,753 and $2,200, respectively, consisting primarily of state and local taxes.
As of June 30, 2022, our conclusion regarding the realizability of our US deferred tax assets did not change and we have recorded a full valuation allowance against them.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Revenue
Revenue decreased to $5,571,169 for the six months ended June 30, 2022, from $6,787,805 for the six months ended June 30, 2021. The decrease was primarily driven by a decrease in subscription revenue of $854,229 along with a decrease of $374,248 in technology service revenue driven by the termination of the YouNow Agreement.
The following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenues for the six months ended June 30, 2022 and the six months ended June 30, 2021, the increase or decrease between those periods, the percentage increase or decrease between those periods and the percentage of total revenues that each represented for those periods:
| % Revenue | ||||||||||||||||||||||||
| Six Months Ended | $ | % | Six Months Ended | |||||||||||||||||||||
| June 30, | Increase | Increase | June 30, | |||||||||||||||||||||
| 2022 | 2021 | (Decrease) | (Decrease) | 2022 | 2021 | |||||||||||||||||||
| Subscription revenue | $ | 5,407,045 | $ | 6,261,274 | $ | (854,229 | ) | (13.6 | )% | 97.1 | % | 92.2 | % | |||||||||||
| Advertising revenue | 164,124 | 152,283 | 11,841 | 7.8 | % | 2.9 | % | 2.2 | % | |||||||||||||||
| Technology service revenue | - | 374,248 | (374,248 | ) | (100.0 | )% | - | % | 5.6 | % | ||||||||||||||
| Total revenues | $ | 5,571,169 | $ | 6,787,805 | $ | (1,216,636 | ) | (17.9 | )% | 100.0 | % | 100.0 | % | |||||||||||
24
Subscription Revenue
Our subscription revenue for the six months ended June 30, 2022 decreased by $854,229, or 13.6%, as compared to the six months ended June 30, 2021. The decrease in subscription revenue was primarily driven by a decrease in new subscribers as well as a decrease in virtual gifts across the Paltalk and Camfrog applications. We attribute this decrease primarily to the overall macro-economic environment that may limit a customer’s access to discretionary spending, as well as, to a lesser degree, the lifting of various COVID-19 related restrictions in certain of our target markets that prohibited individuals from leaving their homes and, as a result, customers are devoting less time to their social applications.
Advertising Revenue
Our advertising revenue for the six months ended June 30, 2022 increased by $11,841, or 7.8%, as compared to the six months ended June 30, 2021. The increase in advertising revenue was primarily due to an increase in the volume of advertising impressions related to changes in and the optimization of third-party advertising partners.
Technology Service Revenue
Our technology service revenue for the six months ended June 30, 2022 decreased by $374,248, or 100.0%, as compared to the six months ended June 30, 2021. The decrease in technology service revenue was driven by the termination of the YouNow Agreement, effective November 23, 2021. We do not expect to generate a material amount of technology service revenue in future periods.
Costs and Expenses
Total costs and expenses for the six months ended June 30, 2022 reflect an increase in costs and expenses of $1,565,989, or 27.0%, as compared to the six months ended June 30, 2021. The following table presents our costs and expenses for the six months ended June 30, 2022 and 2021, the increase or decrease between those periods, the percentage increase or decrease between those periods and the percentage of total revenues that each represented for those periods:
| % Revenue | ||||||||||||||||||||||||
| Six Months Ended | $ | % | Six Months Ended | |||||||||||||||||||||
| June 30, | Increase | Increase | June 30, | |||||||||||||||||||||
| 2022 | 2021 | (Decrease) | (Decrease) | 2022 | 2021 | |||||||||||||||||||
| Cost of revenue | $ | 1,313,644 | $ | 1,277,297 | $ | 36,347 | 2.8 | % | 23.6 | % | 18.8 | % | ||||||||||||
| Sales and marketing expense | 895,615 | 512,655 | 382,960 | 74.7 | % | 16.1 | % | 7.6 | % | |||||||||||||||
| Product development expense | 3,051,905 | 2,596,031 | 455,874 | 17.6 | % | 54.8 | % | 38.2 | % | |||||||||||||||
| General and administrative expense | 2,099,495 | 1,231,212 | 868,283 | 70.5 | % | 37.7 | % | 18.1 | % | |||||||||||||||
| Impairment loss on digital tokens | 7,262 | 184,737 | (177,475 | ) | (96.1 | )% | 0.1 | % | 2.7 | % | ||||||||||||||
| Total costs and expenses | $ | 7,367,921 | $ | 5,801,932 | $ | 1,565,989 | 27.0 | % | 132.3 | % | 85.4 | % | ||||||||||||
Cost of revenue
Our cost of revenue for the six months ended June 30, 2022 increased by $36,347, or 2.8%, as compared to the six months ended June 30, 2021. The increase for the six months ended June 30, 2022 was primarily driven by an increase in approximately $42,800 in salary and salary-related expenses and an increase in approximately $25,400 of ManyCam expenses and was offset by a decrease in web hosting expenses of approximately $44,400.
Sales and marketing expense
Our sales and marketing expense for the six months ended June 30, 2022 increased by $382,960, or 74.7%, as compared to the six months ended June 30, 2021. The increase in sales and marketing expense for the six months ended June 30, 2022 was primarily due to an increase of approximately $362,900 in marketing expenses, including agent fees, as we begin our focus on increasing user engagement spend through the efforts of our third-party marketing agencies.
25
Product development expense
Our product development expense for the six months ended June 30, 2022 increased by $455,874, or 17.6%, as compared to the six months ended June 30, 2021. The increase was primarily due to an increase of approximately $316,500 related to software expenses and consulting services in support of our processes to enhance user retention and improve monetization in the Paltalk application. In addition, there is an increase in subscription costs of approximately $100,400 related to user engagement monitoring.
General and administrative expense
Our general and administrative expenses for the six months ended June 30, 2022 increased by $868,283, or 70.5%, as compared to the six months ended June 30, 2021. The increase in general and administrative expense for the six months ended June 30, 2022 was due to an increase of approximately $352,100 in non-cash stock compensation expense from the issuance of employee stock options, an increase in professional fees relating to corporate matters such as executive agreements of approximately $247,700, an increase in insurance expense of approximately $107,600 and increased amortization expense of approximately $40,200.
Impairment loss on digital tokens
We recorded a non-cash impairment loss on digital tokens of $7,262 and $184,737 for the six months ended June 30, 2022 and June 30, 2021, respectively, as a result of recent declines in the quoted market prices of certain digital tokens below the market price of their acquisition.
