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What changed in INTELLIGENT PROTECTION MANAGEMENT CORP.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of INTELLIGENT PROTECTION MANAGEMENT CORP.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+212 added−256 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-23)

Top changes in INTELLIGENT PROTECTION MANAGEMENT CORP.'s 2023 10-K

212 paragraphs added · 256 removed · 165 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe European Union implemented a privacy regulation called the Global Data Protection Regulation (“GDPR”) that imposes additional regulatory scrutiny on our processing of personal data from in the European Economic Area, with possible financial consequences for noncompliance of up to 4% of our worldwide revenues.
Biggest changeThese state laws include, for example: the California Consumer Protection Act (“CCPA”), the California Privacy Rights Act (“CPRA”), the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Act Concerning Personal Data Privacy and Online Monitoring, the Utah Consumer Privacy Act, the Delaware Personal Data Privacy Act, the Indiana Consumer Data Protection Act, the Iowa Consumer Data Protection Act, the Montana Consumer Data Privacy Act, the Oregon Consumer Privacy Act, the Tennessee Information Protection Act, the Texas Data Privacy and Security Act, and the New York Stop Hacks and Improve Electronic Data Security (“SHIELD”) Act. 4 The European Union implemented a privacy regulation called the Global Data Protection Regulation (“GDPR”) that imposes additional regulatory scrutiny on our processing of personal data from in the European Economic Area, with possible financial consequences for noncompliance of up to 4% of our worldwide revenues.
During 2022, we engaged two marketing agencies to help us drive consumer engagement through the Paltalk and Camfrog applications, but we subsequently scaled back the marketing agencies’ efforts in the fourth quarter of 2022 in response to the overall macro-economic environment.
During 2022, we engaged two marketing agencies to help us drive consumer engagement through the Paltalk and Camfrog applications, but we subsequently scaled back the marketing agencies’ efforts during the fourth quarter of 2022 in response to the overall macro-economic environment.
We have an over 20-year history of technology innovation and hold 10 patents. We were incorporated under the laws of the State of Delaware in 2005. Our principal executive office is located at 30 Jericho Executive Plaza Suite 400E, Jericho, NY 11753.
We have an over 20-year history of technology innovation and hold 8 patents. We were incorporated under the laws of the State of Delaware in 2005. Our principal executive office is located at 30 Jericho Executive Plaza Suite 400E, Jericho, NY 11753.
Consumer Applications We operate a leading network of consumer applications that create a unique social media enterprise where users can meet, see, chat, broadcast, play online card games and board games and message in real time in a secure environment with others in our network.
Our Consumer Application Products We operate a network of consumer applications that we believe create a unique social media enterprise where users can meet, see, chat, broadcast, play online card games and board games and message in real time in a secure environment with others in our network.
Company Business Strategy User Growth Through Marketing Efforts 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.
Company Business Strategy 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.
We make available on that site, as soon as reasonably practicable, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy statements, Current Reports on Form 8-K, other reports filed with or furnished to the SEC, as well as any amendments to those filings.
We make available on that site, as soon as reasonably practicable, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy statements, Current Reports on Form 8-K, other reports filed with or furnished to the Securities and Exchange Commission (“SEC”), as well as any amendments to those filings.
Employees As of March 15, 2023, we had no part-time employee and 19 full-time employees. We believe that our future success depends, in part, on our continued ability to hire, assimilate and retain qualified personnel. We attract and retain employees by offering training, bonus opportunities, competitive salaries and a comprehensive benefits package.
Employees As of March 11, 2024, we had no part-time employees and 17 full-time employees. We believe that our future success depends, in part, on our continued ability to hire, assimilate and retain qualified personnel. We attract and retain employees by offering training, bonus opportunities, competitive salaries and a comprehensive benefits package.
ITEM 1. BUSINESS. Company Overview We are a leading communications software innovator that powers multimedia social applications. Our product portfolio includes Paltalk, Camfrog and Tinychat, which together host one of the world’s largest collections of video-based communities. Our other products include ManyCam and Vumber.
ITEM 1. BUSINESS Company Overview We are a communications software innovator that powers multimedia social applications. Our product portfolio includes Paltalk, Camfrog and Tinychat, which together host a large collection of video-based communities. Our other products include ManyCam and Vumber.
Also in 2021, we launched a real-time asynchronous message board feature, the “Paltalk Feed”, which grants users the ability to interact with the platform without a live video cam. The Paltalk Feed allows our users to comment, add photos or videos and contribute to conversations around shared interests on a digital message board.
Additionally, a real-time asynchronous message board called the “Paltalk Feed” is available on our Paltalk platform, which grants users the ability to interact with the platform without a live video cam. The Paltalk Feed also allows our users to comment, add photos or videos and contribute to conversations around shared interests on a digital message board.
Many of our competitors have substantially greater financial, managerial, technological and other resources than we do. In addition, there are relatively few barriers to entry into the consumer applications industry, and, as a result, any organization that has adequate financial resources and access to technical expertise and skilled personnel may become one of our competitors.
In addition, there are relatively few barriers to entry into the consumer applications industry, and, as a result, any organization that has adequate financial resources and access to technical expertise and skilled personnel may become one of our competitors.
We also believe that our proprietary consumer app technology platform can scalably support large communities of users in activities such as video, voice and text chat, online card games and board games and provide robust user monetization tools.
We also believe that our proprietary consumer app technology platform can scalably support large communities of users in activities such as video, voice and text chat, online card games and board games and provide robust user monetization tools. Live Video Chat We have three existing products in the video chat space: Paltalk, Camfrog and Tinychat.
We primarily advertise through internet and mobile advertising networks and run hundreds of campaigns at any given time, targeting various audiences of users, and focusing on campaigns that we believe will produce a positive return over the lifetime of new users.
We adapt our marketing expenditures and channels as we gather the data to analyze the success of our campaigns. We primarily advertise through internet and mobile advertising networks and run hundreds of campaigns at any given time, targeting various audiences of users, and focusing on campaigns that we believe will produce a positive return over the lifetime of new users.
In addition, many of our competitors have more extensive customer bases and broader customer relationships than we have, including relationships with our potential customers. 4 Governmental Regulations We are subject to a number of U.S. federal and state laws and regulations that affect companies conducting business on the internet, many of which are still evolving and being litigated in the courts and could be interpreted in ways that could harm our business.
Governmental Regulations We are subject to a number of U.S. federal and state laws and regulations that affect companies conducting business on the internet, many of which are still evolving and being litigated in the courts and could be interpreted in ways that could harm our business.
We are also subject to federal laws and regulations regarding online content, user privacy and electronic marketing, including The Communications Decency Act of 1996, as amended.The Children’s Online Privacy Protection Act of 1998, as amended, The Video Privacy Protection Act of 1998 (“VPPA”), The Digital Millennium Copyright Act, The Electronic Communications Privacy Act of 1986, as amended, the USA PATRIOT Act of 2001, and the Controlling the Assault of Non-Solicited Pornography And Marketing (“CAN-SPAM”) Act of 2003, among others.
The Children’s Online Privacy Protection Act of 1998, as amended, The Video Privacy Protection Act of 1998 (“VPPA”), The Digital Millennium Copyright Act, The Electronic Communications Privacy Act of 1986, as amended, the USA PATRIOT Act of 2001, and the Controlling the Assault of Non-Solicited Pornography And Marketing (“CAN-SPAM”) Act of 2003, among others.
We own and operate a small telecommunications services provider called Vumber that enables users to have multiple phone numbers in any area code through which calls can be forwarded to a user’s existing cell phone or land line telephone number. Vumber serves both the retail and small business community.
The ManyCam software provides multiple camera feeds, backgrounds and effects while also enabling users to share presentations, spreadsheets and documents. 1 Telecommunications We own and operate a small telecommunications services provider called Vumber that enables users to have multiple phone numbers in any area code through which calls can be forwarded to a user’s existing cell phone or land line telephone number.
Defend our Intellectual Property We have a portfolio of 10 issued patents. We have successfully defended certain of our intellectual property in the past and have generated tens of millions of dollars in licensing fees for the use of our patents. We intend to continue defending our intellectual property rights.
We have successfully defended certain of our intellectual property in the past and have generated tens of millions of dollars in licensing fees for the use of our patents. We intend to continue defending our intellectual property rights. Marketing Strategy We invest in advertising and marketing primarily for the purpose of acquiring users for our consumer applications.
Paltalk and Camfrog both attract a demographically and geographically diverse user base, with users in over 180 different countries. Paltalk users are approximately one-third domestic and two-thirds international, and Camfrog users have an even larger international presence, with a particular concentration in Southeast Asia. Live Streaming Software.
We believe that this is an important aspect of our business strategy given that Paltalk and Camfrog both attract a demographically and geographically diverse user base, with users in over 180 different countries. Paltalk users are domestic and international, and Camfrog users have an even larger international presence, with a particular concentration in Southeast Asia.
There is a risk that new laws may be introduced or that existing laws may be applied in a way that would conflict our current data protection practices or prevent the transfer of data between countries in which we operate. 5 In addition, rising concern about the use of social networking technologies for illegal conduct may in the future produce legislation or other governmental action that could require changes to our applications or restrict or impose additional costs upon the conduct of our business.
In addition, rising concern about the use of social networking technologies for illegal conduct may in the future produce legislation or other governmental action that could require changes to our applications or restrict or impose additional costs upon the conduct of our business.
The market for consumer applications is extremely dynamic and is undergoing constant change. We believe this environment creates significant opportunities for us as well as our direct and indirect competitors. Our principal competitors are BIGO Live, Cisco Webex, Facebook Live, Google Meet, Houseparty, Instagram Live, Live.ly, Live.me, Microsoft Teams, Skype, Twitch, YouTube Live and Zoom.
We believe this environment creates significant opportunities for us as well as our direct and indirect competitors. Our principal competitors are BIGO Live, Cisco Webex, Facebook Live, Google Meet, Discord, Instagram Live, Live.ly, Live.me, Microsoft Teams, Skype, Twitch, YouTube Live and Zoom. 3 Many of our competitors have substantially greater financial, managerial, technological and other resources than we do.
Vumber not only allows individuals to communicate while protecting privacy, but also gives business professionals the ability to add a new business line with any chosen area code to their cell phones. Vumber provides an in-depth data analytics platform that can track, record and analyze calls to gain new insights into one’s business. Product Payment Options .
Vumber serves both the retail and small business communities. Vumber not only allows individuals to communicate while protecting privacy, but also gives business professionals the ability to add a new business line with any chosen area code to their cell phones.
Our users have a variety of methods by which to purchase product subscriptions across all of our platforms. Users can pay by credit card, PayPal, Western Union, check, local e-wallet providers, or complete an in-app purchase through the Apple App Store or Google Play Store for Android users.
Users can pay by credit card, PayPal, Western Union, check, local e-wallet providers, or complete an in-app purchase through the Apple App Store or Google Play Store for Android users. Apple generally retains up to 15% of the revenue that is generated from sales on our iPhone applications through in-app purchases in the United States.
During the first quarter of 2022, we integrated Hive Automated Content Moderation Solutions (“Hive”) into our Paltalk and Camfrog platforms in an effort to enhance our user experience by reducing spam and objectionable content on our applications.
In 2022, we integrated Hive Automated Content Moderation Solutions into our Paltalk and Camfrog platforms, which reduces spam and objectionable content on our applications.
Apple retains generally up to 30% of the revenue that is generated from sales on our iPhone applications through in-app purchases in the United States. Google also retains generally up to 30% of the revenue that is generated from sales on Android applications via Google wallet through in-app purchases in the United States.
Google also generally retains up to 15% of the revenue that is generated from sales on Android applications via Google wallet through in-app purchases in the United States. All of our credit card transactions are processed through various payment providers. Video chat users in certain international territories also have an option to purchase through local resellers.
Our major revenue-generating live video chat products are Paltalk and Camfrog. Each product enables individuals to self-organize around topics and users with common affinities.
Our major revenue-generating live video chat products are Paltalk and Camfrog. Each product enables individuals to self-organize around topics and users with common affinities. Tinychat is web-based, enables adaptations of our video technology and does not require a download. It is primarily targeted for use in alternative markets and is focused on a younger demographic user base.
