What changed in this filing

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Item 1. Business

2021-03-23 compared with 2020-03-24 · 316 added, 344 removed, 6 unchanged (99% of the section changed)

Company Overview

We are a leading communications software

innovator that powers multimedia social applications.

We have also have developed a suite of secure communications software for

use worldwide.

Our product portfolio includes Paltalk and Camfrog, which together host one of the world’s largest collections

of video-based communities.

Our other products include Tinychat and Vumber.

The Company has an over 20 year history of technology

innovation and holds 18 patents.

We were incorporated under the laws of

the State of Delaware in 2005.

Our principal executive office is located at 122 East 42 nd Street, Suite 3400, New York,

New York 10168.

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.

We believe that the scale of our subscriber

base presents a competitive advantage in the video social networking industry and provides growth opportunities to advance existing

products with up-sell opportunities and build future brands with cross-sell offers.

We also believe that our proprietary consumer

app technology platform can scalably support large communities of users in activities such as video, voice and text chat and provide

robust user monetization tools.

In October 2019, we commenced a strategy to make our video chat platform available to potential

third-party partners with large user communities to provide retention-enhancing social and communication features while potentially

providing additional commercial opportunities for those partners.

We expect to participate in the commercial upside with such

partners via revenue sharing arrangements that we plan to negotiate on a partner-specific basis.

During the fourth quarter of

2019, we agreed to collaborate with a third party with a community of over 30 million monthly active users, which has agreed to

promote a co-branded version of our Paltalk video chat program to its user base on a trial basis.

Our continued growth depends on attracting

new consumer application users through the introduction of new applications, features and partnerships and further penetration

of our existing markets.

Our principal growth strategy is to invest in the development of proprietary software, expand our sales

and marketing efforts with respect to such software, and increase our consumer application user base through potential platform

partnerships and new and existing advertising campaigns that we run through internet and mobile advertising networks, all while

balancing the capital needs of the business.

Our strategy is to approach these opportunities

in a measured way, being mindful of the Company’s resources and evaluating factors such as potential revenue, time to market

and amount of capital needed to invest in the opportunity.

Consumer Applications

We operate a leading network of consumer

applications that create a unique social media enterprise where users can meet, see, chat, broadcast and message in real time

in a secure environment with others in our network.

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

are a leading communications software innovator that powers multimedia social applications.

Our product portfolio includes Paltalk

and Camfrog, which together host one of the world’s largest collections of video-based communities.

Our other products include

Tinychat and Vumber.

We have an over 20-year history of technology innovation and hold 18 patents.

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.

Services and Products

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.

believe that the scale of our subscriber base presents a competitive advantage in the video social networking industry and provides

growth opportunities to advance existing products with up-sell opportunities and build future brands with cross-sell offers.

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 and provide robust user monetization tools.

continued growth depends on attracting new consumer application users through the introduction of new applications, features and

partnerships and further penetration of our existing markets.

Our principal growth strategy is to invest in the development of

proprietary software, expand our sales and marketing efforts with respect to such software, and increase our consumer application

user base through potential platform partnerships and new and existing advertising campaigns that we run through internet and

mobile advertising networks, all while balancing the capital needs of the business.

strategy is to approach these opportunities in a measured way, being mindful of the Company’s resources and evaluating factors

such as potential revenue, time to market and amount of capital needed to invest in the opportunity.

operate a leading network of consumer applications that create a unique social media enterprise where users can meet, see, chat,

broadcast and message in real time in a secure environment with others in our network.

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 18 issued patents.

Live Video Chat .

We have three

existing products in the video chat space:

We have three existing products in the video chat space:

Paltalk, Camfrog and Tinychat.

The major revenue-generating live video chat products

are Paltalk and Camfrog.

Each product enables individuals to self-organize around topics and users with common affinities.

enables adaptations of our video technology for alternative uses and opportunities in the future.

Paltalk and Camfrog are both leading providers of live video

social networking applications available on Windows, Mac OS, iOS, Android and other tablet devices.