Non-Operating (Loss) Income
The following table presents the components of non-operating (loss) income for the six months ended June 30, 2022 and the six months ended June 30, 2021, the decrease between those periods, the percentage decrease between those periods and the percentage of total revenues that each represented for those periods:
| % Revenue | ||||||||||||||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||||||||||
| June 30, | $ | % | June 30, | |||||||||||||||||||||
| 2022 | 2021 | (Decrease) | (Decrease) | 2022 | 2021 | |||||||||||||||||||
| Interest (expense) income | $ | (3,457 | ) | $ | 2,047 | $ | (5,504 | ) | (268.9 | )% | (0.1 | )% | 0.0 | % | ||||||||||
| Other expense, net | (46,658 | ) | - | (46,658 | ) | (100.0 | )% | (0.7 | )% | - | % | |||||||||||||
| Realized gain from sale of digital tokens | - | 247,293 | (247,293 | ) | (100.0 | )% | - | % | 3.6 | % | ||||||||||||||
| Gain on extinguishment of term debt | - | 506,500 | (506,500 | ) | (100.0 | )% | - | % | 7.5 | % | ||||||||||||||
| Total non-operating (loss) income | $ | (50,115 | ) | $ | 755,840 | $ | (805,955 | ) | (106.6 | )% | (0.8 | )% | 11.1 | % | ||||||||||
Non-operating loss for the six months ended June 30, 2022 increased by $805,955, or 106.6%, as compared to non-operating income of $755,840 for the six months ended June 30, 2021. The increase in non-operating loss was primarily attributed to the gain on extinguishment of term debt of the $506,500 of proceeds from the Note and the gain from sale of digital tokens of $247,293 during the six months ended June 30, 2021 that were not similarly recognized during the six months ended June 30, 2022. The Note was entered into to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic.
Income Taxes
Our provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. For the six months ended June 30, 2022 and 2021, the Company recorded an income tax provision of $20,784 and $3,300, respectively, consisting primarily of state and local taxes.
As of June 30, 2022, our conclusion regarding the realizability of our US deferred tax assets did not change and we have recorded a full valuation allowance against them.
Liquidity and Capital Resources
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Condensed Consolidated Statements of Cash Flows Data: | ||||||||
| Net cash (used in) provided by operating activities | $ | (1,643,934 | ) | $ | 611,988 | |||
| Net cash (used in) by investing activities | (2,928,928 | ) | 304,304 | |||||
| Net cash used in financing activities | (213,180 | ) | - | |||||
| Net (decrease) increase in cash and cash equivalents | $ | (4,786,042 | ) | $ | 916,292 | |||
26
Currently, our primary source of liquidity is cash on hand, and based on our plans, we believe the Company has adequate cash on hand as of June 30, 2022 to fund its obligations for at least one year from the date of issuance of these financial statements. As of June 30, 2022, we had $16,850,818 of cash and cash equivalents.
Our use of working capital is related to product development resources and an investment in marketing activities in order to maintain and create new services and features in applications for our clients and users. In particular, a significant portion of our working capital has been allocated to the improvement of our products. In the future, we may continue to seek to grow our business by expending our capital resources to fund strategic acquisitions, investments and partnership opportunities.
Operating Activities
Net cash used in operating activities was $1,643,934 for the six months ended June 30, 2022, as compared to net cash provided by operating activities of $611,988 for the six months ended June 30, 2021. The decrease in cash flows from operations resulted mainly from a decrease in subscription revenue and an increase in overall operating expenses as we focused on and invested in user retention and engagement.
Investing Activities
Net cash used in investing activities was $2,928,928 for the six months ended June 30, 2022, as compared to net cash provided by operating activities of $304,304 for the six months ended June 30, 2021. The decrease in cash flows from investing activities resulted mainly from the ManyCam Acquisition.
Financing Activities
Net cash used in financing activities was $213,180 for the six months ended June 30, 2022, as compared to no net cash provided by operating activities for the six months ended June 30, 2021. This increase is attributed to the 110,000 shares of common stock that were repurchased by the Company pursuant to the Company’s stock repurchase plan.
Contractual Obligations and Commitments
On March 23, 2022, we entered into Amended and Restated Employment Agreements with our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which amends and restates their existing employment agreements with the Company dated October 7, 2016 and December 9, 2019, respectively. The agreements are each for terms of one year with auto renewal provisions. Except for adjustments to base salaries, all other terms and conditions of the prior employment agreements between the Company and the CEO and CFO will remain in full force and effect. The CEO agreement is retroactive to February 2021. The CFO agreement is retroactive to January 2022. Aggregate commitments of base salaries under the agreements for 2022 total $490,000. Should the agreements be renewed for 2023 and beyond, the aggregate base salary commitments would total $510,000 per year.
There have been no other material changes to our contractual obligations and commitments disclosed in the contractual obligations and commitments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any off-balance sheet arrangements.
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, our chief executive officer recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Based on the evaluation as of June 30, 2022, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
28
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 23, 2021, a wholly owned subsidiary of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit against WebEx Communications, Inc., Cisco WebEx LLC, and Cisco Systems, Inc. (collectively, “Cisco”), in the U.S. District Court for the Western District of Texas. The Company alleges that Cisco’s Webex products have infringed U.S. Patent No. 6,683,858, and that the Company is entitled to damages. A Markman hearing took place on February 24, 2022 and a trial is scheduled for February 2023.
To our knowledge, other than as described above, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.
ITEM 1A. RISK FACTORS
There were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in the Form 10-K. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in the Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sale of Equity Securities
There were no sales of unregistered securities during the quarter ended June 30, 2022 that were not previously reported on a Current Report on Form 8-K.
Issuer Repurchases of Common Stock
The following table details our repurchases of common stock during the three months ended June 30, 2022:
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||||
| April 1, 2022 – April 30, 2022 | — | $ | — | — | $ | — | ||||||||||
| May 1, 2022 – May 31, 2022 | 110,000 | $ | 1.94 | 110,000 | $ | 1.53 | ||||||||||
| June 1, 2022 – June 30, 2022 | — | $ | — | — | $ | — | ||||||||||
| Total | 110,000 | $ | 1.94 | 110,000 | $ | 1.53 | ||||||||||
| (1) | On March 23, 2022, we announced that our Board of Directors approved a stock repurchase plan, effective March 29, 2022, to repurchase up to $1,750,000 of our outstanding common stock for cash. The stock repurchase plan expires on March 29, 2023. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
29
ITEM 6. EXHIBITS
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
The following exhibits are included herein or incorporated herein by reference:
| # | Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Paltalk, Inc. hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission. |
| * | Filed herewith. |
| ** | The certification attached as Exhibit 32.1 is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Paltalk, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of the Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Paltalk, Inc. | ||
| Date: August 8, 2022 | By: | /s/ Jason Katz |
| Jason Katz | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Paltalk, Inc. | ||
| Date: August 8, 2022 | By: | /s/ Kara Jenny |
| Kara Jenny | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
31
Exhibit 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jason Katz, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Paltalk, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 8, 2022 | By: | /s/ Jason Katz |
|
Jason Katz | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kara Jenny, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Paltalk, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 8, 2022 | By: | /s/ Kara Jenny |
|
Kara Jenny | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C.