All of our credit card transactions are processed through various payment providers. Video chat users in certain international territories also have an option to purchase through local resellers. Local resellers prepay in bulk for services and debit the prepaid balance as one-time subscriptions and virtual currency are sold to end users.
Local resellers prepay in bulk for services and debit the prepaid balance as one-time subscriptions and virtual gifts are sold to end users. Regardless of which payment method is utilized, users may access our products through any of the gateways we offer.
The proprietary technology underlying our products allows us to operate thousands of simultaneous streams, including on mobile platforms, which support interactions on a one-on-one, one-to-many and many-to-many basis. Furthermore, our technology is supported by a portfolio of 10 issued patents. Live Video Chat . We have three existing products in the video chat space: Paltalk, Camfrog and Tinychat.
The proprietary technology underlying our products allows us to operate thousands of simultaneous streams, including on mobile platforms, which support interactions on a one-on-one, one-to-many and many-to-many basis. Our consumer applications generate revenue principally from subscription fees, including virtual goods, and advertising arrangements.
We subsequently released updates to the ManyCam software to provide quicker access, dark and light modes and overall rendering performance improvement for high resolution users as well as improved quality and performance with regard to virtual backgrounds. 3 Private Rooms and Online Games On January 12, 2021, we launched a private room functionality on our Paltalk platform in beta version.
More recently in 2023, we made certain updates to the ManyCam product, which now, and following the acquisition, we subsequently released software updates to provide users with greater ease of use, dark and light modes and enhanced overall rendering performance for high resolution users, as well as improved quality and performance with regard to virtual backgrounds.
In 2022, we acquired 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. The ManyCam software provides multiple camera feeds, backgrounds and effects while also enabling users to share presentations, spreadsheets and documents. Telecommunications .
Paltalk users are approximately one-third domestic and two-thirds international, and Camfrog users have an even larger international presence, with a particular concentration in Southeast Asia. Live Streaming Software In 2022, we acquired 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.
Together, these products power one of the world’s largest global collections of video-based communities, with proprietary technology to host thousands of simultaneous live group conversations on topics such as politics, financial markets, music and dating. Our proprietary client server technology helps maintain high quality video and audio, even as many users simultaneously watch a particular broadcaster.
Paltalk and Camfrog are both available on Windows, Mac OS, iOS, Android and other tablet devices. Together, these products power a large collection of video-based communities, with proprietary technology to host thousands of simultaneous live group conversations on topics such as politics, financial markets, music and dating, among others.
Our strategy also includes acquiring, or investing in technologies, solutions or business that complement our business and cross-selling them to additional synergistic businesses. Our strategy is to approach these opportunities in a measured way, being mindful of our resources and evaluating factors such as potential revenue, time to market and amount of capital needed to invest in the opportunity.
Acquiring and Investing in Complementary Technologies and Businesses Our strategy also includes acquiring, or investing in technologies, solutions or business that complement our business and cross-selling them to additional synergistic businesses. In furtherance of this strategy, we have strategically added specialized employees and complementary companies, products and technologies to our existing business.
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Our Services and Products We operate a leading 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.
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Our proprietary client server technology helps maintain high-quality video and audio, even as many users simultaneously watch a particular broadcaster. Paltalk and Camfrog both attract a demographically and geographically diverse user base, with users in over 180 different countries.
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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.
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Vumber also provides an in-depth data analytics platform that can track, record and analyze calls to gain new insights into one’s business. Product Payment Options Our users have a variety of methods by which to purchase product subscriptions across all of our consumer applications.
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Tinychat enables adaptations of our video technology for use in alternative markets, focused on a younger demographic user base. 1 Paltalk and Camfrog are both leading providers of live video social networking applications available on Windows, Mac OS, iOS, Android and other tablet devices.
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During fiscal year 2023, we engaged Cleverbridge, a growth engine for global technology companies, to, among other things, facilitate and authenticate payments in international geographic markets to reduce fraud and increase acceptance rates.
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Regardless of which payment method is utilized, users may access our products through any of the gateways we offer. Technology Services 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.
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In addition, we 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. Enhance Existing Live Video Chat Applications We continue to develop our existing live video chat applications by implementing programs and features that enhance our users’ experience on our platforms.
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During the fiscal year ended December 31, 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”).
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For example, in the fourth quarter of 2023, we launched the first version of our “Chat History,” a feature that retains messages posted in chat rooms. When fully implemented, we expect to offer our users a searchable database that users can refer to for content.
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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.
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In addition, we plan to continue leveraging our integration of the ManyCam product into Paltalk products through upselling initiatives and are developing a user-friendly version of ManyCam that will be optimized for both consumer and enterprise applications. 2 Our Paltalk platform’s rewards loyalty program, “Paltalk Rewards Points”, has 25 reward tiers such as specialty coins, subscriptions, stickers, flair, and other popular buttons.
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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.
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Implementation of Enhanced Processors As discussed above, during fiscal year 2023, we engaged Cleverbridge, a growth engine for global technology companies. Cleverbridge’s robust suite of global payment and eCommerce capabilities has allowed us to optimize our international markets while minimizing risk and administrative work.
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We determined the fair value of the Props tokens using observable daily quoted market prices on multiple international exchanges, as recorded on CoinmarketCap. 2 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.
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Beyond facilitating and authenticating payments, we believe Cleverbridge’s chargeback prevention algorithms can help us with acceptance rates and reduce fraud. Defend our Intellectual Property We have a portfolio of 8 issued patents.
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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.
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During 2023, we leveraged our in-house resources in an effort to further define and refine our renewal strategy and optimize cost per new customer acquisition. Competition and Our Industry Competition in our industry remains fierce. The market for consumer applications is extremely dynamic and is undergoing constant change.
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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.
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In addition, many of our competitors have more extensive customer bases and broader customer relationships than we have, including relationships with our potential customers.
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Enhance Existing Live Video Chat Applications We plan to enhance our existing live video chat applications, which we anticipate will include several initiatives intended to improve usage and revenue potential. We plan to add incentives for loyal or valuable users to enhance retention and overall user activity in the products.
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We are also subject to federal laws and regulations regarding online content, user privacy and electronic marketing, including The Communications Decency Act of 1996, as amended.
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We also intend to improve our product and marketing capabilities on mobile, to enhance monetization and our ability to acquire new users on mobile platforms. In addition, we expect to increase the quality and quantity of live streaming entertainment content and broaden the distribution across our user base.
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There is a risk that new laws may be introduced or that existing laws may be applied in a way that would conflict our current data protection practices or prevent the transfer of data between countries in which we operate.
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Finally, we plan to continue integrating certain technical functions of Paltalk and Camfrog, which will reduce operating costs and speed time-to-market of future enhancements. In 2021, we launched our new rewards loyalty program, Paltalk Rewards Points, and added 25 new reward tiers such as specialty coins, subscriptions, stickers, flair, and other popular buttons.
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Furthermore, during the second quarter of 2022, we acquired and introduced the ManyCam software on our platforms, which provides multiple camera feeds, backgrounds and effects while also enabling users to share presentations, spreadsheets and documents.
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In private rooms, users are able to set up their own unique URL private room that can be used again and again. Users are able to invite up to twelve friends to video chat for unlimited use, unlike other similar offerings which have a 40-minute time out for free users.
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Private rooms are currently available on our desktop application, Android platforms and the iOS platform. We are optimistic that our users will take advantage of this new feature due to its audio and video fidelity and expect that as the feature gains popularity, these users will utilize other paid services offered by us.
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Additionally, users can play online card games and board games such as poker, blackjack, gin rummy, bridge, and chess on the Paltalk platform. In 2022, we continued to develop our online game offerings as we launched our mobile backgammon game enabling Paltalk users to play with friends, other users or privately with real-time voice and video.
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Marketing Strategy We invest in advertising and marketing primarily for the purpose of acquiring users for our consumer applications. We adapt our marketing expenditures and channels as we gather the data to analyze the success of our campaigns.
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During 2022, we engaged two marketing agencies to help us drive consumer engagement through the Paltalk and Camfrog applications, but we subsequently scaled back the marketing agencies’ efforts during the fourth quarter of 2022 in response to the overall macro-economic environment. Competition and Our Industry Competition in our industry remains fierce.
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These state laws include, for example: the California Consumer Protection Act (“CCPA”), the California Privacy Rights Act (“CPRA”), which became effective on January 1, 2023, the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Act Concerning Personal Data Privacy and Online Monitoring, the Utah Consumer Privacy Act, and the New York Stop Hacks and Improve Electronic Data Security (“SHIELD”) Act.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe cannot be certain that the technologies that we have developed to repel spamming attacks will be able to eliminate all spam messages from our products. Our actions to combat spam may also require diversion of significant time and focus of our engineering team from improving our products.
Biggest changeSpammers may attempt to use our products to send targeted and untargeted spam messages to users, which may embarrass or annoy users and make our products less user friendly. We cannot be certain that the technologies that we have developed to repel spamming attacks will be able to eliminate all spam messages from our products.
Many of our current and potential competitors offer similar services, have longer operating histories, significantly greater capital, financial, technical, marketing and other resources and larger user or subscriber bases than we do. These factors may allow our competitors to more quickly respond to new or emerging technologies and changes in client or consumer preferences.
Many of our current and potential competitors offer similar services and have longer operating histories, significantly greater capital, financial, technical, marketing and other resources and larger user or subscriber bases than we do. These factors may allow our competitors to more quickly respond to new or emerging technologies and changes in client or consumer preferences.
If foreign governments think we are violating their laws, or for other reasons, they may seek to restrict access to our products, which would give our competitors an opportunity to penetrate geographic markets that we cannot access.
Foreign governments may seek to restrict access to our products if they think we are violating their laws or for other reasons, which would give our competitors an opportunity to penetrate geographic markets that we cannot access.
As a result, our ability to grow our international user base would be impaired, and we may not be able to maintain or grow our revenue as anticipated and our business could be seriously harmed. Our mobile applications rely on high-bandwidth data capabilities, which are subject to hardware, networks, regulations and standards that we do not control.
As a result, our ability to grow our international user base would be impaired, we may not be able to maintain or grow our revenue as anticipated and our business could be seriously harmed. Our mobile applications rely on high-bandwidth data capabilities, which are subject to hardware, networks, regulations and standards that we do not control.
We cannot accurately anticipate the extent of these liabilities, and if not properly addressed, these liabilities could increase our operating expenses or preclude us from accepting certain credit cards as a method of payment, either of which would materially adversely affect our results of operations and financial condition. ● We face certain risks related to the physical and emotional safety of users and third parties. ● Our subscription metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may seriously harm and negatively affect our reputation and our business. ● Because we recognize revenue from subscriptions over the term of the subscription, the full impact of downturns or upturns in subscription sales may not be immediately reflected in our results of operations or financial condition. ● A portion of our revenue is dependent on third-party resellers, the efforts of which we do not control. ● Our business depends in large part upon the availability of cost-effective advertising space through a variety of media and keeping pace with trends in consumer behavior. ● Interruption, maintenance or failure of our programming code, servers or technological infrastructure could hurt our ability to effectively provide our applications, which could damage our reputation and harm our results of operations. ● We may be liable as a result of information retrieved from or transmitted over the internet. ● Changes in laws or regulations, including laws and regulations that impact the use of the internet, such as internet neutrality laws, or laws that relate to content provided over the internet or monitoring such content, could adversely affect our business, results of operations or financial condition. ● Changes in tax laws could materially affect our financial condition, results of operations and cash flows. 7 ● If we are subject to intellectual property infringement claims, it could cause us to incur significant expenses, pay substantial damages or royalties and prevent us from offering our applications. ● If we are unable to protect our intellectual property rights, we may be unable to compete with competitors developing similar technologies. ● If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted. ● Our common stock is historically thinly traded, stockholders may be unable to sell at or near ask prices or at all and the price of our common stock may be volatile. ● The ownership of our common stock is significantly concentrated in a small number of investors, some of whom are affiliated with our Board of Directors and management, which could prevent stockholders from having input on the course of our operations or otherwise lead to actual or potential conflicts of interest.
