What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-23 compared with 2020-03-24 · 520 added, 525 removed, 42 unchanged (96% of the section changed)

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COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the OTCQB

under the symbol “PEER.”

The following table sets forth the range

of the quarterly high and low bid price information for the fiscal quarters indicated below as reported by the OTCQB.

trading on the OTCQB, there is no established public trading market for our common stock.

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

common stock is quoted on the OTCQB under the symbol “PALT.”

following table sets forth the range of the quarterly high and low bid price information for the fiscal quarters indicated below

as reported by the OTCQB.

Except for trading on the OTCQB, there is no established public trading market for our common stock.

The over-the-counter

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necessarily represent actual transactions.

The market price of our common stock is

subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market,

and other factors, over many of which we have little or no control.

In addition, broad market fluctuations, as well as general

economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or

projected performance.

As of March 20, 2020, there were approximately

79 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

On January 15, 2019 and October 1, 2019,

we issued 6,000 and 4,225 shares of our common stock, respectively, to PCG Advisory, Inc.

as consideration for investor relations

The issuance of the shares was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2)

thereof as a transaction not involving a public offering.

Other than the above, there were no sales

of unregistered securities during the year ended December 31, 2019 that were not previously reported on a Quarterly Report on

Form 10-Q or a Current Report on Form 8-K.

Issuer Purchases of Equity Securities

following table details our repurchases of common stock during the fourth

quarter of the fiscal year ended December 31, 2019:

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

October 1, 2019 –

October 31, 2019

November 1, 2019 –

November 30, 2019

December 1, 2019 –

December 31, 2019

On April 29, 2019,

we implemented a repurchase plan to repurchase up to $500 thousand of our common stock for cash.

The repurchase plan expires

on April 29, 2020 .

SELECTED FINANCIAL DATA

Not applicable.

market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results,

general trends in the market, and other factors, over many of which we have little or no control.

In addition, broad market fluctuations,

as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless

of our actual or projected performance.

As of March 19, 2021, there were approximately 79 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.

Sales of Unregistered Securities

were no sales of unregistered securities during the year ended December 31, 2020 that were not previously reported on a Quarterly

Report on Form 10-Q or a Current Report on Form 8-K.

Purchases of Equity Securities

did not repurchase any of our equity securities during the fourth quarter of the fiscal year ended December 31, 2020.

SELECTED FINANCIAL

MANAGEMENT’S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and

Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative

from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors

that may affect our future results.

The following discussion and analysis should be read in conjunction with our audited consolidated

financial statements and the accompanying notes thereto included in “Item 8.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of

our financial statements with a narrative from the perspective of our management on our financial condition, results of operations,

liquidity, and certain other factors that may affect our future results.

The following discussion and analysis should be read

in conjunction with 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.

“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.

Forward-Looking

addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve

risks, uncertainties and assumptions.

See “Forward-Looking Statements.”

Our results and the timing of selected events

may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those

discussed under “Item 1A.

Risk Factors”

in this Annual Report on Form 10-K.

We are a leading communications software

innovator that powers multimedia social applications and secure business communication solutions worldwide.

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.

Recent Developments

Pending Sale of Secured Communications

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

Agreement with SecureCo, whereby, subject to the terms of the Agreement, we agreed 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.

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 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.

Props Token Launch

In February 2020, we launched our partnership with YouNow in the Props Developer Network, which, now that regulatory approval has been obtained, enables us to distribute

YouNow’s Props tokens to our application end users for anticipated loyalty and retention benefits.

We began distributing

Props tokens through Camfrog in February 2020 and we expect to launch Props distributions through Paltalk by early second quarter

Completed Sale of Dating 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.

Operational Highlights and Objectives

During the year ended December 31, 2019,

we executed key components of our objectives:

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.

During the fourth quarter, we reached agreement with a launch

partner with 30 million monthly active users who has agreed to a trial of our consumer application platform;

our operating expenses through a streamlined plan of operations by over 13%, or $2.7 million, for the year, which includes reductions

in sales and marketing expenses of over 41%, or approximately $747,350, and reductions in general and administrative expenses

of over 19%, or $1.5 million.