SECTION 1350, AS
ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Paltalk, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.
| Date: August 8, 2022 | By: | /s/ Jason Katz |
|
Jason Katz | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
| Date: August 8, 2022 | By: | /s/ Kara Jenny |
|
Kara Jenny | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Net of allowances (in Dollars) | $ 3,648 | $ 3,648 |
| Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 25,000,000 | 25,000,000 |
| Common stock, shares issued | 9,864,120 | 9,864,120 |
| Common stock, shares outstanding | 9,722,157 | 9,832,157 |
| Treasury stock | 141,963 | 31,963 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Revenues: | ||||
| Subscription revenue | $ 2,560,706 | $ 3,121,909 | $ 5,407,045 | $ 6,261,274 |
| Advertising revenue | 83,762 | 75,462 | 164,124 | 152,283 |
| Technology service revenue | 218,432 | 374,248 | ||
| Total revenues | 2,644,468 | 3,415,803 | 5,571,169 | 6,787,805 |
| Costs and expenses: | ||||
| Cost of revenue | 661,548 | 630,582 | 1,313,644 | 1,277,297 |
| Sales and marketing expense | 484,133 | 255,204 | 895,615 | 512,655 |
| Product development expense | 1,521,764 | 1,298,767 | 3,051,905 | 2,596,031 |
| General and administrative expense | 1,053,347 | 469,502 | 2,099,495 | 1,231,212 |
| Impairment loss on digital tokens | 7,262 | 184,737 | 7,262 | 184,737 |
| Total costs and expenses | 3,728,054 | 2,838,792 | 7,367,921 | 5,801,932 |
| (Loss) income from operations | (1,083,586) | 577,011 | (1,796,752) | 985,873 |
| Interest (expense) income, net | (1,595) | (420) | (3,457) | 2,047 |
| Gain on extinguishment of term debt | 506,500 | |||
| Realized gain from the sale of digital tokens | 247,293 | 247,293 | ||
| Other expense, net | (38,772) | (46,658) | ||
| (Loss) income from operations before provision for income taxes | (1,123,953) | 823,884 | (1,846,867) | 1,741,713 |
| Provision for income taxes | (4,753) | (2,200) | (20,784) | (3,300) |
| Net (loss) income | $ (1,128,706) | $ 821,684 | $ (1,867,651) | $ 1,738,413 |
| Net (loss) income per share of common stock: | ||||
| Basic (in Dollars per share) | $ (0.12) | $ 0.12 | $ (0.19) | $ 0.25 |
| Diluted (in Dollars per share) | $ (0.12) | $ 0.12 | $ (0.19) | $ 0.25 |
| Weighted average number of shares of common stock used in calculating net (loss) income per share of common stock: | ||||
| Basic (in Shares) | 9,771,608 | 6,906,454 | 9,801,715 | 6,906,454 |
| Diluted (in Shares) | 9,771,608 | 6,930,041 | 9,801,715 | 6,918,248 |
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - USD ($) |
Common Stock |
Treasury Stock |
Additional Paid- in Capital |
Accumulated Deficit |
Total |
|---|---|---|---|---|---|
| Balance at Dec. 31, 2020 | $ 6,917 | $ (10,859) | $ 21,568,041 | $ (11,729,089) | $ 9,835,010 |
| Balance (in Shares) at Dec. 31, 2020 | 6,916,404 | (9,950) | |||
| Stock-based compensation expense | 31,368 | 31,368 | |||
| Net income (loss) | 916,729 | 916,729 | |||
| Balance at Mar. 31, 2021 | $ 6,917 | $ (10,859) | 21,599,409 | (10,812,360) | 10,783,107 |
| Balance (in Shares) at Mar. 31, 2021 | 6,916,404 | (9,950) | |||
| Stock-based compensation expense | (192,342) | (192,342) | |||
| Net income (loss) | 821,684 | 821,684 | |||
| Balance at Jun. 30, 2021 | $ 6,917 | $ (10,859) | 21,407,067 | (9,990,676) | 11,412,449 |
| Balance (in Shares) at Jun. 30, 2021 | 6,916,404 | (9,950) | |||
| Balance at Dec. 31, 2021 | $ 9,864 | $ (194,200) | 35,639,910 | (10,404,983) | 25,050,591 |
| Balance (in Shares) at Dec. 31, 2021 | 9,864,120 | (31,963) | |||
| Stock-based compensation expense | 152,471 | 152,471 | |||
| Net income (loss) | (738,945) | (738,945) | |||
| Balance at Mar. 31, 2022 | $ 9,864 | $ (194,200) | 35,792,381 | (11,143,928) | 24,464,117 |
| Balance (in Shares) at Mar. 31, 2022 | 9,864,120 | (31,963) | |||
| Stock-based compensation expense | 59,149 | 59,149 | |||
| Repurchases of common stock | $ (213,180) | (213,180) | |||
| Repurchases of common stock (in Shares) | (110,000) | ||||
| Net income (loss) | (1,128,706) | (1,128,706) | |||
| Balance at Jun. 30, 2022 | $ 9,864 | $ (407,380) | $ 35,851,530 | $ (12,272,634) | $ 23,181,380 |
| Balance (in Shares) at Jun. 30, 2022 | 9,864,120 | (141,963) |
Organization and Description of Business |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Organization and Description of Business [Abstract] | |
| Organization and Description of Business | 1. Organization and Description of Business
The accompanying condensed consolidated financial statements include Paltalk, Inc. and its wholly owned subsidiaries, A.V.M. Software, Inc., ManyCam ULC, Paltalk Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Fire Talk LLC and Vumber LLC (collectively, the “Company”).
The Company is a communications software innovator that powers multimedia social applications. The Company’s product portfolio includes Paltalk, Camfrog and Tinychat, which together host and serve a large collection of video-based communities. The Company’s other products include ManyCam and Vumber. ManyCam is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools. Vumber is a telecommunications services provider that enables users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user’s existing telephone number. The Company has an over 20-year history of technology innovation and holds 14 patents.
On June 9, 2022 (the “Effective Date”), the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among the Company, ManyCam ULC, an unlimited liability company incorporated under the laws of the Province of Alberta and a wholly owned subsidiary of the Company (the “Purchaser”), Visicom Media Inc., a Canadian corporation (the “Visicom”), and 2434936 Alberta ULC, an unlimited liability company incorporated under the laws of the Province of Alberta (“Target NewCo”), pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo (the “ManyCam Acquisition”). Prior to the ManyCam Acquisition, Target NewCo held all assets related to, or used by Visicom in connection with, the business of developing and distributing virtual webcam driver software, including virtual backgrounds and/or “masks” or other camera effects (other than the Excluded Contracts (as defined in the Securities Purchase Agreement)), whether tangible or intangible, including, but not limited to, Target NewCo’s ManyCam software (“ManyCam”) and related source code, customer lists, customer relationships and all associated customer information, contracts with contractors and suppliers, brand names, trade secrets, trademarks, trade names, designs, copyrights, websites, all URLs, goodwill and intellectual property associated with each of the foregoing (collectively, the “Conveyed Assets”). The Company concluded that the acquisition of the Conveyed Assets is not considered a business under Regulation S-X and in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations.
The purchase price for the Conveyed Assets was $2.7 million in cash consideration, plus a potential earn-out payment of up to $600,000 upon the achievement of certain performance thresholds over the six-month period following the closing of the ManyCam Acquisition. For more information regarding the ManyCam Acquisition, see Note 3.
The condensed consolidated financial statements included in this report have been prepared on a going concern basis in accordance with generally accepted accounting principles in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The Company has not included certain information and notes required by GAAP for complete financial statements pursuant to those rules and regulations, although it believes that the disclosure included herein is adequate to make the information presented not misleading. The condensed consolidated financial statements contained herein should be read in conjunction with the Company’s audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 23, 2022 (the “Form 10-K”).
In the opinion of management, the accompanying unaudited condensed consolidated financial information contains all normal and recurring adjustments necessary to fairly present the condensed consolidated balance sheets and statements of operations, cash flows and changes in stockholders’ equity of the Company for the interim periods presented. The Company’s historical results are not necessarily indicative of future operating results, and the results for the six months ended June 30, 2022 are not necessarily indicative of results for the year ending December 31, 2022, or for any other period.