We cannot accurately anticipate the extent of these liabilities, and if not properly addressed, these liabilities could increase our operating expenses or preclude us from accepting certain credit cards as a method of payment, either of which would materially adversely affect our results of operations and financial condition. ● We face certain risks related to the physical and emotional safety of users and third parties. ● Our subscription metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may seriously harm and negatively affect our reputation and our business. ● Because we recognize revenue from subscriptions over the term of the subscription, the full impact of downturns or upturns in subscription sales may not be immediately reflected in our results of operations or financial condition. ● A portion of our revenue is dependent on third-party resellers, the efforts of which we do not control. 6 ● Our business depends in large part upon the availability of cost-effective advertising space through a variety of media and keeping pace with trends in consumer behavior. ● Interruption, maintenance or failure of our programming code, servers or technological infrastructure could hurt our ability to effectively provide our applications, which could damage our reputation and harm our results of operations. ● We may be liable as a result of information retrieved from or transmitted over the internet. ● Changes in laws or regulations, including laws and regulations that impact the use of the internet, such as internet neutrality laws, or laws that relate to content provided over the internet or monitoring such content, could adversely affect our business, results of operations or financial condition. ● Changes in tax laws could materially affect our financial condition, results of operations and cash flows. ● If we are subject to intellectual property infringement claims, it could cause us to incur significant expenses, pay substantial damages or royalties and prevent us from offering our applications. ● If we are unable to protect our intellectual property rights, we may be unable to compete with competitors developing similar technologies. ● If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted. ● Our common stock is historically thinly traded, stockholders may be unable to sell at or near ask prices or at all and the price of our common stock may be volatile. ● The ownership of our common stock is significantly concentrated in a small number of investors, some of whom are affiliated with our Board of Directors and management, which could prevent stockholders from having input on the course of our operations or otherwise lead to actual or potential conflicts of interest.
Important factors affecting our ability to successfully compete include: ● the usefulness, novelty, performance, ease of use, and reliability of our consumer applications compared to our competitors; ● the timing and market acceptance of our consumer applications, including developments and enhancements of our competitors’ consumer applications; ● our ability to effectively monetize our consumer applications and the availability of free or cheaper alternatives from our competitors; ● our ability to hire and retain talented employees, including technical employees, executives, and marketing experts; ● the success of our customer service and support efforts; ● our reputation and brand strength compared to our competitors; ● competition for acquiring users that could result in increased user acquisition costs; ● reliance upon the platforms through which our consumer applications are accessed and the platform owner’s ability to control our activities on such platforms; ● the effectiveness of the marketing and advertisement of our services and consumer applications; ● our ability to maintain advertisers’ interest in advertising through our consumer applications; ● our ability to innovate in the ever-changing consumer applications industry in which we operate; ● changes as a result of new legislation or regulation within the consumer applications industry; and ● acquisitions or consolidations within the consumer applications industry.
Important factors affecting our ability to successfully compete include: ● the usefulness, novelty, performance, ease of use, and reliability of our consumer applications compared to our competitors; ● the timing and market acceptance of our consumer applications, including developments and enhancements of our competitors’ consumer applications; ● our ability to effectively monetize our consumer applications and the availability of free or cheaper alternatives from our competitors; ● our ability to hire and retain talented employees, including technical employees, executives, and marketing experts; ● the success of our customer service and support efforts; ● our reputation and brand strength compared to our competitors; ● competition for acquiring users that could result in increased user acquisition costs; ● reliance upon the platforms through which our consumer applications are accessed and the platform owner’s ability to control our activities on such platforms; ● the effectiveness of the marketing and advertisement of our services and consumer applications; 8 ● our ability to maintain advertisers’ interest in advertising through our consumer applications; ● our ability to innovate in the ever-changing consumer applications industry in which we operate; ● changes as a result of new legislation or regulation within the consumer applications industry; and ● acquisitions or consolidations within the consumer applications industry.
In addition, we are subject to a variety of risks inherent in doing business internationally, including: ● political, social, and economic instability; ● risks related to the legal and regulatory environment in foreign jurisdictions, including with respect to privacy, free speech and unexpected changes in laws, regulatory requirements, and enforcement; ● potential damage to our brand and reputation due to compliance with local laws, including potential censorship and requirements to provide user information to local authorities; ● fluctuations in currency exchange rates; ● higher levels of credit risk and payment fraud; ● complying with multiple tax jurisdictions; ● reduced protection for intellectual-property rights in some countries; ● difficulties in staffing and managing global operations and the increased travel, infrastructure and compliance costs associated with multiple international locations; ● regulations that might add difficulties in repatriating cash earned outside the United States and otherwise preventing us from freely moving cash; ● import and export restrictions and changes in trade regulation; 13 ● complying with statutory equity requirements; ● complying with the U.S.
In addition, we are subject to a variety of risks inherent in doing business internationally, including: ● political, social, and economic instability; ● risks related to the legal and regulatory environment in foreign jurisdictions, including with respect to privacy, free speech and unexpected changes in laws, regulatory requirements, and enforcement; ● potential damage to our brand and reputation due to compliance with local laws, including potential censorship and requirements to provide user information to local authorities; ● fluctuations in currency exchange rates; ● higher levels of credit risk and payment fraud; ● complying with multiple tax jurisdictions; 12 ● reduced protection for intellectual-property rights in some countries; ● difficulties in staffing and managing global operations and the increased travel, infrastructure and compliance costs associated with multiple international locations; ● regulations that might add difficulties in repatriating cash earned outside the United States and otherwise preventing us from freely moving cash; ● import and export restrictions and changes in trade regulation; ● complying with statutory equity requirements; ● complying with the U.S.
Any claims with respect to violation of privacy or misappropriation of user data brought against us may have a material adverse effect on our business, results of operations and financial condition. It is also possible that we could be prohibited from collecting or disseminating certain types of data, which could affect our ability to meet our users’ needs.
Any claims with respect to violation of privacy or misappropriation of user data brought against us may have a material adverse effect on our business, results of operations and financial condition. 19 It is also possible that we could be prohibited from collecting or disseminating certain types of data, which could affect our ability to meet our users’ needs.
Strategic arrangements with third parties could involve risks not otherwise present when we directly manage our operations, including, for example: ● third parties may share certain approval rights over major decisions within the scope of the relationship; ● the possibility that these third parties might become insolvent or bankrupt; ● the possibility that we may incur liabilities as a result of an action taken by one of these third parties; ● these third parties may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; and ● disputes between us and these third parties may result in litigation or arbitration that would increase our expenses, delay or terminate projects and prevent our officers and directors from focusing their time and effort on our business. 18 Legal and Regulatory Risks We may be liable as a result of information retrieved from or transmitted over the internet.
Strategic arrangements with third parties could involve risks not otherwise present when we directly manage our operations, including, for example: ● third parties may share certain approval rights over major decisions within the scope of the relationship; ● the possibility that these third parties might become insolvent or bankrupt; ● the possibility that we may incur liabilities as a result of an action taken by one of these third parties; ● these third parties may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; and ● disputes between us and these third parties may result in litigation or arbitration that would increase our expenses, delay or terminate projects and prevent our officers and directors from focusing their time and effort on our business. 17 Legal and Regulatory Risks We may be liable as a result of information retrieved from or transmitted over the internet.
In addition, each of the Apple App Store and Google Play Store provides consumers with products that compete with ours. If either of these platforms give preferential treatment to competitive products, it could seriously harm the usage of our products on mobile devices. Our business depends on developing, establishing and maintaining strong brands.
In addition, each of the Apple App Store and Google Play Store provides consumers with products that compete with ours. If either of these platforms give preferential treatment to competitive products, it could seriously harm the usage of our products on mobile devices. 10 Our business depends on developing, establishing and maintaining strong brands.
Any failure to adequately control fraudulent credit card transactions or keep our chargebacks under an acceptable threshold would result in significantly higher credit card-related costs and, therefore, materially increase our operating expenses. 16 We face certain risks related to the physical and emotional safety of users and third parties.
Any failure to adequately control fraudulent credit card transactions or keep our chargebacks under an acceptable threshold would result in significantly higher credit card-related costs and, therefore, materially increase our operating expenses. We face certain risks related to the physical and emotional safety of users and third parties.
If our common stock is delisted by Nasdaq, our common stock would likely trade on the OTCQB where an investor may find it more difficult to sell our shares or obtain accurate quotations as to the market value of our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.
If our common stock is delisted by Nasdaq, our common stock would likely trade on the OTCQB where an investor may find it more difficult to sell our shares or obtain accurate quotations as to the market value of our common stock. 24 ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.
We use these internally derived data analytics to guide decisions concerning the development and modification of features on our applications, monetization strategies for our applications and the development of new applications, among other things. The inability to accurately derive our metrics or data analytics could result in incorrect business decisions and inefficiencies.
We use these internally derived data analytics to guide decisions concerning the development and modification of features on our applications, monetization strategies for our applications and the development of new applications, among other things. 11 The inability to accurately derive our metrics or data analytics could result in incorrect business decisions and inefficiencies.
Changes in current laws or regulations or the imposition of new laws and regulations in the United States, Europe or elsewhere regarding these activities may lessen the growth of video card game services and impair our business. 19 Changes in tax laws could materially affect our financial condition, results of operations and cash flows.
Changes in current laws or regulations or the imposition of new laws and regulations in the United States, Europe or elsewhere regarding these activities may lessen the growth of video card game services and impair our business. Changes in tax laws could materially affect our financial condition, results of operations and cash flows.
If we are unable to effectively compete, we may fail to obtain new clients for our products or our users may discontinue the use of our products and we may lose active users, either of which would have a material adverse effect on our business, results of operations and financial condition.
If we are unable to effectively compete, we may fail to obtain new users for our products or our users may discontinue the use of our products and we may lose active users, either of which would have a material adverse effect on our business, results of operations and financial condition.
Additionally, to deliver high-quality video and other content over mobile cellular networks, our products must work well with a range of mobile technologies, systems, networks, regulations and standards that we do not control, and any changes to those mobile technologies, systems, networks, regulations or standards could impact the usability of our mobile applications, which would materially adversely affect our business, results of operations or financial condition. 14 Our business depends, in large part, upon the availability of cost-effective advertising space through a variety of media and keeping pace with trends in consumer behavior.
Additionally, to deliver high-quality video and other content over mobile cellular networks, our products must work well with a range of mobile technologies, systems, networks, regulations and standards that we do not control, and any changes to those mobile technologies, systems, networks, regulations or standards could impact the usability of our mobile applications, which would materially adversely affect our business, results of operations or financial condition. 13 Our business depends, in large part, upon the availability of cost-effective advertising space through a variety of media and keeping pace with trends in consumer behavior.
The online live video industry is characterized by rapid technological change and the development of enhancements and new applications, and if we fail to keep pace with technological developments or launch new applications, our business may be adversely affected.
The online live video industry is characterized by rapid technological change, including the development of enhancements and new applications, and if we fail to keep pace with technological developments or launch new applications, our business may be adversely affected.
If clients and users do not perceive our products to be of high quality, or if our products are not favorably received by clients and users, the value of our brands could diminish, thereby decreasing the attractiveness of our software, services and applications to clients and users.
If users do not perceive our products to be of high quality, or if our products are not favorably received by users, the value of our brands could diminish, thereby decreasing the attractiveness of our software, services and applications to users.
Katz for the benefit of certain of his family members. Mr. Katz is not a beneficiary of the trust and does not hold voting or dispositive power over the shares held by the trust. 22 Mr. Katz, The J.
Katz for the benefit of certain of his family members. Mr. Katz is not a beneficiary of the trust and does not hold voting or dispositive power over the shares held by the trust. Mr. Katz, The J.
There are a number of factors that could negatively impact user retention, growth and engagement, including, among other things: ● users may adopt competing products instead of ours; ● we may fail to introduce new products and services or improve upon our existing applications, or those new products and services or improvements we introduce may be poorly received; ● our products may fail to operate effectively on mobile or other platforms; ● we may be unable to combat spam or other hostile or inappropriate usage on our products or free speech; ● there may be adverse changes in user sentiment about the quality or usefulness of our existing products; ● there may be concerns about the privacy implications, safety or security of our products; ● technical or other problems may frustrate the experience of our users, particularly if those problems prevent us from delivering our products in a fast and reliable manner; ● we may fail to provide adequate service to our users; ● we or other companies in our industry may be the subject of adverse media reports or other negative publicity; 8 ● we may not maintain our brand image or our reputation may be damaged; and ● we may be subject to denial of service or other attacks from hackers that result in service downtime.