Together, these products power

one of the world’s largest global collections of video based communities, with proprietary technology to host thousands of

simultaneous live group conversations on topics such as politics, financial markets, music and dating.

Our proprietary client server

technology helps maintain high quality video and audio, even as many users simultaneously watch a particular broadcaster.

and Camfrog both attract a demographically and geographically diverse user base, with users in over 180 different countries.

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.

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 enables adaptations of our video technology for alternative uses and opportunities in the future.

and Camfrog are both leading providers of live video social networking applications available on Windows, Mac OS, iOS, Android

and other tablet devices.

Together, these products power one of the world’s largest global collections of video-based communities,

with proprietary technology to host thousands of simultaneous live group conversations on topics such as politics, financial markets,

music and dating.

Our proprietary client server technology helps maintain high quality video and audio, even as many users simultaneously

watch a particular broadcaster.

Paltalk and Camfrog both 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.

Telecommunications .

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.

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 .

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.

Apple retains 30% of the revenue that

is generated from sales on our iPhone application through in-app purchases in the United States.

Google also retains 30% 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.

Local resellers prepay in bulk for services and debit the prepaid balance as one-time subscriptions and

virtual currency are sold to end users.

Regardless of which payment method is utilized, users may access our products through

any of the gateways we offer.

Technology Implementation Services

and Secured Communications

In the first quarter of 2018 we began developing and licensing

our suite of secure communications software.

In addition, we began providing professional services to customize and integrate our

software solutions to meet client needs.

On March 21, 2018, we entered into a technology services agreement with ProximaX whereby

we agreed to provide certain development and related services to ProximaX to facilitate the implementation of our PeerStream Protocol

(“PSP”) into their proprietary blockchain protocol.

In the second quarter of 2019, the Company completed, and ProximaX

accepted delivery of, the work prescribed under the agreement.

During the final stages of delivery of the second project milestone

set forth in the agreement, ProximaX informed the Company that capital constraints made it unable to pay the Company.

the Company and ProximaX entered into an agreement, effective June 24, 2019, to terminate the technology services agreement and

provide for payment terms for the remaining amounts due under the technology services agreement.

On February 21, 2020, we entered into an Asset Purchase Agreement

(the “SecureCo Purchase Agreement”) with SecureCo, LLC (“SecureCo”), whereby, subject to the terms of the

Agreement, we agreed to sell substantially all of the assets related to our secure communications business, which includes communication

solutions and operations capabilities with respect to the development and commercialization of secure messaging and data applications,

software and middleware for enterprise and government client targets (the “Secure Communications Assets”), to SecureCo

for a cash purchase price of approximately $540,000, which is comprised of a base purchase price of $500,000 plus the reimbursement

or waiver of certain severance expenses payable by the Company to certain former executive officers.

In addition, we would be entitled

to receive a transition service fee of five percent (5%) of all revenue received by SecureCo or its Affiliates pursuant to certain

unassignable contracts.

The closing of the sale of the Assets

is subject to the fulfilment of certain conditions by the Company and SecureCo, including, among other things, a condition that SecureCo shall

have received financing that is sufficient to fund the purchase price.

If the transaction is consummated, we do not

expect to continue to pursue secured communications products or technology implementation services as part of our overall

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.

serves both the retail and small business community.

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.

provides an in-depth data analytics platform that can track, record and analyze calls to gain new insights into one’s business.

Payment Options .

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.

retains 30% of the revenue that is generated from sales on our iPhone applications through in-app purchases in the United States.

Google also retains 30% of the revenue that is generated from sales on Android applications via Google wallet through in-app purchases

in the United States.

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.

Regardless of which payment method is utilized, users may

access our products through any of the gateways we offer.

Communications.

In the first quarter of 2018, we began developing and licensing a suite of secure communications software.