Macro-Economic Factors and COVID-19 Update
The Company’s results of operations have and may continue to be negatively impacted by the uncertainty regarding COVID-19 and macro-economic factors, including the timing of any economic recession and/or recovery and the overall inflationary environment.
The global spread of the COVID-19 pandemic and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions and potential quarantines. Although the Company’s core multimedia social applications were able to support the increased demand the Company experienced from the second quarter of 2020 through the year ended December 31, 2021, the extent of the future impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. Adverse economic and market conditions as a result of COVID-19 as well as the lifting of COVID-19 restrictions could also affect the demand for the Company’s applications and the ability of the Company’s users to satisfy their obligations to the Company. If the pandemic continues to cause significant negative impacts to economic conditions, the Company’s results of operations, financial condition and liquidity could be materially and adversely impacted.
On April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, the Company applied for a loan under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and on May 3, 2020, the Company entered into a promissory note with an aggregate principal amount of $506,500 (the “Note”) in favor of Citibank, N.A., as lender (the “Lender”). On January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act. |
Summary of Significant Accounting Policies |
6 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||
| Organization and Description of Business [Abstract] | ||||||||||
| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
During the six months ended June 30, 2022, there were no significant changes made to the Company’s significant accounting policies, except for the acquisition of the ManyCam assets which is discussed in Note 3 below.
For a detailed discussion about the Company’s significant accounting policies, see the Form 10-K.
Significant Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
Significant estimates relied upon in preparing these financial statements include the estimates used to determine the fair value of the stock options issued in share-based payment arrangements, subscription revenues net of refunds, credits, and known and estimated credit card chargebacks as well as valuation inputs used in determining the fair value of the ManyCam assets, described more fully below. Management evaluates these estimates on an ongoing basis. Changes in estimates are recorded in the period in which they become known. The Company bases estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates.
Revisions to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the condensed consolidated financial statements in the periods in which they are first identified. If the Company’s estimates indicate that a contract loss will be incurred, a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated. Contract losses are the amount by which the estimated costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of revenues in the Company’s condensed consolidated statements of operations. There were no contract losses for the periods presented.
Fair Value Measurements
The fair value framework under the guidance issued by the Financial Accounting Standards Board (“FASB’”) requires the categorization of assets and liabilities into three levels based upon the assumptions used to measure the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment. The three levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:
The Company reviews the appropriateness of fair value measurements including validation processes, and the reconciliation of period-over-period fluctuations based on changes in key market inputs. All fair value measurements are subject to the Company’s analysis. Review and approval by management is required as part of the validation process.
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short-term nature of these instruments.
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, revenue from contracts with customers is recognized when control of the promised services is transferred to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. Sales tax is excluded from reported revenue. The Company has elected the practical expedient allowable by the guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less.
Subscription Revenue
The Company generates subscription revenue primarily from monthly premium subscription services. Subscription revenues are presented net of refunds, credits, and known and estimated credit card chargebacks. During the three and six months ended June 30, 2022 and 2021, subscriptions were offered in durations of one-, three-, six-, twelve- and twenty-four-month terms. All subscription fees, however, are paid by credit card at the origination of the subscription regardless of the term of the subscription. Revenues from multi-month subscriptions are recognized on a straight-line basis over the period where the service is offered to the customer, indicated by length of the subscription term purchased. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets. Deferred revenue at December 31, 2021 was $1,915,493, $1,180,225 of which was subsequently recognized as subscription revenue during the six months ended June 30, 2022. The ending balance of deferred revenue at June 30, 2022 and 2021 was $1,839,849 and $ $2,011,363, respectively.
In addition, the Company offers virtual gifts to its users. Users may purchase credits in $5, $10 or $20 increments that can be redeemed for a host of virtual gifts such as a rose, a beer or a car, among other items. These gifts are given among users to enhance communication and are typically redeemed within 30 days of purchase. Upon purchase, the virtual gifts are credited to the users’ account and are under the users’ control. Virtual gift revenue is recognized upon the users’ redemption of virtual gifts at the fixed transaction price and included in subscription revenue in the accompanying condensed consolidated statements of operations. Virtual gift revenue is presented as deferred revenue in the condensed consolidated balance sheets until virtual gifts are redeemed. Virtual gift revenue was $1,091,487 and $2,361,024 for the three and six months ended June 30, 2022, respectively. Virtual gift revenue was $1,389,046 and $2,809,176 for the three and six months ended June 30, 2021, respectively. The ending balance of deferred revenue from virtual gifts at June 30, 2022 and 2021 was $349,552 and $317,889, respectively.
Advertising Revenue
The Company generates advertising revenue from the display of advertisements on its products through contractual agreements with third parties that are based on the number of advertising impressions delivered. Measurements of impressions include when a customer clicks an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through the application (CPA basis). Advertising revenue is dependent upon traffic as well as the advertising inventory placed on the Company’s products.
Technology Service Revenue
Technology service revenue was historically generated under service and partnership agreements that the Company negotiated with third parties which included development, integration, engineering, licensing or other services that the Company provided.
During 2021, the Company recorded technology service revenue in connection with its agreement to serve as a launch partner with Open Props, Inc. (formerly YouNow, Inc., and referred to herein as “YouNow”) and to integrate YouNow’s props infrastructure (the “Props platform”) into the Company’s Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).
Pursuant to the terms of the YouNow Agreement, once the integration of Props tokens into the Company’s Paltalk and Camfrog applications was completed, the Company began receiving Props tokens for providing a validator service and for allowing users to participate in the loyalty platform. The loyalty platform was intended to drive engagement and incentivize users financially by providing users with the ability to earn Props tokens while using the Paltalk and Camfrog applications.
In August 2021, the Company received notice from YouNow that it was terminating the YouNow Agreement, and that it would no longer support the Props platform past the end of calendar year 2021. As a result of the termination of the YouNow Agreement, the Company notified its users that it would no longer be issuing Props starting October 15, 2021, and would be replacing any user’s outstanding Props with a new internal rewards program. The new rewards loyalty program for Paltalk and Camfrog allowed users to keep their existing rewards earned from the former Props program as internal rewards and also have the opportunity to earn new internal rewards points. In connection with the internal rewards points, the Company added 25 new reward tiers, including specialty coins, subscriptions, stickers, flair, and other popular buttons.
Given the trading availability of Props tokens in various active markets, the Company calculated the fair value of digital tokens based on the observable daily quoted market prices (Level 1 inputs) on multiple international exchanges, as recorded on CoinmarketCap. The total net revenue value recognized as earned was $218,432 and $374,248 for the three and six months ended June 30, 2021, respectively. As of June 30, 2022, the value of all digital tokens has been reduced to zero.
The Company did not generate any technology service revenue during the three and six months ended June 30, 2022. |
Asset Acquisition – Securities Purchase Agreement |
6 Months Ended | |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||
| Asset Acquisition – Securities Purchase Agreement | 3. Asset Acquisition – Securities Purchase Agreement
As discussed above, on June 9, 2022, the Company entered into the Securities Purchase Agreement by and among the Company, the Purchaser, Visicom and Target NewCo, pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo.