There are a number of factors that could negatively impact user retention, growth and engagement, including, among other things: ● users may adopt competing products instead of ours; ● we may fail to introduce new products and services or improve upon our existing applications, or those new products and services or improvements we introduce may be poorly received; 7 ● our products may fail to operate effectively on mobile or other platforms; ● we may be unable to combat spam or other hostile or inappropriate usage on our products; ● there may be adverse changes in user sentiment about the quality or usefulness of our existing products; ● there may be concerns about the privacy implications, safety or security of our products; ● technical or other problems may frustrate the experience of our users, particularly if those problems prevent us from delivering our products in a fast and reliable manner; ● we may fail to provide adequate service to our users; ● we or other companies in our industry may be the subject of adverse media reports or other negative publicity; ● we may not maintain our brand image or our reputation may be damaged; and ● we may be subject to denial of service or other attacks from hackers that result in service downtime.
We determine the prices at which these memberships and features are sold and, in exchange for facilitating the purchase of these memberships and features through our products to users who download our products from these stores, we pay Apple or Google, as applicable, a share, which is currently up to 30% of the revenue we receive from these transactions.
We determine the prices at which these memberships and features are sold and, in exchange for facilitating the purchase of these memberships and features through our products to users who download our products from these stores, we pay Apple or Google, as applicable, a share, which is currently up to 15% of the revenue we receive from these transactions.
In particular, video chat users in certain international territories have an option to purchase subscriptions through local resellers. These local resellers prepay in bulk for services and debit the prepaid balance as one-time subscriptions and virtual currency are sold to end users. We do not control the efforts of these resellers.
In particular, video chat users in certain international territories have an option to purchase subscriptions through local resellers. These local resellers prepay in bulk for services and debit the prepaid balance as one-time subscriptions and virtual gifts are sold to end users. We do not control the efforts of these resellers.
Unless we find a way to offset these fees, our business, financial condition and results of operations could be adversely affected. 17 We may make or attempt to make acquisitions in the future, which could require significant management attention, disrupt our business, dilute our stockholders and seriously harm our business.
Unless we find a way to offset these fees, our business, financial condition and results of operations could be adversely affected. 16 We may make or attempt to make acquisitions in the future, which could require significant management attention, disrupt our business, dilute our stockholders and seriously harm our business.
In January 2018, the Federal Communications Commission (the “FCC”) released an order that repealed the “open internet rules,” often known as “net neutrality,” which prohibit internet providers in the United States from impeding access to most content, or otherwise unfairly discriminating against content providers like us.
In January 2018, the Federal Communications Commission (the “FCC”) released an order that repealed the “open internet rules,” often known as “net neutrality,” which prohibited internet providers in the United States from impeding access to most content, or otherwise unfairly discriminating against content providers like us.
If we are unable to maintain and enhance our brands, we may be unable to expand or retain our user and paying subscriber bases. We believe that developing, establishing and maintaining awareness of our application brands is critical to our efforts to achieve widespread acceptance of our applications and is an important element to expanding our client and subscriber bases.
If we are unable to maintain and enhance our brands, we may be unable to expand or retain our user and paying subscriber bases. We believe that developing, establishing and maintaining awareness of our application brands is critical to our efforts to achieve widespread acceptance of our applications and is an important element to expanding our subscriber base.
These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing strategies that may allow them to build larger user bases consisting of greater numbers of clients or paying users.
These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing strategies that may allow them to build larger user bases consisting of greater numbers of paying users.
We primarily generate revenue through the sale of subscriptions and virtual currency to this small portion of users and secondarily generate revenue through paid advertisements. Accordingly, the success of our consumer applications is substantially dependent on our ability to convert our users into active users and to sell our users virtual currency.
We primarily generate revenue through the sale of subscriptions and virtual gifts to this small portion of users and secondarily generate revenue through paid advertisements. Accordingly, the success of our consumer applications is substantially dependent on our ability to convert our users into active users and to sell our users virtual gifts.
On an annual basis the Company has millions of users, however, compared to the total number of users in any given period, only a small portion of our users are active users or purchasers of virtual currency.
On an annual basis the Company has millions of users; however, compared to the total number of users in any given period, only a small portion of our users are active users or purchasers of virtual gifts.
Historically, shares of our common stock were thinly traded on the OTCQB and have usually been thinly traded following our uplist to The Nasdaq Capital Market (“Nasdaq”), meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent.
Historically, shares of our common stock were thinly traded on the OTCQB and have typically been thinly traded following our uplist to The Nasdaq Capital Market (“Nasdaq”) in 2021, meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent.
We recognize subscription revenue from customers monthly over the term of the subscription, and subscriptions are generally offered in one-, six- and twelve-month terms, depending on the particular product. As a result, much of the subscription revenue we report in each period is deferred revenue from subscription agreements entered into during previous periods.
We recognize subscription revenue from customers monthly over the term of the subscription, and subscriptions are generally offered in one-, three-, six-, twelve- and twenty-four- month terms, depending on the particular product. As a result, much of the subscription revenue we report in each period is deferred revenue from subscription agreements entered into during previous periods.
In addition, the interests of these stockholders and/or their respective affiliates may significantly differ from the interests of our other stockholders and they may vote the common shares they beneficially own in ways with which our other stockholders disagree.
In addition, the interests of these stockholders and/or their respective affiliates may significantly differ from the interests of our other stockholders and they may vote the common stock they beneficially own in ways with which our other stockholders disagree.
If any of these risks actually occur, our business, financial condition and results of operations could be materially adversely affected. ● The success of our consumer applications is principally dependent on our active users and our engagement with our user base. ● We operate in an intensely competitive industry and any failure to attract new users could diminish or suspend our development and possibly cease our operations. ● The online live video industry is characterized by rapid technological change and the development of enhancements and new applications, and if we fail to keep pace with technological developments or launch new applications, our business may be adversely affected. ● We may make or attempt to make acquisitions in the future, which could require significant management attention, disrupt our business, dilute our stockholders and seriously harm our business. ● The COVID-19 pandemic may adversely affect our revenues, results of operations and financial condition. ● Our business may be significantly affected by a change in the economy, including any resulting effect on consumer or business spending. ● We may be adversely affected by the effects of inflation. 6 ● Our mobile applications are substantially dependent on interaction with mobile platforms and operating systems that we do not control. ● Our business depends on developing, establishing and maintaining strong brands.
If any of these risks actually occur, our business, financial condition and results of operations could be materially adversely affected. ● The success of our consumer applications is principally dependent on our active users and our engagement with our user base. 5 ● We operate in an intensely competitive industry and any failure to attract new users could diminish or suspend our development and possibly cease our operations. ● The online live video industry is characterized by rapid technological change and the development of enhancements and new applications, and if we fail to keep pace with technological developments or launch new applications, our business may be adversely affected. ● We may make or attempt to make acquisitions in the future, which could require significant management attention, disrupt our business, dilute our stockholders and seriously harm our business. ● Our business may be significantly affected by a change in the economy, including inflation and any resulting effect on consumer or business spending. ● Our mobile applications are substantially dependent on interaction with mobile platforms and operating systems that we do not control. ● Our business depends on developing, establishing and maintaining strong brands.
In an inflationary environment, we may be unable to raise the prices of our subscriptions at or above the rate at which our costs increase, which could/would reduce our profit margins and have a material adverse effect on our financial results and net income.
In an inflationary environment, we may be unable to raise the prices of our subscriptions at or above the rate at which our costs increase, which could/would reduce our profit margins and have a material adverse effect on our financial results and liquidity.
We cannot predict the outcome of similar litigation or whether the FCC order or state initiatives regulating providers will be modified, overturned, or vacated by other legal action, federal legislation, or the FCC, or the degree to which this repeal would adversely affect our business, if at all. The European Union similarly requires equal access to internet content.
We cannot predict the outcome of similar litigation or whether the latest FCC proposal or state initiatives regulating providers will be adopted, modified, overturned, or vacated by other legal action, federal legislation, or the FCC, or the degree to which this repeal would adversely affect our business, if at all. The European Union similarly requires equal access to internet content.
The online live video industry is characterized by rapid change, and our future success is dependent upon our ability to adopt and innovate. To attract new users and increase revenues from existing users, we need to enhance, add new features to and improve our existing applications and introduce new applications in the future.
The online live video industry is characterized by rapid change, and our future success is dependent upon our ability to adopt and innovate. To attract new users and increase revenues from existing users, we need to enhance, add new features to and improve our existing applications, introduce new applications in the future and where applicable, cross-market such applications.
Increased inflation may result in decreased demand for our products and services, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may continue to raise, interest rates in response to concerns about inflation.
In addition, increased inflation may result in increased operating costs (including labor and consulting costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may continue to raise, interest rates in response to concerns about inflation.
Factors that may contribute to the variability of our results of operations include: ● changes in expectations as to our future financial performance; ● announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships or capital commitments; ● market acceptance of our new applications and enhancements to our existing applications; ● the amount of advertising and marketing that is available and spent on user acquisition campaigns; ● disruptions in the availability of our applications on third party platforms; 23 ● actual or perceived violations of privacy obligations and compromises of subscriber data; ● the entrance of new competitors in our market whether by established companies or the entrance of new companies; ● additions or departures of key personnel and the cost of attracting and retaining application developers and other software engineers; ● general market conditions, including market volatility and the impact of inflation; and ● developments in connection with our current patent litigation or future patent litigation.
Factors that may contribute to the variability of our results of operations include: ● changes in expectations as to our future financial performance; ● announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships or capital commitments; ● market acceptance of our new applications and enhancements to our existing applications; ● the amount of advertising and marketing that is available and spent on user acquisition campaigns; ● disruptions in the availability of our applications on third party platforms; ● actual or perceived violations of privacy obligations and compromises of subscriber data; ● the entrance of new competitors in our market whether by established companies or the entrance of new companies; ● additions or departures of key personnel and the cost of attracting and retaining application developers and other software engineers; ● general market conditions, including market volatility and the impact of inflation; and ● developments in connection with our current patent litigation or future patent litigation. 22 Given the rapidly evolving industry in which we operate, our historical results of operations may not be useful in predicting our future results of operations.
The market prices and trading volume of our common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our common stock to incur substantial losses.
The market prices and trading volume of our common stock have in the past experienced, and may continue to experience in the future, extreme volatility, which could cause purchasers of our common stock to incur substantial losses.
There can be no assurance that our activities or the activities of third parties, or the small number of potential sellers or small percentage of stock in our public float, or determinations by purchasers or holders as to when or under what circumstances or at what prices they may be willing to buy or sell stock, will not artificially impact (or would be claimed by regulators to have affected) the normal supply and demand factors that determine the price of our common stock.
Our activities or the activities of third parties, or the small number of potential sellers or small percentage of stock in our public float, or determinations by purchasers or holders as to when or under what circumstances or at what prices they may be willing to buy or sell stock, could artificially impact (or could be claimed by regulators to have affected) the normal supply and demand factors that determine the price of our common stock.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation described above.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to these provisions in our Certificate of Incorporation and Amended and Restated Bylaws.
If we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, Nasdaq could delist our securities. Our common stock was approved for listing on Nasdaq under the symbol “PALT” and began trading on Nasdaq on August 3, 2021.
If we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, Nasdaq could delist our securities. Our common stock was approved for listing on Nasdaq under the symbol “PALT” and began trading on Nasdaq on August 3, 2021. However, our common stock may not continue to be listed on Nasdaq in the future.
The tax regimes we are subject to or operate under, including income and non-income taxes, are unsettled and may be subject to significant change. For example, the Inflation Reduction Act (the “IRA”) was signed into law on August 16, 2022 and will become effective beginning in fiscal 2023.
The tax regimes we are subject to or operate under, including income and non-income taxes, are unsettled and may be subject to significant change. For example, the Inflation Reduction Act (the “IRA”) was signed into law on August 16, 2022 and became effective on January 1, 2023.
As of December 31, 2022, we had recorded a total of $6.3 million of goodwill and $3.6 million of other intangible assets.
As of December 31, 2023, we had recorded a total of $6.3 million of goodwill and $2.7 million of other intangible assets.