On March 21, 2018, we entered into a technology services agreement with ProximaX Limited (“ProximaX”) whereby we agreed

to provide certain development and related services to ProximaX to facilitate the implementation of our PeerStream Protocol into

their proprietary blockchain protocol.

During the final stages of delivery of the second project milestone set forth in the agreement,

ProximaX informed us that capital constraints made it unable to pay us.

Accordingly, we entered into an agreement with ProximaX,

effective June 24, 2019, to terminate the technology services agreement and provide for payment terms for the remaining amounts

due under the technology services agreement.

July 23, 2020, we sold substantially all of the assets related to our secure communications business (the “Secured Communications

Assets”) to SecureCo, LLC (the “Buyer”

and such sale of the Secured Communications Assets, the “Asset

Sale”).

The Secured Communications Assets included communication solutions and operations capabilities for secure messaging

and data applications, and software and middleware for enterprise and government client targets.

We do not expect to continue

to pursue secure communications products or technology implementation services as part of our overall business strategy.

Partnerships.

During the second and third quarters of 2020, we recorded technology service revenue in connection with our

agreement to serve as a launch partner with YouNow, Inc.

(“YouNow”) and to integrate YouNow’s props infrastructure

(the “Props platform”) into our Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).

Pursuant to the terms of the YouNow Agreement, YouNow agreed to pay us, in exchange for our services, an aggregate of 10.5 million

cryptographic props tokens (“Props tokens”) upon the achievement of certain milestones as follows:

(i) 3.0 million

Props tokens upon execution of the YouNow Agreement, (ii) 4.0 million Props tokens upon the integration of the Props platform

in our Camfrog application and (iii) 3.5 million Props tokens due upon the integration of the Props platform in our Paltalk application.

In addition, as part of the YouNow Agreement, we received 1.1

million Props tokens for a validator service and 13.5 million Props tokens under YouNow’s loyalty Props platform that was

implemented on our Paltalk and Camfrog applications.

The loyalty platform is used to drive engagement and empower users financially

by providing users with the ability to earn Props tokens while using the Paltalk and Camfrog applications.

The number of Props

tokens earned by users for the year ended December 31, 2020 was 3.6 million which is recorded under digital tokens payable in the

consolidated balance sheets, and the net revenue earned is recorded under technology service revenue in the consolidated statements

of operations.

Business Strategy

If the transaction is not consummated , we expect to take a measured

approach with respect to the potential commercialization of these products in a fiscally responsible manner.

Company Business Strategy

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.

to add incentives for loyal or valuable users to enhance retention and overall user activity in the products.

We also intend to

improve our product and marketing capabilities on mobile, to enhance monetization and our ability to acquire new users on mobile

In addition, we expect to increase the quality and quantity of live streaming entertainment content and broaden the

distribution across our user base.

Finally, we will continue to integrate certain technical functions of Paltalk and Camfrog,

which will reduce operating costs and speed time-to-market of future enhancements.

Launch Consumer Application Platform

At the end of 2019, we launched our consumer

application platform strategy, under which we plan to co-brand our video chat applications and promote them in partnership with

third-party communities, with the expectation of entering into revenue sharing arrangements with potential partners.

fourth quarter of 2019, we reached an agreement with a launch partner with 30 million monthly active users who has agreed to a

trial of our consumer application platform.

We plan to seek to open more of these types of partnerships in the future.

Refocus Plans for Business-to-Business

Solutions in Secure Communications

The cybersecurity market is large and

growing rapidly, and the segment that addresses secure communications has attracted interest as high profile communication hacks

and data breaches gain media publicity.

We believe PSP and Backchannel, our branded framework designed to be a secure video-enabled

mobile messaging solution for enterprise and government end users, present a differentiated solution to this market with additional

layers of security that are not commonly offered.

In February 2020, we contracted to sell substantially all of the Secure Communications

Assets to SecureCo.

If the transaction does not close for any reason, we expect that we may take a measured approach to the marketing

activities we began in 2019 and move toward commercialization of these products in a fiscally responsible manner.

may also seek an alternative purchaser for the Secure Communications Assets or we may determine to no longer pursue the secure

communications line of business if we determine it would no longer be economically viable to do so.