The Purchaser acquired the Conveyed Assets for a cash purchase price of $2.7 million (the “Cash Consideration”). In addition to the Cash Consideration, Visicom is entitled to receive an additional payment of up to $600,000 (the “Earn-Out Payment”) based on the sales of the ManyCam software less chargebacks and refunds (“Gross Sales”) in the six-month period following the Closing (the “Earn-Out Period”) as follows: (i) if the Gross Sales during the Earn-Out Period are greater than $800,000, the Earn-Out Payment shall be $600,000, (ii) if the Gross Sales during the Earn-Out Period are greater than $700,000 but less than $800,000, the Earn-Out Payment shall be $300,000, (iii) if the Gross Sales during the Earn-Out Period are greater than $600,000 but less than $700,000, the Earn-Out Payment shall be $150,000 and (iv) if the Gross Sales during the Earn-Out Period do not exceed $600,000, then the Seller will not be paid any portion of the Earn-Out Payment. The Company concluded that the acquisition of the Conveyed Assets is not considered a business under Regulation S-X and in accordance with ASC 805, Business Combinations.
As part of a valuation analysis, the Company identified intangible assets, including internally developed software, subscriber relationships/customer list and intellectual property (trade names, trademarks, URLs). The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. Final allocation was determined by a third-party valuation specialist hired by Company management. The following table summarizes the fair value of the identifiable intangible assets and their respective useful lives:
The estimated aggregate amortization expense for each of the next five years and thereafter will approximate $185,238 for the remainder of 2022, $444,571 in 2023, $444,571 in 2024, $393,071 in 2025, $341,571 in 2026 and $853,930 thereafter.
The Company incurred approximately $230,000 of expenses in connection with the ManyCam Acquisition and capitalized them accordingly.
As part of the accounting for the ManyCam assets, the Company provisionally recorded a deferred tax liability of $0.8 million with an offset to intangible assets related to the excess financial reporting basis over the tax basis of the Conveyed Assets. On June 30, 2022, the Company entered into a License Agreement with Visicom (the “License Agreement”), pursuant to which the Company agreed to distribute, at the discretion and direction of Visicom, a specified number of ManyCam software updates to certain license holders to whom Visicom has previously granted a “lifetime” license to ManyCam software. As consideration for distributing the software updates, Visicom paid the Company an initial upfront nonrefundable payment of $65,000. The License Agreement provides that Visicom may purchase additional licenses at prices specified therein. Other than providing a one-time, limited license to Visicom for the distribution of ManyCam software updates pursuant to the terms of the License Agreement, the Company does not have any obligation to provide support or service to the licensee end users. |
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Property and Equipment, Net |
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| Property and Equipment, Net | 4. Property and Equipment, Net
Property and equipment, net consisted of the following at June 30, 2022 and December 31, 2021:
Depreciation expense for the three and six months ended June 30, 2022 was $21,820 and $51,918, respectively, as compared to $53,076 and $101,856 for the three and six months ended June 30, 2021, respectively. |
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Intangible Assets, Net |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets, Net | 5. Intangible Assets, Net
Intangible assets, net consisted of the following at June 30, 2022 and December 31, 2021:
Amortization expense for the three and six months ended June 30, 2022 was $86,356 and $132,522, respectively, as compared to $46,166 and $92,333 for the three and six months ended June 30, 2021, respectively. The aggregate amortization expense for each of the next five years and thereafter is estimated to be $300,190 for the remainder of 2022, $502,745 in 2023, $502,100 in 2024, $419,536 in 2025, $371,173 in 2026 and $897,205 thereafter. |
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Accrued Expenses and Other Current Liabilities |
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| Disclosure Text Block Supplement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Expenses and Other Current Liabilities | 6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following for the periods presented:
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Income Taxes |
6 Months Ended |
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Jun. 30, 2022 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 7. Income Taxes
The Company’s provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. As of June 30, 2022, our conclusion regarding the realizability of our US deferred tax assets did not change and we have recorded a full valuation allowance against them.
On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to PPP loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740, the effects of new legislation are recognized upon enactment. The enactment of the American Rescue Plan did not impact on the Company’s income tax provision.
For the three and six months ended June 30, 2022, the Company recorded an income tax provision of $4,753 and $20,784, respectively, primarily related to state and local taxes. The effective tax rate for the three and six months ended June 30, 2022 was (0.39)% and (1.08)%, respectively. The effective tax rate differs from the statutory rate of 21% as the Company has concluded that its deferred tax assets are not realizable on a more-likely-than-not basis.
For the three and six months ended June 30, 2021, the Company recorded an income tax provision of $2,200 and $3,300, respectively, primarily related to state and local taxes. The effective tax rate for the three and six months ended June 30, 2021 was 0.28% and 0.19%, respectively. The effective tax rate differs from the statutory rate of 21% as the Company has concluded that its deferred tax assets are not realizable on a more-likely-than-not basis. |
Stockholders' Equity |
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| Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity | 8. Stockholders’ Equity
The Paltalk, Inc. Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”) was terminated as to future awards on May 16, 2016. A total of 36,402 shares of the Company’s common stock may be issued pursuant to outstanding options awarded under the 2011 Plan; however, no additional awards may be granted under such plan. The Paltalk, Inc. 2016 Long-Term Incentive Plan (“the 2016 Plan”) was adopted by the Company’s stockholders on May 16, 2016 and permits the Company to award stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other stock-based awards and cash-based incentive awards to its employees (including an employee who is also a director or officer under certain circumstances), non-employee directors and consultants. The maximum number of shares of common stock that may be issued pursuant to awards under the 2016 Plan is 1,300,000 shares, 100% of which may be issued pursuant to incentive stock options. In addition, the maximum number of shares of common stock that may be issued under the 2016 Plan may be increased by an indeterminate number of shares of common stock underlying outstanding awards issued under the 2011 Plan that are forfeited, expired, cancelled or settled in cash. As of June 30, 2022, there were 767,728 shares available for future issuance under the 2016 Plan.
Stock Repurchase Plan
On March 21, 2022, the Board of Directors of the Company approved a stock repurchase plan for up to $1,750,000 of the Company’s outstanding common stock (the “Stock Repurchase Plan”). The Stock Repurchase Plan is effective as of March 29, 2022 and expires on the one-year anniversary of such date. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs, and the Stock Repurchase Plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased will be determined by a committee of the Board of Directors at its discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, alternative investment opportunities and other corporate considerations. As of June 30, 2022, 110,000 shares of common stock had been repurchased by the Company pursuant to the Stock Repurchase Plan.
Stock Options
The following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted during the six months ended June 30, 2022:
The expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior to exercise. The expected life of options has been determined using the “simplified” method as prescribed by Staff Accounting Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term. The volatility of the Company’s common stock is calculated using the Company’s historical volatilities beginning at the grant date and going back for a period of time equal to the expected life of the award. The Company estimates potential forfeitures of stock awards and adjusts recorded stock-based compensation expense accordingly. The Company estimates pre-vesting forfeitures primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the stock-based awards vest.
The following table summarizes stock option activity during the six months ended June 30, 2022:
At June 30, 2022, there was $479,162 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 3.52 years.