This exclusive forum provision applies to state and federal law claims, although our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. In addition, this exclusive forum selection provision will not apply to claims under the Exchange Act.
This exclusive forum provision applies to state and federal law claims, although our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
These state laws include, for example: CCPA, the CPRA, which became effective on January 1, 2023, and expands upon the CCPA, the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Act Concerning Personal Data Privacy and Online Monitoring, the Utah Consumer Privacy Act, and the New York SHIELD Act.
These state laws include, for example: CCPA, the CPRA, which became effective on January 1, 2023, and expands upon the CCPA, the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Act Concerning Personal Data Privacy and Online Monitoring, the Utah Consumer Privacy Act, the Delaware Personal Data Privacy Act, the Indiana Consumer Data Protection Act, the Iowa Consumer Data Protection Act, the Montana Consumer Data Privacy Act, the Oregon Consumer Privacy Act, the Tennessee Information Protection Act, the Texas Data Privacy and Security Act and the New York SHIELD Act.
Our Certificate of Incorporation currently authorizes us to issue up to 25,000,000 shares of common stock, of which 9,864,120 were outstanding as of December 31, 2022, which includes 10,000,000 shares of preferred stock with such designations, preferences and rights as determined by our Board of Directors, of which none were outstanding as of December 31, 2022.
Our Certificate of Incorporation currently authorizes us to issue up to 25,000,000 shares of common stock, of which 9,222,157 shares (excluding treasury shares) were outstanding as of December 31, 2023, and 10,000,000 shares of preferred stock with such designations, preferences and rights as determined by our Board of Directors, of which none were outstanding as of December 31, 2023.
In addition, advertising and marketing activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brands. 11 If we fail to successfully promote and maintain our application brands, or incur substantial expenses in unsuccessfully attempting to promote and maintain our brands, we may fail to attract enough new clients or subscribers or retain our existing clients and subscribers to the extent necessary to realize a sufficient return on our advertising and marketing activities, and it could have a material adverse effect on our business, results of operations or financial condition.
If we fail to successfully promote and maintain our application brands or incur substantial expenses in unsuccessfully attempting to promote and maintain our brands, we may fail to attract enough new subscribers or retain our existing subscribers to the extent necessary to realize a sufficient return on our advertising and marketing activities, and it could have a material adverse effect on our business, results of operations or financial condition.
We may not be able to comply with the applicable listing standards and Nasdaq could delist our securities as a result. We cannot assure our stockholders that our common stock, if delisted from Nasdaq, will be listed on another national securities exchange.
We may not be able to comply with the applicable listing standards, and Nasdaq could delist our common stock as a result. If our common stock is delisted from Nasdaq, we may be unable to list our common stock on another national securities exchange.
Investor relations activities, nominal “float” and supply and demand factors may affect the price of our common stock. We have engaged an investor relations firm to create investor awareness for our Company. These campaigns may include non-deal road shows and personal, video and telephone conferences with investors and prospective investors in which our business and business practices are described.
We have engaged an investor relations firm to create investor awareness for our Company. These campaigns may include non-deal road shows and personal, video and telephone conferences with investors and prospective investors in which our business and business practices are described.
We cannot assure our stockholders that our securities will continue to be listed on Nasdaq in the future. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.
In order to maintain our listing on Nasdaq, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.
We cannot control the actions of our users in their communications or physical actions. There is a possibility that users or third parties could be physically or emotionally harmed following interaction with another user.
We cannot control our users’ communications with each other or physical actions towards one another. There is a possibility that users or third parties could be physically or emotionally harmed following interaction with another user.
Information provided by third parties may not be reliable or accurate and could materially impact the trading price of our common stock which could cause stockholders to lose their investments.
This may include coverage that is not attributable to statements made by the Company or our Board of Directors. Information provided by third parties may not be reliable or accurate and could materially impact the trading price of our common stock, which could cause stockholders to lose their investments.
We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know if these dynamics will continue.
We believe that the historical volatility and our historical market prices during such periods reflected market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know if these dynamics will continue in the future.
If there are changes in laws or regulations regarding privacy and the protection of user data, or if we fail to comply with such laws or regulations, we may face claims brought against us by regulators or users that could adversely affect our business, results of operations or financial condition.
Any significant increase in our future effective tax rate could have a material adverse impact on our business, financial condition, results of operations, or cash flows. 18 If there are changes in laws or regulations regarding privacy and the protection of user data, or if we fail to comply with such laws or regulations, we may face claims brought against us by regulators or users that could adversely affect our business, results of operations or financial condition.
We are unable to predict what changes to the tax laws of the U.S. and other jurisdictions may be proposed or enacted in the future or what effect such changes would have on our business.
We do not currently expect that the IRA will have a material impact on our income tax liability. We are unable to predict what changes to the tax laws of the U.S. and other jurisdictions may be proposed or enacted in the future or what effect such changes would have on our business.
If a breach of our security (or the security of our vendors and partners) occurs, the perception of the effectiveness of our security measures and our reputation may be harmed, we could lose current and potential users and the recognition of our various brands and their competitive positions could be diminished, any or all of which could adversely affect our business, financial condition and results of operations. 15 Spammers may attempt to use our products to send targeted and untargeted spam messages to users, which may embarrass or annoy users and make our products less user friendly.
If a breach of our security (or the security of our vendors and partners) occurs, the perception of the effectiveness of our security measures and our reputation may be harmed, we could lose current and potential users and the recognition of our various brands and their competitive positions could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
While some of our customers may consider our applications to be a cost-saving purchase, others may view a subscription to our applications as a discretionary purchase, and our customers may reduce their discretionary spending on our platform during an economic downturn. Given current economic conditions, including inflation, we could experience a reduction in demand and loss of customers.
While some of our customers may consider our applications to be a cost-saving purchase, others may view a subscription to our applications as a discretionary purchase, and our customers may reduce their discretionary spending on our platform during an economic downturn.
In addition, because we do not pay dividends, we may have trouble raising additional funds which could affect our ability to expand our business operations. 24 Our Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or stockholders.
Our Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or stockholders.
If any such event were to occur, we may not be able to remedy the event, and we may have to expend significant capital and resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring.
If any such event were to occur, we may not be able to remedy the event, and we may have to expend significant capital and resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. 14 Security breaches, computer malware and cybersecurity incidents have become more prevalent in our industry and may occur on our systems in the future.
As a result of the COVID-19 pandemic, we adopted a work-from-home policy in March 2020, and we expect this practice to continue for the foreseeable future. Remote work and remote access increase our vulnerability to cybersecurity attacks. We may see an increase in cyberattack volume, frequency and sophistication driven by the global enablement of remote workforces.
We maintain a work-from-home policy for our employees. Remote work and remote access increase our vulnerability to cybersecurity attacks. We may see an increase in cyberattack volume, frequency and sophistication driven by the global enablement of remote workforces.
Future laws and regulations with respect to the collection, compilation, use and publication of information and consumer privacy could result in limitations on our operations, increased compliance or litigation expense, adverse publicity or loss of revenue, any of which could have a material adverse effect on our business, financial condition and results of operations. 20 Any failure, or perceived failure, by us to comply with such laws and regulations, including FTC requirements or industry self-regulatory principles, could result in proceedings or actions against us by governmental entities or others, which could potentially have an adverse effect on our business.
Future laws and regulations with respect to the collection, compilation, use and publication of information and consumer privacy could result in limitations on our operations, increased compliance or litigation expense, adverse publicity or loss of revenue, any of which could have a material adverse effect on our business, financial condition and results of operations.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers and employees.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers and employees. 23 Investor relations activities, nominal “float” and supply and demand factors may affect the price of our common stock.
Furthermore, as a result of an intellectual property challenge, we may be prevented from offering our applications unless we enter into royalty, license or other agreements.
Furthermore, as a result of an intellectual property challenge, we may be prevented from offering our applications unless we enter into royalty, license or other agreements. We may not be able to obtain such agreements at all or on terms acceptable to us, and as a result, we may be precluded from offering our applications and services.
It is possible that a new application developed or offered by one of our competitors could gain rapid scale at the expense of existing brands through harnessing a new technology or distribution channel, creating a new approach to servicing clients or connecting people. 9 Certain entities that we do not directly compete with but that have large or dominant positions in one or more markets could use those positions to gain a competitive advantage against us by integrating competing video chat or social media platforms into products they control, such as search engines, web browsers or mobile device operating systems.
Certain entities that we do not directly compete with but that have large or dominant positions in one or more markets could use those positions to gain a competitive advantage against us by integrating competing video chat or social media platforms into products they control, such as search engines, web browsers or mobile device operating systems.
As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on stock price.
As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on stock price. 20 However, during certain periods, we have received, and may continue to receive, a high degree of media coverage that is published or otherwise disseminated by third parties, including blogs, articles, message boards and social and other media.
Crew Delaware Trust A and others that have significant beneficial ownership of our common shares have substantial influence regarding matters submitted for stockholder approval, including proposals regarding: ● any merger, consolidation or sale of all or substantially all of our assets; ● the election of members of our Board of Directors; and ● any amendment to our Certificate of Incorporation, as amended (the “Certificate of Incorporation”).
Crew Delaware Trust B and others that have significant beneficial ownership of our common stock have substantial influence regarding matters submitted for stockholder approval, including proposals regarding: ● any merger, consolidation or sale of all or substantially all of our assets; ● the election of members of our Board of Directors; and ● any amendment to our Certificate of Incorporation, as amended (the “Certificate of Incorporation”). 21 The current or increased ownership position of any of these stockholders and/or their respective affiliates could delay, deter or prevent a change of control or adversely affect the price that investors might be willing to pay in the future for our common stock.
As of March 15, 2023, Jason Katz, our Chairman of the Board of Directors, Chief Executive Officer, Chief Operating Officer and President, beneficially owned approximately 38% of our outstanding common stock, including shares of common stock held directly by Mr. Katz’s spouse, and The J. Crew Delaware Trust A, a trust formed by Mr.
As of March 11, 2024, Jason Katz, our Chairman of the Board of Directors, Chief Executive Officer, Chief Operating Officer and President, and our largest stockholder, The J. Crew Delaware Trust B, beneficially owned an aggregate of approximately 26.0% of our outstanding common stock. The J. Crew Delaware Trust B is a trust formed by Mr.
Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation. Because of the limited trading market for our common stock, and because of the possible price volatility, stockholders may not be able to sell their shares of common stock when you desire to do so.
Because of the limited trading market for our common stock, and because of the possible price volatility, stockholders may not be able to sell their shares of common stock when you desire to do so.
Our business may be significantly affected by a change in the economy, including any resulting effect on consumer or business spending. Our business may be affected by changes in the economy generally, including as a result of the COVID-19 pandemic, any resulting effect on spending by our customers, and inflation.
Our business may be affected by changes in the economy generally, including as a result of pandemics, terrorist attacks, natural disasters or other events outside our control, and any resulting effect on spending by our customers.
At the same time, advertisers may be less willing to allocate their budgets or resources to our products, which could seriously harm our business, results of operation or financial condition. 12 Because we recognize revenue from subscriptions over the term of the subscription, the full impact of downturns or upturns in subscription sales may not be immediately reflected in our results of operations or financial condition.
Because we recognize revenue from subscriptions over the term of the subscription, the full impact of downturns or upturns in subscription sales may not be immediately reflected in our results of operations or financial condition.
The invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization member states, and Russia. The United States, other North Atlantic Treaty Organization member states, as well as non-member states, have imposed sanctions against Russia and certain Russian banks, enterprises and individuals.
The United States, other NATO member states, as well as non-member states, have imposed sanctions against Russia and certain Russian banks, enterprises and individuals.
We may not be able to obtain such agreements at all or on terms acceptable to us, and as a result, we may be precluded from offering our applications and services. 21 Risks Related to Ownership of Our Common Stock Our common stock is historically thinly traded, stockholders may be unable to sell at or near ask prices or at all and the price of our common stock may be volatile.
Risks Related to Ownership of Our Common Stock Our common stock is historically thinly traded, stockholders may be unable to sell at or near ask prices or at all and the price of our common stock may be volatile.
We have suffered losses and we expect that we will continue to suffer losses as a result of subscriptions placed with fraudulent credit card data, as well as users who chargeback their purchases.