Defend our Intellectual Property

We have a portfolio of 18 issued patents.

We have successfully defended our intellectual property in the past and have generated tens of millions of dollars in licensing

fees for the use of our patents.

In 2016, we commenced an enforcement action related to two of our patents against Riot Games,

and Valve Corporation for infringement of U.S.

5,822,523 and 6,226,686 with respect to their online games League

of Legends and Defense of the Ancients 2.

These two patents were previously asserted against, and then licensed to, Microsoft,

Sony, and Activision.

In 2018, Valve Corporation moved to transfer the litigation from Delaware to the Western District of Washington.

Such motion was granted by the court.

Riot Games, Inc.

has filed a total of

four inter parts reviews at the Patent Trial and Appeal Board (“PTAB”) of the United States Patent

and Trademark Office, two per patent held by Paltalk Holdings, Inc., seeking to have the Paltalk Holdings, Inc.

patents declared

On May 14, 2019, the PTAB rejected the validity of the patents.

On September 27, 2019, the Company filed an appeal of

the PTAB’s ruling.

For additional information concerning

the status of these proceedings, see “Item 3.

Legal Proceedings”

Sale of Non-Core Assets

On January 31, 2019, we entered into an Asset Purchase Agreement

with The Dating Company, LLC, pursuant to which we sold substantially all of the assets related to our online dating services business

under the domain names FirstMet, 50more, and The Grade for a cash purchase price of $1.6 million, with $100.0 thousand of the purchase

price that was held in an escrow account to secure certain of our post-closing indemnification obligations.

The closing of the

asset sale was effective as of January 31, 2019.

On February 21, 2020, we entered into the SecureCo Purchase

Agreement with SecureCo, whereby we agreed, subject to the terms of the Agreement, to sell substantially all of the Secure Communications

Assets to SecureCo for a cash purchase price of approximately $540,000, which is comprised of a base purchase price of $500,000

plus the reimbursement or waiver of certain severance expenses payable by the Company to certain former executive officers.

addition, we would be entitled to receive a transition service fee of five percent (5%) of all revenue received by SecureCo or

its Affiliates pursuant to certain unassignable contracts.

If the transaction is consummated, we do not expect to continue to pursue

secured communications products or technology implementation services as part of our overall business strategy.

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.

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 also generate new sign-ups organically, as people find our sites

and applications through brand recognition and word of mouth, search engines and product review websites.

Competition and Our Industry

Competition in the industries in which

we compete remains fierce.

The markets for consumer applications, secure communications software and technology implementation

services are extremely dynamic and are undergoing constant change.

We believe this environment creates significant opportunities

for us as well as our direct and indirect competitors.

Our principal competitors consist of:

Applications:

(“YouNow”), Live.me, BIGO Live, Live.ly, Houseparty, Facebook Live, YouTube Live, Instagram

Live, and Twitch;

Secure Communications

Software Licensing:

Adeya SA, Commdex, Ercom, IVCi LLC, KoolSpan, Ribbon Communications Inc.

Technology Implementation

IBM, Accenture, Cognizant, Deloitte Touche Tohmatsu Limited, Wipro Limited, as well as Virtusa, Saksoft, Mindtree,

Larsen & Toubro Infotech Limited, ConsenSys, Vanbex Group and CanYa.

As described above, if the sale of the

Secure Communications Assets is completed, we no longer expect to compete in the secure communications software licensing or technology

implementation services lines of business.

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 industries in which we operate, 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 order to compete effectively, we seek

to offer software, services and applications that are differentiated from existing products, superior in quality and more appealing

than those of our competitors.

We believe that our applications compete favorably against those offered by our competitors due

to their ability to scale easily, their cost-efficiency and their innovative technology.