On June 30, 2022, the aggregate intrinsic value of stock options that were outstanding and exercisable was $45,840 and $38,340, respectively. On June 30, 2021, the aggregate intrinsic value of stock options that were outstanding and exercisable was $258,359 and $159,558, respectively. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the fair value of such awards as of the period-end date. During the six months ended June 30, 2022, the Company granted stock options to members of the Board of Directors to purchase an aggregate of 24,000 shares of common stock at an exercise price of $2.66 per share. The stock options vest in four equal quarterly installments on the last day of each calendar quarter in 2022 and have a term of ten years. During the six months ended June 30, 2022, the Company also granted options to employees to purchase an aggregate of 224,500 shares of common stock. These options have varying vesting dates ranging between the grant date and up to four years, have a term of ten years and have an exercise price of $2.66. The aggregate fair value for the stock options granted during the six months ended June 30, 2022 and 2021 was $636,957 and $78,522, respectively.
Stock-based compensation expense for the Company’s stock options included in the condensed consolidated statements of operations was as follows:
Treasury Shares
On April 29, 2019, the Company implemented a stock repurchase plan to repurchase up to $500,000 of its common stock for cash. The repurchase plan expired on April 29, 2020. The Company had purchased 9,950 shares of its common stock under the repurchase plan as of April 29, 2020 and has classified them as treasury shares on the Company’s condensed consolidated balance sheets. In addition, during the year ended December 31, 2021, the Company retained 22,013 in treasury shares as part of a net share exercise of stock options by former employees.
As discussed above, on March 29, 2022, the Company implemented the Stock Repurchase Plan to repurchase up to $1,750,000 of its outstanding common stock for cash. The Stock Repurchase Plan expires on March 29, 2023. As of June 30, 2022, 110,000 shares of common stock had been repurchased by the Company pursuant to the Stock Repurchase Plan, which shares have been classified as treasury shares on the Company’s condensed consolidated balance sheets.
As of June 30, 2022 and December 31, 2021, the Company had 141,963 and 31,963 shares, respectively, of its common stock classified as treasury shares. |
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Net (Loss) Income Per Share |
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| Net (Loss) Income Per Share | 9. Net (Loss) Income Per Share
Basic earnings and net (loss) income per share are computed by dividing the net (loss) income available to common stockholders by the weighted average number of common shares outstanding during the period as defined by ASC Topic 260, Earnings Per Share. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method). To the extent stock options are antidilutive, they are excluded from the calculation of diluted income per share. For the three and six months ended June 30, 2022, 646,401 shares issuable upon the exercise of outstanding stock options, respectively, were not included in the computation of diluted net loss per share because their inclusion would be antidilutive. For the three and six months ended June 30, 2022, no shares issuable upon the exercise of outstanding stock options, respectively, were included in the computation of diluted net loss per share from operations because their inclusion would be dilutive. For the three and six months ended June 30, 2021, 494,385 and 510,208 shares issuable upon the exercise of outstanding stock options, respectively, were not included in the computation of diluted net income per share because their inclusion would be antidilutive. For the three and six months ended June 30, 2021, 23,857 and 7,764 shares issuable upon the exercise of outstanding stock options, respectively, were included in the computation of diluted net income per share from operations because their inclusion would be dilutive.
The following table summarizes the net (loss) income per share calculation for the periods presented:
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Leases |
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | 10. Leases
On April 9, 2021, the Company entered into a lease extension agreement with Jericho Executive Center LLC for the office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on December 1, 2021 and runs through November 30, 2024. The Company’s monthly office rent payments under the lease are currently approximately $7,081 per month. The lease extension resulted in an increase in the Company’s right-of-use (“ROU”) assets and lease liabilities of $0.2 million, using a discount rate of 2.30%.
As of June 30, 2022, the Company had no long-term leases that were classified as financing leases. As of June 30, 2022, the Company did not have additional operating and financing leases that had not yet commenced.
At June 30, 2022, the Company had operating lease liabilities of approximately $200,000 and ROU assets of approximately $200,000, which are included in the condensed consolidated balance sheets.
Total rent expense for the six months ended June 30, 2022 was $43,075, of which $3,000 was sublease income. Total rent expense for the six months ended June 30, 2021 was $52,119, of which $1,500 was sublease income. Rent expense is recorded under general and administrative expense in the condensed consolidated statements of operations.
The following table summarizes the Company’s operating leases for the periods presented:
As of June 30, 2022, future minimum payments under non-cancelable operating leases were as follows:
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Commitments and Contingencies |
6 Months Ended |
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Jun. 30, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 11. Commitments and Contingencies
Officer Employment Agreements
On March 23, 2022, the Company entered into Amended and Restated Employment Agreements with the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which amends and restates their existing employment agreements with the Company dated October 7, 2016 and December 9, 2019, respectively. The agreements are each for terms of one year with auto renewal provisions. Except for adjustments to base salaries, all other terms and conditions of the prior employment agreements between the Company and the CEO and CFO will remain in full force and effect. The CEO agreement is retroactive to February 2021. The CFO agreement is retroactive to January 2022. Aggregate commitments of base salaries under the agreements for 2022 total $490,000. Should the agreements be renewed for 2023 and beyond, the aggregate base salary commitments would total $510,000 per year.
Patent Litigation
On July 23, 2021, a wholly owned subsidiary of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit against WebEx Communications, Inc., Cisco WebEx LLC, and Cisco Systems, Inc. (collectively, “Cisco”), in the U.S. District Court for the Western District of Texas. The Company alleges that Cisco’s Webex products have infringed U.S. Patent No. 6,683,858, and that the Company is entitled to damages. A Markman hearing took place on February 24, 2022 and a trial is scheduled for February 2023.
Other Legal Proceedings
The Company may be included in legal proceedings, claims and assessments arising in the ordinary course of business. The Company evaluates the need for a reserve for specific legal matters based on the probability of an unfavorable outcome and the reasonability of an estimable loss. No reserve was deemed necessary as of June 30, 2022. |
Subsequent Events |
6 Months Ended |
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Jun. 30, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 12. Subsequent Events
Management has evaluated subsequent events or transactions occurring through the date the condensed consolidated financial statements were issued and determined that no events or transactions are required to be disclosed herein. |
Accounting Policies, by Policy (Policies) |
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| Organization and Description of Business [Abstract] | ||||||||||
| Significant Estimates and Assumptions | Significant Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
Significant estimates relied upon in preparing these financial statements include the estimates used to determine the fair value of the stock options issued in share-based payment arrangements, subscription revenues net of refunds, credits, and known and estimated credit card chargebacks as well as valuation inputs used in determining the fair value of the ManyCam assets, described more fully below. Management evaluates these estimates on an ongoing basis. Changes in estimates are recorded in the period in which they become known. The Company bases estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates.
Revisions to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the condensed consolidated financial statements in the periods in which they are first identified. If the Company’s estimates indicate that a contract loss will be incurred, a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated. Contract losses are the amount by which the estimated costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of revenues in the Company’s condensed consolidated statements of operations. There were no contract losses for the periods presented.
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| Fair Value Measurements | Fair Value Measurements
The fair value framework under the guidance issued by the Financial Accounting Standards Board (“FASB’”) requires the categorization of assets and liabilities into three levels based upon the assumptions used to measure the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment. The three levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:
The Company reviews the appropriateness of fair value measurements including validation processes, and the reconciliation of period-over-period fluctuations based on changes in key market inputs. All fair value measurements are subject to the Company’s analysis. Review and approval by management is required as part of the validation process.