These reductions were offset by one-time severance costs of $0.3 million recorded in the fourth

our partnership with YouNow in the Props Developer Network, which, enables us to distribute YouNow’s Props tokens to our

application end users for anticipated loyalty and retention benefits;

and delivered work constituting the second development milestone under a technology and services agreement with ProximaX, whereby

we agreed to provide certain development and related services to ProximaX to facilitate the implementation of PSP into ProximaX’s

proprietary blockchain protocol (the “ProximaX Agreement”);

the sale of our dating assets to The Dating Company, LLC in order to enable us to focus on our core video applications and to

try to monetize secure communications technology solutions.

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

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.

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 our resources and evaluating factors such as potential

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

of Presentation and Recent Developments

May 15, 2020, we changed our name from “PeerStream, Inc.”

to “Paltalk, Inc.”

In connection with the name

change, we also changed our trading symbol on the OTCQB Marketplace from “PEER”

to “PALT.”

This name change

takes us back to our roots and reflects our primary focus on our current operations, Paltalk and Camfrog, which together are host

to one of the world’s largest collections of video-based communities.

December 2019, a novel strain of coronavirus (“COVID-19”), was reported to have surfaced in Wuhan, China, and has

reached multiple other countries, resulting in government-imposed quarantines, travel restrictions and other public health safety

measures in affected countries.

The various precautionary measures taken by many governmental authorities around the world in

order to limit the spread of COVID-19 has had, and could continue to have, an adverse effect on the global markets and its economy,

including on the availability and pricing of employees and resources, and other aspects of the global economy.

Although we cannot

predict the impact that the COVID-19 pandemic will have on our business or results of operations in future periods, to date, our

core multimedia social applications have been able to support the increased demand we have experienced.

On April 13, 2020, to

help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, we applied for a loan under the Small

Business Administration (“SBA”) Paycheck Protection Program under the recently enacted Coronavirus Aid, Relief, and

Economic Security Act (the “CARES Act”), and on May 3, 2020, we entered into a promissory note with an aggregate principal

amount of $506,500 (the “Note”) in favor of Citibank, N.A., as lender (the “Lender”).

On January 13, 2021,

the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act.

We do not expect to

incur additional indebtedness under the CARES Act.

continues to serve as a form of safe and entertaining communication during this global pandemic and in order to help those affected

in hardest hit countries will continue to offer some of its group video conferencing services free of charge to select countries.

of Secured Communications Assets

previously announced, on 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 SecureCo, LLC (the “Buyer”), pursuant to which

we agreed to sell substantially all of the assets related to its secure communications business (the “Secured Communications

Assets”) to the Buyer (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.

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 Agreement 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.

On January 25, 2021, we received the first instalment of payment of $25,000.

We do not expect to continue

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

In January 2019, we sold substantially all

of the assets related to our dating service business under the domain names FirstMet, 50more and The Grade (collectively, the “Dating

Services Business”).

As a result, during the first quarter of 2019, we began to separately report the results of the Dating

Services Business as a discontinued operation in our consolidated statements of operations and present the related assets and liabilities

as held for sale in our consolidated balance sheets.

These changes have been applied for all periods presented.

Unless otherwise

noted, amounts and percentages for all periods discussed below reflect the results of operations and financial condition from our

continuing operations.

Refer to Note 3 of the notes to our consolidated financial statements for additional information on discontinued

Highlights and Objectives

the year ended December 31, 2020, we executed key components of our objectives:

reported net income

of $1.4 million for the year ended December 31, 2020, compared to net loss of $8.4 million for the year ended December 31,

2019, by growing subscription revenue compared to the same period last year and by executing on our streamlined operating

plan, which eliminated costs associated with our secure communications business headcount;

achieved positive

net cash flow of $2.2 million for the year ended December 31, 2020, an improvement of $5.3 million when compared to the year ended December

31, 2019, and positive cash flow from operations, an improvement of $5.9 million when compared to the year ended December

decreased our operating

expenses by $12.3 million, or 51.5%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, through

a streamlined plan of operations;

launched the YouNow

(“YouNow”) props infrastructure (the “Props platform”) on our Camfrog and Paltalk applications,

which enables us to distribute cryptographic props tokens (“Props tokens”) to our end users for anticipated loyalty

and retention benefits;

completed the sale

of our secure communications business for an aggregate purchase price of $250 thousand, which provides for future revenue

share potential of up to an additional $0.5 million, allowing us to participate in the upside of that business without losing

focus on our core application business.