In addition, under current credit card practices, a merchant is liable for fraudulent credit card transactions when, as is the case with the transactions we process, that merchant does not obtain a cardholder’s signature. 15 We have suffered losses and we expect that we will continue to suffer losses as a result of subscriptions placed with fraudulent credit card data, as well as users who chargeback their purchases.
The issuance of shares upon the exercise of stock options and unvested shares of restricted common stock may cause immediate and substantial dilution to our existing stockholders. As of December 31, 2022, we had approximately 792,055 shares of common stock that were issuable upon the exercise of vested outstanding stock options.
As of December 31, 2023, we had approximately 550,164 shares of common stock that were issuable upon the exercise of vested outstanding stock options. The issuance of shares upon the exercise of these options may result in substantial dilution to the equity interest and voting power of holders of our common stock.
The issuance of shares upon the exercise of these options may result in substantial dilution to the equity interest and voting power of holders of our common stock. In the future, we may also issue additional shares of common stock or other securities convertible into or exchangeable for shares of common stock.
In the future, we may also issue additional shares of common stock or other securities convertible into or exchangeable for shares of common stock.
We and our stockholders may be subjected to enhanced regulatory scrutiny due to the fact that our affiliates hold a majority of our outstanding common stock and we have a limited number of shares of common stock that are publicly available for resale. 25 The Supreme Court of the United States has stated that manipulative action is a term of art connoting intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.
We and our stockholders may be subjected to enhanced regulatory scrutiny due to the fact that our affiliates hold a majority of our outstanding common stock and we have a limited number of shares of common stock that are publicly available for resale.
As a result of spamming activities, our users may use our products less or stop using them altogether, and result in continuing operational cost to us. Similarly, terror and other criminal groups may use our products to promote their goals and encourage users to engage in terror and other illegal activities.
Our actions to combat spam may also require diversion of significant time and focus of our engineering team from improving our products. As a result of spamming activities, our users may use our products less or stop using them altogether, and result in continuing operational cost to us.
If we are unable to respond in a timely and cost-effective manner, our current and future applications may become less marketable and less competitive or even obsolete. The COVID-19 pandemic may adversely affect our revenues, results of operations and financial condition. The World Health Organization declared COVID-19 a pandemic on March 11, 2020.
If we are unable to respond in a timely and cost-effective manner, our current and future applications may become less marketable and less competitive or even obsolete. 9 Our business may be significantly affected by a change in the economy, including inflation and any resulting effect on consumer or business spending.
Presently, we derive a significant portion of revenue from international territories, and we plan to continue expanding our business operations abroad. In addition, we rely on outsourced development services from companies with employees and consultants based in Russia, India and elsewhere.
Presently, we derive a significant portion of revenue from users located outside of the United States. In addition, we rely on outsourced development services from companies with consultants based in Russia, India and elsewhere. The invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization (“NATO”) member states, and Russia.
These broad market fluctuations may also adversely affect the trading price of our common stock, especially in light of the macro-economic factors including rising inflation rates, the war in Ukraine and the COVID-19 pandemic. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies.
These broad market fluctuations may also adversely affect the trading price of our common stock, especially in light of the macro-economic factors including rising inflation rates, increased interest rates, bank-specific and broader financial institution liquidity challenges, the Russia-Ukraine conflict and the Israel-Hamas conflict.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changePatent No. 6,683,858, and on January 19, 2023, the Examiner issued an Ex Parte Reexamination Certificate, ending the reexamination and confirming the patentability of claims 1-10 of U.S. Patent No. 6,683,858. Trial is now scheduled for early third quarter of 2023.
Biggest changePatent No. 6,683,858, and on January 19, 2023, the Examiner issued an Ex Parte Reexamination Certificate, ending the reexamination and confirming the patentability of claims 1-10 of U.S. Patent No. 6,683,858. On June 29, 2023, the Court held a pretrial conference with the parties and denied Cisco’s motion for summary judgment.
ITEM 3. 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.
ITEM 3. 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 “Court”). The Company alleges that certain of Cisco’s products have infringed U.S.
Added
The trial is expected to be held in April of 2024.
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If the Company receives a jury verdict in its favor or receives settlement proceeds in connection with the foregoing litigation, the exact amount of such proceeds to be received by the Company will be determined based on a number of factors and will reflect the deduction of significant litigation-related expenses, including legal fees.
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Consequently, the Company will not receive the majority of any gross proceeds resulting from any potential verdict or settlement. For the foregoing reasons, we are unable to predict the outcome of this litigation and its ultimate cost.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on Nasdaq under the symbol “PALT.” Holders As of March 15, 2023, there were approximately 52 holders of record of our common stock.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on Nasdaq under the symbol “PALT.” Holders As of March 11, 2024, there were approximately 52 holders of record of our common stock.
This does not reflect the number of persons or entities who held stock in nominee or street name through various brokerage firms. Recent Sales of Unregistered Securities There were no sales of unregistered securities during the year ended December 31, 2022 that were not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
This does not reflect the number of persons or entities who held stock in nominee or street name through various brokerage firms. Recent Sales of Unregistered Securities There were no sales of unregistered securities during the year ended December 31, 2023 that were not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.
Removed
Issuer Purchases of Equity Securities The following table details our repurchases of common stock during the three months ended December 31, 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) October 1, 2022 – October 31, 2022 170,009 $ 1.48 170,009 $ 1.48 November 1, 2022 – November 30, 2022 80,974 $ 1.49 80,974 $ 1.49 December 1, 2022 – December 31, 2022 36,736 $ 1.44 36,736 $ 1.44 Total 287,719 $ 1.48 287,719 $ 1.48 (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.
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Issuer Purchases of Equity Securities The were no repurchases of our common stock during the three months ended December 31, 2023. ITEM 6. [Reserved]
Removed
The stock repurchase plan expires on March 29, 2023. ITEM 6. Reserved

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated: Year Ended December 31, 2022 2021 Reconciliation of Net (Loss) Income to Adjusted EBITDA: Net (loss) income $ (3,412,250 ) $ 1,324,106 Stock-based compensation expense 333,825 (35,653 ) Depreciation and amortization expense 670,863 370,845 Impairment loss on digital tokens 7,262 765,232 Interest income, net (74,895 ) (133 ) Gain on extinguishment of term debt -- (506,500 ) Realized loss (gain) from sale of digital tokens -- (307,934 ) Gain on termination of digital tokens payable -- (338,553 ) Income tax (benefit) expense (171,665 ) 9,951 Adjusted EBITDA $ (2,646,860 ) $ 1,281,361 Results of Operations The following table sets forth consolidated statements of operations data for each of the periods indicated as a percentage of total revenue: Years Ended December 31, 2022 2021 Total revenue 100.0 % 100.0 % Costs and expenses: Cost of revenue 25.7 % 20.5 % Sales and marketing expense 14.3 % 8.8 % Product development expense 54.0 % 40.6 % General and administrative expense 39.2 % 20.4 % Impairment loss on digital tokens 0.1 % 5.8 Total costs and expenses 133.3 % 96.1 % (Loss) income from operations (33.3 )% 3.9 % Interest income, net 0.7 % 0.0 % Gain on extinguishment of term debt 0.0 % 3.8 % Realized gain (loss) from sale of digital tokens 0.0 % 2.3 % (Loss) income from operations before income tax (benefit) expense (32.6 )% 10.0 % Income tax (benefit) expense (1.6 )% (0.1 )% Net (loss) income (31.0 )% 9.9 % 33 Year Ended December 31, 2022, Compared to Year Ended December 31, 2021 Revenue Total revenue decreased to $10,989,545 for the year ended December 31, 2022, from $13,273,849 for the year ended December 31, 2021.
Biggest changeThe following table presents a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated: Year Ended December 31, 2023 2022 Reconciliation of Net Loss to Adjusted EBITDA: Net loss $ (1,067,335 ) $ (3,412,250 ) Stock-based compensation expense 234,993 333,825 Depreciation and amortization expense 822,334 670,863 Impairment loss on digital tokens -- 7,262 Interest income, net (639,611 ) (74,895 ) Other income, net (343,045 ) -- Income tax benefit (20,252 ) (171,665 ) Adjusted EBITDA $ (1,012,916 ) $ (2,646,860 ) 31 Results of Operations The following table sets forth consolidated statements of operations data for each of the periods indicated as a percentage of total revenue: Years Ended December 31, 2023 2022 Total revenue 100.0 % 100.0 % Costs and expenses: Cost of revenue 29.5 % 25.7 % Sales and marketing expense 8.0 % 14.3 % Product development expense 44.3 % 54.0 % General and administrative expense 37.0 % 39.2 % Impairment loss on digital tokens 0.0 % 0.1 % Total costs and expenses 118.8 % 133.3 % Loss from operations (18.8 )% (33.3 )% Interest income, net 5.8 % 0.7 % Other income, net 3.1 % 0.0 % Loss from operations before income tax benefit (9.9 )% (32.6 )% Income tax benefit 0.2 % 1.6 % Net loss (9.7 )% (31.0 )% Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Revenue Total revenue remained relatively unchanged at $10,979,844 for the year ended December 31, 2023, compared to $10,989,545 for the year ended December 31, 2022.
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 this Annual Report on Form 10-K. Overview We are a leading communications software innovator that powers multimedia social applications.
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 this Annual Report on Form 10-K. Overview We are a communications software innovator that powers multimedia social applications.
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in “Item 8. Financial Statements and Supplementary Data.” 27 Forward-Looking Statements In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in “Item 8. Financial Statements and Supplementary Data.” Forward-Looking Statements In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.
Subscriptions for ManyCam are generally offered in annual and two-year terms, with exceptions made for enterprise sales. 30 We recognize revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated. Revenues from multi-month (or annual) subscriptions are recognized on a gross and straight-line basis over the length of the subscription period.
Subscriptions for ManyCam are generally offered in annual and two-year terms, with exceptions made for enterprise sales. 29 We recognize revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated. Revenues from multi-month (or annual) subscriptions are recognized on a gross and straight-line basis over the length of the subscription period.
Multiple subscription tiers are offered in different durations depending on the product from one-, six- and twelve-month terms, which continue to vary as we continue to test and optimize length and pricing. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates.
Multiple subscription tiers are offered in different durations depending on the product from one-, three-, 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.
Impairment loss on digital tokens We recorded a non-cash impairment loss on digital tokens of $7,262 for the year ended December 31, 2022 as a result of the decline in the quoted market prices of certain digital tokens below the market price of their acquisition.
Impairment loss on digital tokens We recorded a non-cash impairment loss on digital tokens of $7,262 for the year ended December 31, 2022 as a result of the decline in the quoted market prices of certain digital tokens below the market price of their acquisition. There was no such impairment loss for year ended December 31, 2023.
On June 7, 2016, we entered into a lease agreement with Jericho Executive Center LLC for office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on September 1, 2016 and runs through November 30, 2021. Our monthly office rent payments under the lease are currently approximately $7,081 per month.
On April 9, 2021, we 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. Our monthly office rent payments under the lease are currently approximately $7,081 per month.
Our product portfolio includes Paltalk, Camfrog and Tinychat, which together host one of the world’s largest collections of video-based communities. Our other products are 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.
Our product portfolio includes Paltalk, Camfrog and Tinychat, which together host 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.
Macro-Economic Factors and COVID-19 Update Our results of operations have been and may continue to be negatively impacted by the uncertainty regarding COVID-19 and macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary environment.
Impact of Macro-Economic Factors Our results of operations have been and may continue to be negatively impacted by macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary environment.
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.
General and administrative expense also includes amortization of intangible assets. 30 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 provided by operating activities under the ‟Results of Operations” and “Liquidity and Capital Resources” sections below. Adjusted EBITDA is discussed below.
We also discuss net cash provided by operating activities under the “Liquidity and Capital Resources” section below. Adjusted EBITDA is discussed below.
As of December 31, 2022, we had over $14.7 million 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.
As of December 31, 2023, we had approximately $13.6 million 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 users.
Investing Activities Net cash used in investing activities was $2,942,279 for the year ended December 31, 2022, as compared to net cash provided by investing activities of $858,848 for the year ended December 31, 2021. The decrease in cash flows from investing activities resulted primarily from the ManyCam Acquisition.