We also believe that we have the tools

and expertise to attract new users through Facebook and other sources at a lower cost per subscriber than certain of our traditional

Although we believe we have the capability

to compete effectively in our industries, our competitors may offer products, services and applications that we do not provide

with more desirable features or at lower prices, and they may be able to devote greater resources to the development, promotion,

sale and support of their products.

In addition, many of our competitors have more extensive customer bases and broader customer

relationships than we have, including relationships with our potential customers.

Governmental Regulations

We are subject to a number of U.S.

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.

These laws and regulations may involve

user privacy, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition,

protection of minors, consumer protection, taxation and online payment services.

In particular, we are subject to federal and

state laws regarding privacy and protection of user data, which are constantly evolving and can be subject to significant change.

We are also subject to diverse and evolving laws and regulations in other countries in which we operate.

The application and interpretation

of these laws and regulations are often uncertain, particularly in the new and rapidly-evolving industry in which we operate.

Because our applications are accessible worldwide and used by residents of some foreign countries, foreign jurisdictions may claim

that we must comply with foreign laws, even in jurisdictions in which we have no local business entity, employees or infrastructure.

We are also subject to federal laws and

regulations regarding content, privacy and the protection of user data, including The Communications Decency Act of 1996, as amended

(“The Communications Decency Act”), The Children’s Online Privacy Protection Act of 1998, as amended, 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.

Millennium Copyright Act limits our liability as an online service provider for linking to or hosting third-party content that

infringes copyrights.

The Communications Decency Act provides statutory protections to online service providers like us who distribute

third-party content.

The Children’s Online Privacy Protection Act restricts the ability of online service providers to collect

personal information from children under 13.

Congress, the Federal Trade Commission (“FTC”) and many states have promulgated

laws and regulations regarding email advertising, including the CAN-SPAM Act.

Any changes in these laws or judicial interpretations

narrowing the protections of these laws may subject us to increased risk, increased costs of compliance, and limits on the operation

of certain parts of our business.

Growing public concern about privacy and the use of personal

information may subject us to increased regulatory scrutiny.

Regulation related to the provision of online services is evolving

as federal, state and foreign governments continue to adopt new, or modify existing, laws and regulations addressing data privacy

and the collection, processing, storage, transfer and use of data.

This includes, for example, the new California Consumer Protection

Act, which became effective on January 1, 2020.

The FTC has, over the last few years, begun investigating companies that have used

personally identifiable information in a deceptive or unfair manner or in violation of a posted privacy policy.

On May 25, 2018,

the European Union implemented a privacy directive called the Global Data Protection Regulation (“GDPR”) that imposes

additional new regulatory scrutiny on our business in that geographic region with possible financial consequences for noncompliance.

If we are accused of violating the terms of our privacy policy, implementing unfair privacy practices or otherwise breaching data

privacy laws, we may be forced to expend significant financial and managerial resources to defend against an FTC, GDPR or other

state or federal enforcement action.

Our user database holds the personal information of our users and subscribers residing in

the United States and other countries, and we could be sued by those users if any of the information is misappropriated.

by us to adequately protect our users’

privacy and data could also result in loss of user confidence in our consumer applications

and services and ultimately in a loss of active subscribers, which could adversely affect our business.

In addition, virtually every U.S.

has passed laws requiring notification to users when there is a security breach for personal data resulting in unauthorized disclosure,

many of which are modeled on California’s Information Practices Act.

There are a number of legislative proposals pending

before the U.S.

Congress and various state legislative bodies concerning data protection that could, if adopted, have an adverse

effect on our business.

We are unable to determine if and when such legislation may be adopted.

Many jurisdictions, including

the European Union, have adopted breach notification and other data protection notification laws designed to prevent unauthorized

disclosure of personally identifiable information.

The introduction of new privacy and data breach laws and the interpretation

of existing privacy and data breach laws in the United States, Europe and other foreign jurisdictions is constantly evolving.

There is a risk that new laws may be introduced or 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.

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.

These regulatory

and legislative developments, including excessive taxation, may prevent or significantly limit our ability to expand our business.