the near term, our business objectives include:

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

implementing several

enhancements to our live video chat applications, including the integration of games and other features focused on new user

acquisition, retention and monetization, which collectively are intended to increase usage and revenue opportunities;

launching real time

voice and video card games on our Paltalk and Camfrog video-based applications;

continuing to explore

strategic opportunities, including, but not limited to, potential mergers or acquisitions of other entities that are synergistic

to our businesses;

focusing on our

core business to continue to leverage efficiencies gained during 2020 and expand our core business in a cost-efficient way;

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;

to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other entities that are

synergistic to our businesses;

further cost reductions to right-size operations and reduce or eliminate cash consumption;

on our core business to continue to leverage efficiencies gained during 2019 and expand our core business in a cost-efficient

● implementing

several enhancements to our live video chat applications, including the integration of Props token rewards and other features

focused on new user acquisition, retention and monetization, which collectively are intended to increase usage and revenue

opportunities;

● continuing to defend our intellectual property.

Sources of Revenue

Through the end of the first quarter of

2018, our sources of revenue were limited to subscription, advertising and other fees generated from users of our video chat and

dating products.

In April 2018, we started generating revenue through proprietary software licensing and technology implementation

services as a result the ProximaX Agreement.

In January 2019, we sold substantially all of the assets related to our dating products.

As described above, we recently entered into an agreement to sell our Secured Communications Assets.

If the sale is completed,

we expect that our sole source of revenue will return to being revenue generated from our 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.

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.

Levels of membership benefits are offered

in tiers, with the least membership benefits in the lowest paid tier and the most membership benefits in the highest paid tier.

taking steps towards

listing our common stock on a national securities exchange;

continuing to defend

our intellectual property.

main sources of revenue are subscription, advertising and other fees generated from users of our core video chat products.

expect that the majority of our revenue in future periods will continue to be generated from our core video chat products.

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.

video chat platforms generate revenue primarily through subscription fees.

Our tiers of subscriptions provide users with unlimited

video windows and levels of status within the community.

Multiple subscription tiers are offered in different durations depending

on the product from one-, six- 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.

membership benefits are offered in tiers, with the least membership benefits in the lowest paid tier and the most membership benefits

in the highest paid tier.

Our membership tiers are “Plus,”

2 unchanged sentences

and “Prime”

for Paltalk and

“Pro,”

for Paltalk and “Pro,”

“Extreme”

and “Gold”

We also hold occasional promotions that offer discounted

subscriptions and virtual gifts.

Historically, our dating applications

generated revenue primarily through subscription fees.

Multiple subscription tiers were offered in one-, three- and six-month

Longer-term plans (those with durations longer than one platforms, subscriptions automatically renewed for periods of

the same length and at the same price as the original subscription term until terminated by the subscriber.

occasional promotions that offered initial discounted subscriptions that renewed at the regular price.

above, in January 2019 we sold substantially all of our dating assets for a cash purchase price of $1.6 million.

We recognize revenue from monthly premium

subscription services beginning in the month in which the subscriptions are originated.

Revenues from multi-month subscriptions

are recognized on a gross and straight-line basis over the length of the subscription period.

The unearned portion of subscription

revenue is presented as deferred revenue in the accompanying consolidated balance sheets.

We also offer virtual gifts to our users.

may purchase credits that can be redeemed for a host of virtual gifts such as a rose, a beer, or a car, among other items.

gift revenue is recognized upon the users’

utilization of the virtual gift and included in subscription revenue.

portion of virtual gifts revenue is presented as deferred revenue in the accompanying consolidated balance sheets.

Advertising Revenue

We generate a portion of our revenue through

advertisements on our video platforms.

Advertising revenue is dependent upon the volume of advertising impressions viewed by active

users as well as the advertising inventory we place on our products.

We recognize advertising revenue as earned on a click-through,

impression, registration or subscription basis.

Measurements of impressions include when a user clicks on an advertisement (CPC

basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on

or through our application (CPA basis).