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short-term nature of these instruments.
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| Revenue Recognition | Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, revenue from contracts with customers is recognized when control of the promised services is transferred to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. Sales tax is excluded from reported revenue. The Company has elected the practical expedient allowable by the guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less.
Subscription Revenue
The Company generates subscription revenue primarily from monthly premium subscription services. Subscription revenues are presented net of refunds, credits, and known and estimated credit card chargebacks. During the three and six months ended June 30, 2022 and 2021, subscriptions were offered in durations of one-, three-, six-, twelve- and twenty-four-month terms. All subscription fees, however, are paid by credit card at the origination of the subscription regardless of the term of the subscription. Revenues from multi-month subscriptions are recognized on a straight-line basis over the period where the service is offered to the customer, indicated by length of the subscription term purchased. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets. Deferred revenue at December 31, 2021 was $1,915,493, $1,180,225 of which was subsequently recognized as subscription revenue during the six months ended June 30, 2022. The ending balance of deferred revenue at June 30, 2022 and 2021 was $1,839,849 and $ $2,011,363, respectively.
In addition, the Company offers virtual gifts to its users. Users may purchase credits in $5, $10 or $20 increments that can be redeemed for a host of virtual gifts such as a rose, a beer or a car, among other items. These gifts are given among users to enhance communication and are typically redeemed within 30 days of purchase. Upon purchase, the virtual gifts are credited to the users’ account and are under the users’ control. Virtual gift revenue is recognized upon the users’ redemption of virtual gifts at the fixed transaction price and included in subscription revenue in the accompanying condensed consolidated statements of operations. Virtual gift revenue is presented as deferred revenue in the condensed consolidated balance sheets until virtual gifts are redeemed. Virtual gift revenue was $1,091,487 and $2,361,024 for the three and six months ended June 30, 2022, respectively. Virtual gift revenue was $1,389,046 and $2,809,176 for the three and six months ended June 30, 2021, respectively. The ending balance of deferred revenue from virtual gifts at June 30, 2022 and 2021 was $349,552 and $317,889, respectively.
Advertising Revenue
The Company generates advertising revenue from the display of advertisements on its products through contractual agreements with third parties that are based on the number of advertising impressions delivered. Measurements of impressions include when a customer clicks an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through the application (CPA basis). Advertising revenue is dependent upon traffic as well as the advertising inventory placed on the Company’s products.
Technology Service Revenue
Technology service revenue was historically generated under service and partnership agreements that the Company negotiated with third parties which included development, integration, engineering, licensing or other services that the Company provided.
During 2021, the Company recorded technology service revenue in connection with its agreement to serve as a launch partner with Open Props, Inc. (formerly YouNow, Inc., and referred to herein as “YouNow”) and to integrate YouNow’s props infrastructure (the “Props platform”) into the Company’s Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).
Pursuant to the terms of the YouNow Agreement, once the integration of Props tokens into the Company’s Paltalk and Camfrog applications was completed, the Company began receiving Props tokens for providing a validator service and for allowing users to participate in the loyalty platform. The loyalty platform was intended to drive engagement and incentivize users financially by providing users with the ability to earn Props tokens while using the Paltalk and Camfrog applications.
In August 2021, the Company received notice from YouNow that it was terminating the YouNow Agreement, and that it would no longer support the Props platform past the end of calendar year 2021. As a result of the termination of the YouNow Agreement, the Company notified its users that it would no longer be issuing Props starting October 15, 2021, and would be replacing any user’s outstanding Props with a new internal rewards program. The new rewards loyalty program for Paltalk and Camfrog allowed users to keep their existing rewards earned from the former Props program as internal rewards and also have the opportunity to earn new internal rewards points. In connection with the internal rewards points, the Company added 25 new reward tiers, including specialty coins, subscriptions, stickers, flair, and other popular buttons.
Given the trading availability of Props tokens in various active markets, the Company calculated the fair value of digital tokens based on the observable daily quoted market prices (Level 1 inputs) on multiple international exchanges, as recorded on CoinmarketCap. The total net revenue value recognized as earned was $218,432 and $374,248 for the three and six months ended June 30, 2021, respectively. As of June 30, 2022, the value of all digital tokens has been reduced to zero.
The Company did not generate any technology service revenue during the three and six months ended June 30, 2022. |
Asset Acquisition – Securities Purchase Agreement (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||
| Schedule of summarizes the fair value of the identifiable intangible assets |
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Property and Equipment, Net (Tables) |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment, net |
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Intangible Assets, Net (Tables) |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets, net |
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Accrued Expenses and Other Current Liabilities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure Text Block Supplement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accrued expenses and other current liabilities |
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Stockholders' Equity (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule black-scholes pricing model to estimate the fair value |
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| Schedule of stock option activity |
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| Schedule of stock-based compensation expense |
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Net (Loss) Income Per Share (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of net income per share |
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Leases (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of operating leases |
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| Schedule of future minimum payments under non-cancelable operating leases |
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Organization and Description of Business (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Apr. 13, 2020 |
|
| Organization and Description of Business [Abstract] | ||
| Conveyed assets | $ 2,700,000 | |
| Earn-out payment | $ 600,000 | |
| Principle amount | $ 506,500 |
Summary of Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Summary of Significant Accounting Policies (Details) [Line Items] | |||||
| Deferred revenue | $ 1,839,849 | $ 2,011,363 | $ 1,839,849 | $ 2,011,363 | $ 1,915,493 |
| Subscription revenue | $ 1,180,225 | ||||
| Subscription revenue, description | In addition, the Company offers virtual gifts to its users. Users may purchase credits in $5, $10 or $20 increments that can be redeemed for a host of virtual gifts such as a rose, a beer or a car, among other items. | ||||
| Virtual gift revenue | $ 1,091,487 | $ 2,361,024 | |||
| Net revenue | 218,432 | 374,248 | |||
| Subscription Arrangement [Member] | |||||
| Summary of Significant Accounting Policies (Details) [Line Items] | |||||