We may also become subject to laws or

regulations in the future that limit our ability to accept bitcoin or other cryptocurrencies as a form of payment or to

otherwise hold bitcoin or other cryptocurrencies.

As cryptocurrencies have grown in both popularity and market size,

governments around the world have reacted differently to cryptocurrencies, with certain governments deeming cryptocurrency

Growth Through Marketing Efforts

continued growth depends on attracting new consumer application users through the introduction of new applications, features and

partnerships and further penetration of our existing markets.

Our principal growth strategy is to invest in the development of

proprietary software, expand our sales and marketing efforts with respect to such software, and increase our consumer application

user base through potential platform partnerships and new and existing advertising campaigns that we run through internet and

mobile advertising networks, all while balancing the capital needs of the business.

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.

Existing Live Video Chat Applications

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.

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.

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.

Rooms and Online Games

the fourth quarter of 2020, we launched beta versions of real time voice and video card and board games on our Paltalk video-based

The new offerings include certain games, including poker, blackjack, gin rummy, bridge, and chess.

We expect to launch

additional games in 2021, including backgammon and others.

The technology for our new games has been internally developed and

provides an immersive experience that is almost like playing in person, as each player sees real time video and hears real time

voices of every other player.

addition, on January 12, 2021, we launched a private room functionality on our Paltalk platform in beta version.

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.

rooms are currently available on our desktop application and Android platforms, and we plan to make private rooms available on

the iOS platform during the first quarter of 2021.

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.

our Intellectual Property

have a portfolio of 18 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.

of Non-Core Assets

January 31, 2019, we entered into an Asset Purchase Agreement with The Dating Company, LLC, pursuant to which we sold substantially

all of the assets related to our online dating services business under the domain names FirstMet, 50more, and The Grade (collectively,

the “Dating Services Business”) for a cash purchase price of $1.6 million.

The closing of the asset sale was effective

as of January 31, 2019.

In the first quarter of 2019, management determined

that the disposal of the Dating Services Business met the criteria for presentation as discontinued operations.

Accordingly, the

results of the Dating Services Business are presented as discontinued operations on our consolidated statements of operations through

January 31, 2019, the date of sale, and are excluded from continuing operations for all periods presented.

In addition, the assets

and liabilities of the Dating Services Business are classified as held for sale on our consolidated balance sheets for all periods

Communications

February 24, 2020, we entered into an Asset Purchase Agreement, which was subsequently amended and restated on May 29, 2020 (the

“Amended and Restated Agreement”) with the Buyer, pursuant to which we agreed to sell the Secured Communications Assets

to the Buyer.

The Secured Communications Assets included communication solutions and operations capabilities for secure messaging

and data applications, and software and middleware for enterprise and government client targets.

July 23, 2020, we completed the Asset Sale for a cash purchase price of $250,000, $150,000 of which was paid at closing and $100,000

of which is payable in four equal installments over the fifteen-month period following the closing of the Asset Sale.

and Restated Asset Purchase Agreement that we entered into with the Buyer in connection with the Asset Sale also provides for

a revenue sharing arrangement, pursuant to which we are entitled to receive quarterly royalty payments ranging from 5% to 10%

of certain revenues received by the Buyer, with the aggregate amount of such royalty payments not to exceed $500,000.

expect to continue to pursue secure communications products or technology implementation services as part of our overall business

The gain on the Asset Sale was recorded in

the statements of operations for the year ended December 31, 2020.

The sale of the Secured Communications Assets did not meet the

requisite criteria to constitute discontinued operations or held for sale, as the historical results of our secured communications

business were not material to our results of operations.

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.

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 also generate new sign-ups organically,

as people find our sites and applications through brand recognition and word of mouth, search engines and product review websites.

and Our Industry

in our industry remains fierce.

The market for consumer applications is extremely dynamic and is undergoing constant change.

believe this environment creates significant opportunities for us as well as our direct and indirect competitors.