Technology Services Revenue

Technology service revenue is generated

under licensing and service agreements that we negotiate with our clients that describe the scope of the development, integration,

engineering, licensing or other services that we will provide.

More specifically, we expect that we will generate technology service

revenue from our software solutions, such as PSP, through licenses to our clients that may be bundled with service and support

In addition, technology service revenue includes technology-based business development partnerships.

We expect that

any technology services agreements and business development partnerships are likely to contain pricing and other custom terms

based on the needs of the client, which may include compensation in the form of cash or cryptocurrency tokens or a mix of cash

and cryptocurrency tokens.

As described above, we recently entered into an agreement to

sell our Secured Communications Assets.

If the sale is completed, we do not anticipate generating any material technology service

revenue or pursuing technology services as part of our business strategy.

Costs and Expenses

Cost of revenue.

Cost of revenue consists primarily of compensation (including stock-based

compensation) and other employee-related costs for personnel engaged in data center and customer care functions, credit card processing

fees, hosting fees, and data center rent and bandwidth costs.

Beginning in April 2018, cost of revenue also includes compensation

and other employee-related costs for technical personnel and subcontracting costs relating to technology service revenue.

Sales and marketing expense.

Sales and marketing expense consists primarily of advertising expenditures

and compensation (including stock-based compensation) and other employee-related costs for personnel engaged in sales and sales

support functions.

Advertising and promotional spend includes online marketing, including fees paid to search engines, and offline

marketing, which primarily consists of partner-related payments to those who direct traffic to our brands.

Product development expense.

Product development expense, which relates to the development of

technology of our applications, consists primarily of compensation (including stock-based compensation) and other employee-related

costs that are not capitalized for personnel engaged in the design, testing and enhancement of service offerings as well as amortization

of capitalized website development costs.

General and administrative expense.

General and administrative expense consists primarily of compensation (including stock-based compensation) and other employee-related

We also hold occasional promotions

that offer discounted subscriptions and virtual gifts.

recognize revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated.

Revenues from multi-month subscriptions are recognized on a gross and straight-line basis over the length of the subscription

The unearned portion of subscription revenue is presented as deferred revenue in the accompanying consolidated balance

also offer virtual gifts to our users.

Users may purchase credits that can be redeemed for a host of virtual gifts such as a rose,

a beer, or a car, among other items.

Virtual gift revenue is recognized upon the users’

utilization of the virtual gift

and included in subscription revenue.

The unearned portion of virtual gifts revenue is presented as deferred revenue in the accompanying

consolidated balance sheets.

generate a portion of our revenue through advertisements on our video platforms.

Advertising revenue is dependent upon the volume

of advertising impressions viewed by active users as well as the advertising inventory we place on our products.

advertising revenue as earned on a click-through, impression, registration or subscription basis.

Measurements of impressions

include when a user clicks on an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an

external website via an advertisement by clicking on or through our application (CPA basis).

Service Revenue

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.

Communications.

During 2019 and the first quarter of 2020, we received technology service revenue in connection with our technology

services agreement (the “ProximaX Agreement”) with ProximaX Limited (“ProximaX”).

Effective June 24, 2019,

we entered into a termination agreement with ProximaX (the “Termination Agreement”), pursuant to which ProximaX was

required to make certain payments to us on a monthly basis through the remainder of 2019.

Since there is no assurance of collectability

on the payments due under the Termination Agreement, revenue is being recognized as the payments are received.

As described above,

we recently sold our Secured Communications Assets.

We do not anticipate generating any material technology service revenue in

the future or continuing to pursue secure communications software solutions as part of our business strategy.

Partnerships.

During the second quarter of 2020, we also recorded technology service revenue in connection with our agreement

to serve as a launch partner with YouNow and to integrate YouNow’s Props platform into our Camfrog and Paltalk applications

(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 the Camfrog application and (iii) 3.5 million Props tokens due upon the integration of

the Props platform in the Paltalk application.

The upfront fee is recognized as revenue under the output method based on the direct

measurements of the value of services transferred to date to the customer, relative to the remaining services under the YouNow

The milestones fees are recognized as revenue on the completion dates of integration services performed.

In addition, during the year ended December 31, 2020, 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.

The total net revenue value is recognized as earned.

the determining the value of the revenue for the Props tokens, we converted the Props tokens into U.S.

dollars using an independent

third-party valuation.