Investing Activities Net cash used in investing activities was $85,000 for the year ended December 31, 2023, as compared to net cash used in investing activities of $2,942,279 for the year ended December 31, 2022. The decrease in cash flows from investing activities resulted primarily from the ManyCam acquisition.
The most significant accounting estimate inherent in the preparation of our financial statements include the discount rates and weighted average costs of capital used in the fair value of the ManyCam Intangible Assets and in assigning their respective useful lives.
During the year ended December 31, 2022, the most significant accounting estimate inherent in the preparation of the financial statements included the discount rates and weighted average costs of capital used in the fair value of the ManyCam intangible assets and in assigning their respective useful lives.
In particular, a significant portion of our working capital has been allocated to the improvement of our products. In addition, during the year ended December 31, 2022, we spent $997,924 in connection with our Stock Repurchase Plan as we purchased a total of 604,808 shares at an average share price of $1.65 per share.
In particular, a significant portion of our working capital has been allocated to the improvement of our products. In addition, during the year ended December 31, 2023, we spent $7,213 in connection with our stock repurchase plan (the “Stock Repurchase Plan”) as we purchased a total of 5,192 shares at an average share price of $1.39 per share.
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; net loss from discontinued operations; interest income, net; other expense, net; gain on sale of the Dating Services Business; income tax expense from continuing operations; gain on office lease termination; impairment loss on goodwill; gain from sale of Secured Communication Assets; loss on disposal of property and equipment; our working capital requirements; the impairment loss on digital tokens; realized gain (loss) from the sale of digital tokens; the potentially dilutive impact of stock-based compensation; gain on the extinguishment of term debt; gain on extinguishment of digital tokens payable; and the provision for income taxes.
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; net loss from discontinued operations; interest income, net; other expense, net; income tax expense from continuing operations; our working capital requirements; the impairment loss on digital tokens; the potentially dilutive impact of stock-based compensation; and the provision for income taxes.
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 have an over 20-year history of technology innovation and hold 8 patents. 27 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.
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.
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.
Liquidity and Capital Resources Years Ended December 31, 2022 2021 Consolidated Statements of Cash Flows Data: Net cash (used in) provided by operating activities $ (2,956,724 ) $ 1,265,464 Net cash (used in) provided by investing activities (2,942,279 ) 858,848 Net cash (used in) provided by financing activities (997,924 ) 13,927,128 Net change in cash and cash equivalents $ (6,896,927 ) $ 16,051,440 Currently, our primary source of liquidity is cash on hand and cash flows from continuing operations, and we believe that our cash and cash equivalents balance and our expected cash flow from operations will be sufficient to meet all of our financial obligations for the twelve months from the date these financial statements are issued.
Liquidity and Capital Resources Years Ended December 31, 2023 2022 Consolidated Statements of Cash Flows Data: Net cash used in operating activities $ (1,079,671 ) $ (2,956,724 ) Net cash used in investing activities (85,000 ) (2,942,279 ) Net cash used in financing activities (7,213 ) (997,924 ) Net change in cash and cash equivalents $ (1,171,884 ) $ (6,896,927 ) Currently, our primary source of liquidity is cash on hand and cash flows from continuing operations, and we believe that our cash and cash equivalents balance and our expected cash flow from operations will be sufficient to meet all of our financial obligations for one year from the date these financial statements are issued.
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 10 patents.
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.
Year Ended December 31, 2022 2021 Net cash (used in) provided by operating activities $ (2,956,724 ) $ 1,265,464 Net (loss) income $ (3,412,250 ) $ 1,324,106 Adjusted EBITDA $ (2,646,860 ) $ 1,281,361 Adjusted EBITDA as percentage of total revenue (24.1 )% 9.7 % Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure.
Year Ended December 31, 2023 2022 Net cash used in operating activities $ (1,079,671 ) $ (2,956,724 ) Net loss $ (1,067,335 ) $ (3,412,250 ) Adjusted EBITDA $ (1,012,916 ) $ (2,646,860 ) Adjusted EBITDA as percentage of total revenue (9.2 )% (24.1 )% Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure.
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 consultants-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. 31 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.
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.
On April 9, 2021, we 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.
Contractual Obligations and Commitments On June 7, 2016, we entered into a lease agreement with Jericho Executive Center LLC for office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on September 1, 2016 and ran through November 30, 2021.
The decrease was primarily driven by a decrease in subscription revenue and virtual gift revenue from the Paltalk and Camfrog applications, as well as a decrease in technology service revenue driven by the termination of the YouNow Agreement, effective November 23, 2021. The decrease was partially offset by revenue recognized from sales of the ManyCam product.
The change was primarily driven by a decrease in subscription revenue and virtual gift revenue from the Paltalk and Camfrog applications and was partially offset by revenue recognized from sales of the ManyCam product and Vumber.
For the near term, our business objectives include: ● 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; ● adjusting our spending to better align with overall macro-economic conditions and investing in a measured way that ensures responsible cash management; ● 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.
For the near term, our business objectives include: ● leveraging our integration of the ManyCam product into Paltalk product through upselling initiatives; ● further optimizing marketing spend to effectively realize a positive return on our investment; ● developing a user-friendly version of ManyCam that will be optimized for both consumer and enterprise applications; ● continuing to implement several enhancements to our live video chat applications as well as the integration of card and board games and other features focused on retention and monetization, which collectively are intended to increase user engagement and revenue opportunities; ● continuing to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our businesses; ● continuing to develop our consumer application platform strategy by seeking potential partnerships with large third-party communities to whom we could promote a co-branded version of our video chat products and potentially share in the incremental revenues generated by these partner communities; and ● continuing to defend our intellectual property.
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. 32 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.
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.
Prolonged periods of inflation may affect our ability to target new customers as well as keep existing customers engaged and may ultimately have a correlating effect on our users’ discretionary spending. Our user growth may continue to slow or decline as the impact of the COVID-19 pandemic continues to taper, particularly in light of a potential economic downturn.
Prolonged periods of inflation have affected, and may continue to affect, our ability to target new customers as well as keep existing customers engaged and may ultimately have a correlating effect on our users’ discretionary spending.
Sales and marketing expense Our sales and marketing expense for the year ended December 31, 2022 increased by $400,889, or 34.3%, as compared to the year ended December 31, 2021.
Sales and marketing expense Our sales and marketing expense for the year ended December 31, 2023 decreased by $692,618, or 44.1%, as compared to the year ended December 31, 2022.
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.
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.
The decrease in advertising revenue was primarily due to a decrease in the volume of advertising impressions related to changes in and the optimization of third-party advertising partners due to a slower growing user base as well as overall decline in the advertising market.
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 and partnering with a new facilitator in the market.
The following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenue for the year ended December 31, 2022, and the year ended December 31, 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: Years Ended $ % % of Revenue Years Ended December 31, Increase Increase December 31, 2022 2021 (Decrease) (Decrease) 2022 2021 Subscription revenue $ 10,662,691 $ 12,368,008 $ (1,705,317 ) (13.8 )% 97.0 % 93.2 % Advertising revenue 326,854 451,337 (124,483 ) (27.6 )% 3.0 % 3.4 % Technology service revenue -- 454,504 (454,504 ) (100.0 )% 0.0 % 3.4 % Total revenues $ 10,989,545 $ 13,273,849 $ (2,284,304 ) (17.2 )% 100.0 % 100.0 % Subscription Revenue Our subscription revenue for the year ended December 31, 2022 decreased by $1,705,317, or 13.8%, as compared to the year ended December 31, 2021.
The following table sets forth our subscription revenue, advertising revenue and total revenue for the year ended December 31, 2023, and the year ended December 31, 2022, the increase or decrease between those periods, the percentage increase or decrease between those periods, and the percentage of total revenue that each represented for those periods: Years Ended $ % % of Revenue Years Ended December 31, Increase Increase December 31, 2023 2022 (Decrease) (Decrease) 2023 2022 Subscription revenue $ 10,646,700 $ 10,662,691 $ (15,991 ) (0.1 )% 97.0 % 97.0 % Advertising revenue 333,144 326,854 6,290 1.9 % 3.0 % 3.0 % Total revenues $ 10,979,844 $ 10,989,545 $ (9,701 ) (0.1 )% 100.0 % 100.0 % Subscription Revenue Our subscription revenue for the year ended December 31, 2023 decreased by $15,991, or 0.1%, as compared to the year ended December 31, 2022.
The following table presents our costs and expenses for the years ended December 31, 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: Years Ended $ % % of Revenue Years Ended December 31, Increase Increase December 31, 2022 2021 (Decrease) (Decrease) 2022 2021 Cost of revenue $ 2,823,570 $ 2,720,189 $ 103,381 3.8 % 25.7 % 20.5 % Sales and marketing expense 1,571,275 1,170,386 400,889 34.3 % 14.3 % 8.8 % Product development expense 5,934,433 5,391,819 542,614 10.1 % 54.0 % 40.6 % General and administrative expense 4,311,815 2,706,733 1,605,082 59.3 % 39.2 % 20.4 % Impairment loss on digital tokens 7,262 765,232 (757,970 ) (99.1 )% 0.1 % 5.8 % Total costs and expenses $ 14,648,355 $ 12,754,359 $ 1,893,996 14.8 % 133.3 % 96.1 % Cost of revenue Our cost of revenue for the year ended December 31, 2022 increased by $103,381, or 3.8%, as compared to the year ended December 31, 2021.
The following table presents our costs and expenses for the years ended December 31, 2023 and 2022, the increase or decrease between those periods and the percentage increase or decrease between those periods and the percentage of total revenue that each represented for those periods: Years Ended $ % % of Revenue Years Ended December 31, Increase Increase December 31, 2023 2022 (Decrease) (Decrease) 2023 2022 Cost of revenue $ 3,238,243 $ 2,823,570 $ 414,673 14.7 % 29.5 % 25.7 % Sales and marketing expense 878,657 1,571,275 (692,618 ) (44.1 )% 8.0 % 14.3 % Product development expense 4,860,607 5,934,433 (1,073,826 ) (18.1 )% 44.3 % 54.0 % General and administrative expense 4,072,580 4,311,815 (239,235 ) (5.5 )% 37.0 % 39.2 % Impairment loss on digital tokens -- 7,262 (7,262 ) (100.0 )% 0.0 % 0.1 % Total costs and expenses $ 13,050,087 $ 14,648,355 $ (1,598,268 ) (10.9 )% 118.8 % 133.3 % Cost of revenue Our cost of revenue for the year ended December 31, 2023 increased by $414,673, or 14.7%, as compared to the year ended December 31, 2022.
The increase in general and administrative expense for the year ended December 31, 2022 was mainly due to increased non-cash stock compensation expense of approximately $402,000, an increase in amortization of approximately $417,000 related to the acquisition of the ManyCam assets, increased professional fees of approximately $265,000 and increased insurance costs of approximately $122,000.
The decrease in general and administrative expense for the year ended December 31, 2023, was mainly due to a decrease of professional fees of $299,000, as well as a decrease in headcount costs, including non-cash stock compensation expense, of approximately $206,000.
The increase for the year ended December 31, 2022, was primarily driven by an increase in costs related to the ManyCam product, which launched in June of 2022, of approximately $206,658. These expenses were partially offset by decreases in non-cash stock compensation expense of $48,000 and credit card processing of approximately $55,000.
The increase for the year ended December 31, 2023, was primarily driven by an increase in costs related to hosting expenses of approximately $364,000, as well as costs related to the ManyCam product, which launched in June of 2022, of approximately $61,000.
Should the agreements be renewed for 2023 and beyond, the aggregate base salary commitments would total $510,000 per year. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.
Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment.
Financing Activities Net cash used in financing activities was $997,924 for the year ended December 31, 2022, as compared to net cash provided by financing activities of $13,927,128 for the year ended December 31, 2021.
Financing Activities Net cash used in financing activities was $7,213 for the year ended December 31, 2023, as compared to net cash used in financing activities of $997,924 for the year ended December 31, 2022. During fiscal 2022, the use of cash of $997,924 was attributed to the Company’s repurchase of the Company’s stock pursuant to its Stock Repurchase Plan.