Our principal

competitors are YouNow, Live.me, BIGO Live, Live.ly, Houseparty, Facebook Live, Zoom, Skype, YouTube Live, Instagram Live, and

of our competitors have substantially greater financial, managerial, technological and other resources than we do.

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.

order to compete effectively, we seek to offer software, services and applications that are differentiated from existing products,

superior in quality and more appealing than those of our competitors.

We believe that our applications compete favorably against

those offered by our competitors due to their ability to scale, their cost-efficiency and their innovative technology.

believe that we have the tools and expertise to attract new users through Facebook and other sources at a lower cost per subscriber

than certain of our traditional competitors.

we believe we have the capability to compete effectively in the consumer applications industry, our competitors may offer

products, services and applications that we do not provide, and that may have more desirable features or may be offered at

lower prices, and they may be able to devote greater resources to the development, promotion, sale and support of their

In addition, many of our competitors have more extensive customer bases and broader customer relationships than we

have, including relationships with our potential customers.

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.

These laws and regulations may involve user privacy, data protection, content, intellectual property, distribution, electronic

contracts and other communications, competition, protection of minors, consumer protection, taxation and online payment services.

In particular, we are subject to federal and state laws regarding privacy and protection of user data, which are constantly evolving

and can be subject to significant change.

We are also subject to diverse and evolving laws and regulations in other countries

in which we operate.

The application and interpretation of these laws and regulations are often uncertain, particularly in the

new and rapidly-evolving industry in which we operate.

Because our applications are accessible worldwide and used by residents

of some foreign countries, foreign jurisdictions may claim that we must comply with foreign laws, even in jurisdictions in which

we have no local business entity, employees or infrastructure.

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 Communications Decency Act”), The Children’s Online Privacy

Protection Act of 1998, as amended, 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 Digital Millennium Copyright Act limits our liability as an online service provider for linking

to or hosting third-party content that infringes copyrights.

The Communications Decency Act provides statutory protections to

online service providers like us who distribute third-party content.

The Children’s Online Privacy Protection Act restricts

the ability of online service providers to collect personal information from children under 13.

Congress, the Federal Trade Commission

(“FTC”) and many states have promulgated laws and regulations regarding email advertising, including the CAN-SPAM

Any changes in these laws or judicial interpretations narrowing the protections of these laws may subject us to increased

risk, increased costs of compliance, and limits on the operation of certain parts of our business.

public concern about privacy and the use of personal information may subject us to increased regulatory scrutiny.

Regulation related

to treatment of user data by online services is evolving as federal, state and foreign governments continue to adopt new, or modify

existing, laws and regulations addressing data privacy and the collection, processing, storage, transfer and use of data.

state laws include, for example:

the California Consumer Protection Act (“CCPA”), which became effective on January

1, 2020, the California Privacy Rights Act (“CPRA”), which expands upon the CCPA and was passed in the recent California

election in November 2020, and the New York Stop Hacks and Improve Electronic Data Security (SHIELD) Act.

In addition, the FTC

regularly investigates and brings enforcement actions against companies that have used personally identifiable information in

a deceptive or unfair manner or in violation of a posted privacy policy.

On May 25, 2018, the European Union implemented a privacy

regulation called the Global Data Protection Regulation (“GDPR”) that imposes additional new regulatory scrutiny on

our business in the European Economic Area, with possible financial consequences for noncompliance.

If we are accused of violating

the terms of our privacy policy, implementing unfair privacy practices or otherwise breaching data privacy laws, we may be forced

to expend significant financial and managerial resources to defend against an action by the FTC, European Data Protection Authorities,

or other state or federal enforcement agencies.

Our user database holds the personal information of our users and subscribers

residing in the United States and other countries, and we could be sued by those users if any of the information is misused or

misappropriated.