Digital tokens earned, receivable or payable before June 30, 2020, were recorded based on a $0.02 fair

value estimated at the end of the reporting period.

Digital tokens earned, receivable or payable from July 1, 2020 through December

31, 2020 were recorded based on an estimated fair value of $0.039.

expect that our future business development partnerships are likely to contain pricing and other custom terms based on the needs

of the client, which may include compensation in the form of cash or cryptocurrency tokens or a mix of cash and cryptocurrency

of revenue consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel

engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent and bandwidth

Cost of revenue also includes compensation and other employee-related costs for technical personnel and subcontracting

costs relating to technology service revenue.

and marketing expense.

and marketing expense consist primarily of advertising expenditures and compensation (including stock-based compensation) and

other employee-related costs for personnel engaged in sales and sales support functions.

Advertising and promotional spend includes

online marketing, including fees paid to search engines, and offline marketing, which primarily consists of partner-related payments

to those who direct traffic to our brands.

development expense.

development expense, which relates to the development of technology of our applications, consists primarily of compensation (including

stock-based compensation) and other employee-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.

and administrative expense.

and administrative expense consists primarily of compensation (including 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

2 unchanged sentences

of intangible assets.

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 (used in) operating activities under the ‟Results of Operations”

and ‟Liquidity and Capital Resources”

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 (used in) operating activities under

the ‟Results of Operations”

and “Liquidity and Capital Resources”

sections below.

Active subscribers, subscription bookings and Adjusted EBITDA

are discussed below.

Active subscribers (as of period end)

Subscription bookings

Net cash (used in) provided by operating activities

Adjusted EBITDA

Adjusted EBITDA as percentage of total revenues

Active subscribers,

Active subscribers means users of our consumer applications that

have prepaid a fee, redeemed credits or received an upgrade from another user as a gift for current unlocked application features

such as enhanced voice and video access, elevated status in the community or unrestricted communication on our applications and

whose subscription period has not yet expired.

The metrics for active subscribers are based on internally-derived metrics across

all platforms through which our applications are accessed.

We assess the performance of our consumer applications by measuring

active subscribers because we believe that this metric is the most reliable way to understand user engagement on our platform and

estimate the future operational performance of our applications.

We also believe that measuring active subscribers helps management

estimate future subscription revenue.

Because active subscribers generate the majority of our subscription revenue, as the number

of active subscribers to our consumer applications increases, the amount of subscription revenue generated from our consumer applications

also increases.

Active subscribers is distinguished from active users, which represents the total number of free and paid users

across all platforms during a certain period who access our various applications.

We believe that active users are important to

our operations because advertising revenue is largely dependent upon the volume of advertising impressions viewed by active users.

Active subscribers worldwide in all periods presented excludes active

subscribers to the dating services business, which was sold in January 2019.

Subscription Bookings

Subscription bookings is a financial measure representing the aggregate

dollar value of subscription fees and virtual gifts purchases received during the period.

We calculate subscription bookings as

subscription revenue recognized during the period plus the change in deferred subscription revenue recognized during the period.

We record subscription revenue from subscription fees as deferred subscription revenue and then recognize that revenue ratably

over the length of the subscription term or ratably over usage for virtual gifts.

Our management uses subscription bookings internally

in analyzing our financial results to assess operational performance and to assess the effectiveness of, and plan future, user

acquisition campaigns.

We believe that this financial measure is useful in evaluating the performance of our consumer applications

because we believe, as compared to subscription revenue, it is a better indicator of the subscription activity in a given period.

We believe that both management and investors benefit from referring to subscription bookings in assessing our performance and

when planning, forecasting and analyzing future periods.

While the factors that affect subscription bookings and subscription

revenue are generally the same, certain factors may affect subscription bookings more or less than such factors affect subscription

revenue in any period.

While we believe that subscription bookings is useful in evaluating our business, it should be considered

as supplemental in nature and it is not meant to be a substitute for subscription revenue recognized in accordance with GAAP.