| Virtual gift revenue | $ 1,389,046 | 2,809,176 | |||
| Deferred revenue from virtual gifts | $ 349,552 | $ 317,889 | |||
Asset Acquisition – Securities Purchase Agreement (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Asset Acquisition – Securities Purchase Agreement (Details) [Line Items] | |
| Cash purchase price | $ 2,700,000 |
| Additional payment | $ 600,000 |
| Asset acquisition description | (i) if the Gross Sales during the Earn-Out Period are greater than $800,000, the Earn-Out Payment shall be $600,000, (ii) if the Gross Sales during the Earn-Out Period are greater than $700,000 but less than $800,000, the Earn-Out Payment shall be $300,000, (iii) if the Gross Sales during the Earn-Out Period are greater than $600,000 but less than $700,000, the Earn-Out Payment shall be $150,000 and (iv) if the Gross Sales during the Earn-Out Period do not exceed $600,000, then the Seller will not be paid any portion of the Earn-Out Payment. The Company concluded that the acquisition of the Conveyed Assets is not considered a business under Regulation S-X and in accordance with ASC 805, Business Combinations. |
| Acquisition cost | $ 230,000 |
| Deferred tax liability | 800,000 |
| Nonrefundable payment | 65,000 |
| Amortization Expense [Member] | |
| Asset Acquisition – Securities Purchase Agreement (Details) [Line Items] | |
| Amortization expense 2022 | 185,238 |
| Amortization expense 2023 | 444,571 |
| Amortization expense 2024 | 444,571 |
| Amortization expense 2025 | 393,071 |
| Amortization expense 2025 | 341,571 |
| Amortization expense thereafter | $ 853,930 |
Property and Equipment, Net (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation expenses | $ 21,820 | $ 53,076 | $ 51,918 | $ 101,856 |
Property and Equipment, Net (Details) - Schedule of property and equipment, net - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | $ 2,514,596 | $ 3,990,245 |
| Less: Accumulated depreciation | (2,496,915) | (3,920,646) |
| Total property and equipment, net | 17,681 | 69,599 |
| Computer equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | 311,335 | 866,459 |
| Website development [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | 2,155,798 | 3,076,323 |
| Furniture and fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | $ 47,463 | $ 47,463 |
Intangible Assets, Net (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Intangible Assets, Net (Details) [Line Items] | ||||
| Amortization expense | $ 86,356 | $ 46,166 | $ 132,522 | $ 92,333 |
| Intangible Assets, [Member] | ||||
| Intangible Assets, Net (Details) [Line Items] | ||||
| Aggregate amortization expense 2022 | 300,190 | 300,190 | ||
| Aggregate amortization expense 2023 | 502,745 | 502,745 | ||
| Aggregate amortization expense 2024 | 502,100 | 502,100 | ||
| Aggregate amortization expense 2025 | 419,536 | 419,536 | ||
| Aggregate amortization expense 2026 | 371,173 | 371,173 | ||
| Aggregate amortization expense for thereafter | $ 897,205 | $ 897,205 | ||
Accrued Expenses and Other Current Liabilities (Details) - Schedule of accrued expenses and other current liabilities - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of accrued expenses and other current liabilities [Abstract] | ||
| Compensation, benefits and payroll taxes | $ 134,076 | $ 318,150 |
| Income tax payable | 3,235 | |
| Other accrued expenses | 45,098 | 26,291 |
| Total accrued expenses and other current liabilities | $ 182,409 | $ 344,441 |
Income Taxes (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Income Tax Disclosure [Abstract] | ||||
| Income tax provision (in Dollars) | $ 4,753 | $ 2,200 | $ 20,784 | $ 3,300 |
| Effective tax rate percentage | (0.39%) | 0.28% | (1.08%) | 0.19% |
| Effective tax rate from statutory rate | 21.00% | 21.00% | ||
Stockholders' Equity (Details) - Schedule black-scholes pricing model to estimate the fair value |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Stockholders' Equity (Details) - Schedule black-scholes pricing model to estimate the fair value [Line Items] | |
| Risk free interest rate | 2.53% |
| Expected dividend yield | 0.00% |
| Minimum [Member] | |
| Stockholders' Equity (Details) - Schedule black-scholes pricing model to estimate the fair value [Line Items] | |
| Expected volatility | 173.00% |
| Expected life of option (in years) | 5 years 2 months 12 days |
| Maximum [Member] | |
| Stockholders' Equity (Details) - Schedule black-scholes pricing model to estimate the fair value [Line Items] | |
| Expected volatility | 182.00% |
| Expected life of option (in years) | 6 years 2 months 12 days |
Stockholders' Equity (Details) - Schedule of stock option activity |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
$ / shares
shares
| |
| Stock Options: | |
| Number of Options, Outstanding beginning balance | shares | 435,770 |
| Weighted Average Exercise Price, Outstanding beginning balance | $ / shares | $ 5.31 |
| Number of Options, Outstanding ending balance | shares | 646,401 |
| Weighted Average Exercise Price, Outstanding ending balance | $ / shares | $ 3.95 |
| Number of Options, Exercisable | shares | 434,900 |
| Weighted Average Exercise Price, Exercisable | $ / shares | $ 4.65 |
| Number of Options, Granted | shares | 248,500 |
| Weighted Average Exercise Price, Granted | $ / shares | $ 2.66 |
| Number of Options, Forfeited or canceled, during the period | shares | (31,787) |
| Weighted Average Exercise Price, Forfeited or canceled, during the period | $ / shares | $ 2.97 |
| Number of Options, Expired, during the period | shares | (6,082) |
| Weighted Average Exercise Price, Expired, during the period | $ / shares | $ 54.08 |
Net (Loss) Income Per Share (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Net Income Per Share [Abstract] | ||||
| Exercise of outstanding stock options, antidilutive | 646,401 | 646,401 | ||
| Exercise of outstanding stock options, dilutive | 494,385 | 510,208 | ||
| Exercise outstanding stock options (in Dollars) | $ 23,857 | $ 7,764 | ||
Net (Loss) Income Per Share (Details) - Schedule of net income per share - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Schedule of net income per share [Abstract] | ||||
| Net (loss) income from operations – basic and diluted | $ (1,128,706) | $ 821,684 | $ (1,867,651) | $ 1,738,413 |
| Weighted average shares outstanding – basic | 9,771,608 | 6,906,454 | 9,801,715 | 6,906,454 |
| Weighted average shares outstanding – diluted | 9,771,608 | 6,930,041 | 9,801,715 | 6,918,248 |
| Per share data: | ||||
| Basic from operations | $ (0.12) | $ 0.12 | $ (0.19) | $ 0.25 |
| Diluted from operations | $ (0.12) | $ 0.12 | $ (0.19) | $ 0.25 |
Leases (Details) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Apr. 09, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Leases (Textual) | |||
| Operating lease, description | On April 9, 2021, the Company entered into a lease extension agreement with Jericho Executive Center LLC for the office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on December 1, 2021 and runs through November 30, 2024. | ||
| Rent payments under the lease | $ 7,081 | ||
| Lease liabilities | $ 200,000 | ||
| Discount rate | 2.30% | ||
| Operating lease liability | $ 200,000 | ||
| Right of use asset | 200,000 | ||
| Rent expenses | 43,075 | $ 52,119 | |
| Sublease income | $ 3,000 | $ 1,500 | |
Leases (Details) - Schedule of operating leases - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Schedule of operating leases [Abstract] | ||
| Cash paid for amounts included in the measurement of operating lease liabilities: | $ 39,924 | $ 34,021 |
| Weighted average assumptions: | ||
| Remaining lease term | 2 years 4 months 24 days | 4 months 24 days |
| Discount rate | 2.30% | 3.50% |
Leases (Details) - Schedule of future minimum payments under non-cancelable operating leases |
Jun. 30, 2022
USD ($)
|
|---|---|
| Schedule of future minimum payments under non-cancelable operating leases [Abstract] | |
| 2022 | $ 42,488 |
| 2023 | 84,975 |
| 2024 | 77,893 |
| Total | 205,356 |
| Less: present value adjustment | (5,789) |
| Present value of minimum lease payments | $ 199,567 |
Commitments and Contingencies (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Commitments and Contingencies (Details) [Line Items] | |
| Annualized base salary | $ 510,000 |
| CEO and CFO [Member] | |
| Commitments and Contingencies (Details) [Line Items] | |
| Annualized base salary | $ 490,000 |