Any failure by us to adequately protect our users’

privacy and data could also result in loss of user confidence

in our consumer applications and services and ultimately in a loss of active subscribers, which could adversely affect our business.

addition, virtually every U.S.

state has passed laws requiring notification to users when there is a security breach resulting

in unauthorized disclosure of certain types of personal information, many of which are modeled on California’s Information

Practices Act.

There are a number of legislative proposals pending before the U.S.

Congress and various state legislative bodies

concerning data protection that could, if adopted, have an adverse effect on our business.

We are unable to determine if and when

such legislation may be adopted.

Many jurisdictions, including the European Union, have adopted breach notification and other

data protection notification laws designed to inform users of unauthorized disclosure of personally identifiable information.

The introduction of new privacy and data breach laws and the interpretation of existing privacy and data breach laws in the United

States, Europe and other foreign jurisdictions is constantly evolving.

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.

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.

These regulatory and legislative developments, including excessive taxation, may prevent or significantly limit

our ability to expand our business.

may also become subject to laws or regulations in the future that limit our ability to accept bitcoin or other cryptocurrencies

as a form of payment or to otherwise hold bitcoin or other cryptocurrencies.

As cryptocurrencies have grown in both popularity

and market size, governments around the world have reacted differently to cryptocurrencies, with certain governments deeming cryptocurrency

offerings and cryptocurrency exchanges illegal, while others have allowed their use and trade.

Governments may in the future

curtail or outlaw the acquisition or use of cryptocurrencies or the exchange of cryptocurrencies for fiat currencies.

Ownership of, holding, trading in or participating in offerings of cryptocurrencies may then be considered illegal and

subject to sanction.

Governments may also take regulatory action that may increase the cost and/or subject companies that

transact in or hold cryptocurrencies to additional regulation.

Finally, we are party to an arrangement under which we may distribute

cryptocurrency tokens to users of our applications.

It is possible that the SEC or another regulator could conclude that our distribution

of these tokens constitutes broker-dealer activity and could force us to register as a broker-dealer and comply with laws and regulations

applicable to broker-dealers.

As of March 20, 2020, we had 24 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.

Company Internet Site and Availability

of SEC Filings

Our corporate website is located at www.peerstream.com.

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.

Our SEC filings, as well as our Code of Conduct and other corporate governance documents, can be found in the

Investor Relations section of our site and are available free of charge.

Amendments to our Code of Conduct and any grant of a

waiver from a provision of the Code of Conduct requiring disclosure under applicable SEC rules will be disclosed on our website.

Governments may in the future curtail

or outlaw the acquisition or use of cryptocurrencies or the exchange of cryptocurrencies for fiat currencies.

Ownership of, holding,

trading in or participating in offerings of cryptocurrencies may then be considered illegal and subject to sanction.

may also take regulatory action that may increase the cost and/or subject companies that transact in or hold cryptocurrencies

to additional regulation.

Finally, we are party to an arrangement under which we may distribute cryptocurrency tokens to users

of our applications.

It is possible that the SEC or another regulator could conclude that our distribution of these tokens constitutes

broker-dealer activity and could force us to register as a broker-dealer and comply with laws and regulations applicable to broker-dealers.

of the video card games that we offer on our Paltalk application are based upon traditional casino games, such as poker and blackjack.

We have structured and operate these games and features with gambling laws in mind and believe that these games and features do

not constitute gambling.

Our games are offered for entertainment purposes only and do not offer an opportunity to win earnings

outside of the platform.

of March 19, 2021, we had 22 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.

Internet Site and Availability of SEC Filings

corporate website is located at www.paltalk.com.

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.

Our SEC filings, as well as our Code of Conduct and other

corporate governance documents, can be found in the Investor Relations section of our site and are available free of charge.

to our Code of Conduct and any grant of a waiver from a provision of the Code of Conduct requiring disclosure under applicable

SEC rules will be disclosed on our website.

Information on our website is not part of this Annual Report on Form 10-K.

In addition, the SEC maintains a website at www.sec.gov

that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically

with the SEC.

the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding

us and other issuers that file electronically with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business