These fair values and estimates were based on a number of factors, including a valuation from an independent third party. 37 Critical Accounting Polices The Company’s financial position, results of operations and cash flows are impacted by the accounting policies the Company has adopted.
These fair values and estimates were based on a number of factors, including a valuation from an independent third party.
Sources of Revenue Our main sources of revenue are subscription, advertising and other fees generated from users of our core video chat products, Paltalk and Camfrog, as well as revenue downloads of our ManyCam software products. We expect that the majority of our revenue in future periods will continue to be generated from our core video chat products.
We expect that the majority of our revenue in future periods will continue to be generated from our core video chat products. 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.
Product development expense Our product development expense for the year ended December 31, 2022 increased by $542,614, or 10.1%, as compared to the year ended December 31, 2021. The increase was primarily due to an increase of approximately $329,000 related to software expenses in support the newly launched ManyCam product.
Product development expense Our product development expense for the year ended December 31, 2023 decreased by $1,073,826, or 18.1%, as compared to the year ended December 31, 2022. The decrease was primarily due to a decrease of approximately $825,000 related to software expenses. We accomplished this reduction by streamlining our offshore development efforts as well as reallocating in-house resources.
The increase in sales and marketing expense for the year ended December 31, 2022 was primarily due to an increase of approximately $366,000 in marketing user acquisition expenses, including agent fees, as we focused on increasing user engagement spend through the efforts of our third-party marketing agencies, which we have subsequently scaled back on, and an increase of approximately $26,000 in other marketing and branding expenses driven by an increased grow our focus on social media and influencers.
During the year ended December 31, 2022, we focused on increasing user engagement spend through the efforts of our third-party marketing agencies, which we have subsequently scaled back.
This loss represents a $757,970 decrease in the size of the loss compared to the year ended December 31, 2021. 35 Non-Operating Income The following table presents the components of non-operating income for the year ended December 31, 2022 and the year ended December 31, 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: Years Ended December 31, $ Increase % Increase % of Revenue Years Ended December 31, 2022 2021 (Decrease) (Decrease) 2022 2021 Interest income, net $ 74,895 $ 133 $ 74,762 56212.1 % 0.7 % 0.0 % Gain on extinguishment of term debt -- 506,500 (506,500 ) (100.0 )% 0.0 % 3.8 % Realized gain from sale of digital tokens -- 307,934 (307,934 ) (100.0 )% 0.0 % 2.3 % Total non-operating income $ 74,895 $ 814,567 $ (739,672 ) (90.8 )% 0.7 % 6.1 % Non-operating income for the year ended December 31, 2022 was $74,895, a decrease of $739,672, or 90.8%, as compared to non-operating income of $814,567 for the year ended December 31, 2021.
Non-Operating Income The following table presents the components of non-operating income for the year ended December 31, 2023 and the year ended December 31, 2022, the increase between those periods and the percentage increase between those periods and the percentage of total revenue that each represented for those periods: Years Ended December 31, $ % % of Revenue Years Ended December 31, 2023 2022 Increase Increase 2023 2022 Interest income, net $ 639,611 $ 74,895 $ 564,716 754.0 % 5.8 % 0.7 % Other income, net 343,045 -- 343,045 100.0 % 3.1 % 0.0 % Total non-operating income $ 982,656 $ 74,895 $ 907,761 1,212.0 % 8.9 % 0.7 % Non-operating income for the year ended December 31, 2023 was $982,656, an increase of $907,761, or 1,212.0%, as compared to non-operating income of $74,895 for the year ended December 31, 2022.
Adjusted EBITDA is defined as net income adjusted to exclude net loss from interest income, net, provision for income taxes, gain on office lease termination, impairment loss on goodwill, gain from sale of Secured Communication Assets, gain on the extinguishment of term debt, provision for income taxes, depreciation and amortization expense, loss on disposal of property and equipment, other expense, impairment loss on digital tokens, gain on extinguishment of digital tokens payable, realized loss (gain) from the sale of digital tokens and stock-based compensation expense.
Adjusted EBITDA is defined as net (loss) income adjusted to exclude stock-based compensation expense, depreciation and amortization expenses, impairment loss on digital token, interest income, net, other (income) expense, net, and income tax (benefit) expense.
General and administrative expense Our general and administrative expense for the year ended December 31, 2022 increased by $1,605,082, or 59.3%, as compared to the year ended December 31, 2021.
Costs and Expenses Total costs and expenses for the year ended December 31, 2023 decreased by $1,598,268 or 10.9%, as compared to the year ended December 31, 2022.
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. On August 5, 2021, we announced the closing of the August 2021 Offering in which we offered and sold 1,159,400 shares of our common stock.
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. 34 Operating Activities Net cash used in operating activities was $1,079,671 for the year ended December 31, 2023, as compared to net cash used in operating activities of $2,956,724 for the year ended December 31, 2022.
Advertising Revenue Our advertising revenue for the year ended December 31, 2022 decreased by $124,483, or 27.6%, as compared to the year ended December 31, 2021.
These decreases were partially offset by increased revenue from ManyCam as the revenue for the year ended December 31, 2023 represented revenue for twelve months, whereas the revenue for the year ended December 31, 2022, represented only six months of subscription revenue. 32 Advertising Revenue Our advertising revenue for the year ended December 31, 2023 increased by $6,290, or 1.9%, as compared to the year ended December 31, 2022.
Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. Estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition.
A loss from operations, due to the decrease in subscription revenue as well as changes in accounts payable, accrued expenses and other current liabilities of $453,928 which contributed to a lower cash flow for the year ended December 31, 2022, compared to the year ended December 31, 2021.
This resulted in a decrease of approximately $203,000 in other marketing and branding expenses, as well as a decrease in headcount costs of approximately $46,000 for the year ended December 31, 2023 compared to 2022.
Removed
Background of Presentation and Recent Developments Stock Repurchase Plan On March 23, 2022, we announced that 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”).
Added
We operate a network of consumer applications that we believe create a unique social media enterprise where users can meet, see, chat, broadcast, play online card games and board games 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.
Removed
The Stock Repurchase Plan is effective as of March 29, 2022 and expires on the one-year anniversary of such date.
Added
Our strategy also includes the acquisition of, or investment in, technologies, solutions or businesses that complement our business and cross-selling them to additional synergistic businesses.
Removed
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.
Added
Recent Developments Director Appointment On October 9, 2023, our Board of Directors increased the size of the Board of Directors from five (5) directors to six (6) directors and filled the newly created vacancy by appointing Geoffrey Cook as a director of the Company, effective as of October 10, 2023. Mr.
Removed
The actual timing, number and value of shares repurchased was determined by a committee of the Board of Directors at its discretion and depends 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.
Added
Cook was also appointed to serve as a member of the Nominating and Corporate Governance Committee of the Board of Directors and the Strategic Transactions Committee of the Board of Directors. We believe Mr.
Removed
During the year ended December 31, 2022, the Company purchased a total of 604,808 at an average share price of $1.65 per share. 28 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 (“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”).
Added
Cook is qualified to serve on our Board of Directors due to, among other things, his experience in the social media and consumer internet industries as well as his insights regarding corporate strategy and brand growth.
Removed
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”).
Added
Additionally, the closures of certain banks in the first and second quarters of 2023 and their placement into receivership with the Federal Deposit Insurance Corporation created bank-specific and broader financial institution liquidity challenges and concerns.
Removed
The Purchaser acquired the Conveyed Assets for a cash purchase price of $2.7 million (the “Cash Consideration”).
Added
Future adverse developments with respect to specific financial institutions or the broader financial services industry may create additional market and economic uncertainty, which could affect our industry. Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act, we were eligible for a refundable employee retention tax credit (the “ERTC”) subject to certain criteria.
Removed
In addition to the Cash Consideration, Visicom is entitled to receive an additional payment of up to $600,000 (the “Earn-Out Payment”) based on the sales of the ManyCam software less chargebacks and refunds (“Gross Sales”) in the six-month period following the closing (the “Earn-Out Period”) as follows: (i) if the Gross Sales during the Earn-Out Period are greater than $800,000, the Earn-Out Payment shall be $600,000, (ii) if the Gross Sales during the Earn-Out Period are greater than $700,000 but less than $800,000, the Earn-Out Payment shall be $300,000, (iii) if the Gross Sales during the Earn-Out Period are greater than $600,000 but less than $700,000, the Earn-Out Payment shall be $150,000 and (iv) if the Gross Sales during the Earn-Out Period do not exceed $600,000, then Visicom will not be paid any portion of the Earn-Out Payment.
Added
During the year ended December 31, 2023, we applied for the ERTC and recorded a receivable in the amount of $343,045, net of related costs, which was recognized in our consolidated statement of operations as other income.
Removed
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.
Added
As of December 31, 2023, we received an aggregate of $294,833, which was recorded as a reduction of the receivable on our consolidated balance sheet.
Removed
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.
Added
Operational Highlights and Business Objectives During the year ended December 31, 2023 we executed key components of our objectives: ● total revenue remained relatively unchanged at approximately $11 million for the years ended December 31, 2023 and 2022, primarily as a result of a decrease in revenue from Paltalk and Camfrog, offset by increased revenue from ManyCam and Vumber; 28 ● net loss decreased by 68.7% to $1.1 million for the year ended December 31, 2023, compared to net loss of $3.4 million for the year ended December 31, 2022, as a result of reduced expenses and increased operating efficiencies; ● compared to the prior year period, cash flows used in operations decreased by $1.9 million to $1.1 million for the year ended December 31, 2023, mainly as result of a decrease in product development and marketing expense; ● we were cash flow positive for the third quarter ended September 30, 2023; and ● engaged Cleverbridge to facilitate our global payment processing capabilities in international geographic markets.
Removed
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. Gross Sales during the Earn-Out Period exceeded $600,000 but were less than $700,000.
Added
Sources of Revenue Our main sources of revenue are subscription revenue, which includes virtual gift revenue, and advertising revenue generated from users of our core video chat products, Paltalk and Camfrog. We also generate revenue from subscriptions for our ManyCam software product.
Removed
Pursuant to the terms of that certain Letter Agreement, by and between Visicom, the Purchaser and the Company, dated February 24, 2023, the Company made an Earn-Out Payment to Visicom in the amount of $85,000 (the “Adjusted Earn-Out Payment”).
Added
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.
Removed
We recorded a liability in the amount of the Adjusted Earn-Out Payment, with a corresponding adjustment to the cost basis of the Conveyed Assets. The Company expects that the Adjusted Earn-Out Payment will be paid in the first quarter of 2023.
Added
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.
Removed
As part of the accounting for the Conveyed Assets, we provisionally recorded a deferred tax liability of $0.9 million with an offset to intangible assets related to the excess financial reporting basis over the tax basis of the Conveyed Assets.
Added
The decrease in sales and marketing expense for the year ended December 31, 2023 was primarily due to a decrease of approximately $459,000 in marketing user acquisition expenses, including agent fees compared to the prior year.
Removed
Furthermore, the recent strength of the US dollar compared to foreign currencies could have a negative effect on our non-US customer base, as our subscription prices are based in US dollars. 29 Operational Highlights and Objectives During the year ended December 31, 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 and worked on cross-selling the ManyCam software to commercial businesses as well as retail consumers; ● repurchased 604,808 shares of the Company’s common stock pursuant to the Stock Repurchase Plan at an average price per share of $1.65, or an aggregate amount of approximately $1.0 million; and ● engaged Roth Capital Partners, LLC as our financial advisor and investment banker to explore strategic initiatives focused on buy-side acquisitions.
Added
In addition, headcount costs were reduced by approximately $83,000, dues and subscriptions decreased by approximately $74,000 and a decrease of approximately $69,000 in capitalized amortization software related to Paltalk. 33 General and administrative expense Our general and administrative expense for the year ended December 31, 2023 decreased by $239,235, or 5.5%, as compared to the year ended December 31, 2022.
Removed
We also generate 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.
Added
This was offset by an increase in non-cash amortization of approximately $221,000 related to the acquisition of the ManyCam assets.
Removed
Technology Service Revenue Technology service revenue is generated under service and partnership agreements that we negotiate with third parties, which includes development, integration, engineering, licensing or other services that we provide. During the year ended December 31, 2021, we recorded technology service revenue in connection with our agreement to serve as a launch partner with Open Props, Inc.

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