Subscription bookings in all periods presented excludes subscription

bookings from the dating services business, which was sold in January 2019.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial

Adjusted EBITDA is defined as net loss adjusted to exclude net loss from discontinued operations, interest income, gain

on the sale of dating applications, income tax expense from continuing operations, depreciation and amortization expense, goodwill

impairment, impairment loss on digital tokens and stock-based compensation expense.

We present Adjusted EBITDA because it

is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends,

to develop short- and long-term operational plans and to allocate resources to expand our business.

In particular, the exclusion

of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of the cash operating

income generated by our business.

We believe that Adjusted EBITDA is useful to investors and others to understand and evaluate

our operating results, and it allows for a more meaningful comparison between our performance and that of competitors.

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

Some of these limitations are:

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

Adjusted EBITDA does not reflect our working capital requirements;

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

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

Adjusted EBITDA does not reflect the gain on the sale of our dating applications or our loss or income tax expense from discontinued operations;

other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Limitations of Adjusted EBITDA

Because of these limitations, you should consider Adjusted EBITDA

alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results.

The following

table presents a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance

with GAAP, to Adjusted EBITDA for each of the periods indicated:

Reconciliation of Net Loss to Adjusted EBITDA:

subscription bookings and Adjusted EBITDA are discussed below.

subscribers (as of period end)

cash provided by (used in) operating activities

$ (4,465,363 )

income (loss)

$ (8,380,060 )

Interest income

EBITDA as percentage of total revenue

subscribers means users of our consumer applications that have prepaid a fee, redeemed credits or received an upgrade from another

user as a gift for current unlocked application features such as enhanced voice and video access, elevated status in the community

or unrestricted communication on our applications and whose subscription period has not yet expired.

The metrics for active subscribers

are based on internally-derived metrics across all platforms through which our applications are accessed.

We assess the performance

of our consumer applications by measuring active subscribers because we believe that this metric is the most reliable way to understand

user engagement on our platform and estimate the future operational performance of our applications.

We also believe that measuring

active subscribers helps management estimate future subscription revenue.

Because active subscribers generate the majority of

our subscription revenue, as the number of active subscribers to our consumer applications increases, the amount of subscription

revenue generated from our consumer applications also increases.

Active subscribers is distinguished from active users, which

represents the total number of free and paid users across all platforms during a certain period who access our various applications.

We believe that active users are important to our operations because advertising revenue is largely dependent upon the volume

of advertising impressions viewed by active users.

subscribers worldwide in all periods presented excludes active subscribers to the dating services business, which was sold in

January 2019.

bookings is a financial measure representing the aggregate dollar value of subscription fees and virtual gifts purchases received

during the period.

We calculate subscription bookings as subscription revenue recognized during the period plus the change in

deferred subscription revenue recognized during the period.

We record subscription revenue from subscription fees as deferred

subscription revenue and then recognize that revenue ratably over the length of the subscription term or ratably over usage for

virtual gifts.

Our management uses subscription bookings internally in analyzing our financial results to assess operational performance

and to assess the effectiveness of, and plan future, user acquisition campaigns.

We believe that this financial measure is useful

in evaluating the performance of our consumer applications because we believe, as compared to subscription revenue, it is a better

indicator of the subscription activity in a given period.

We believe that both management and investors benefit from referring

to subscription bookings in assessing our performance and when planning, forecasting and analyzing future periods.

the factors that affect subscription bookings and subscription revenue are generally the same, certain factors may affect subscription

bookings more or less than such factors affect subscription revenue in any period.

While we believe that subscription bookings

is useful in evaluating our business, it should be considered as supplemental in nature and it is not meant to be a substitute

for subscription revenue recognized in accordance with generally accepted accounting principles in the United States (“GAAP”).

bookings in all periods presented excludes subscription bookings from the dating services business, which was sold in January

EBITDA is a non-GAAP financial measure.

Adjusted EBITDA is defined as net income (loss) adjusted to exclude net loss from discontinued

operations, interest income, net, gain from the sale of Secured Communications Assets, other expense, net, gain on the sale of

the Dating Services Business, income tax expense (benefit) from continuing operations, gain on office lease termination, impairment

loss on goodwill, loss on disposal of property and equipment, depreciation and amortization expense, impairment loss on digital

tokens and stock-based compensation expense.

present Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our

core operating performance and trends, to develop short- and long-term operational plans and to allocate resources to expand our

In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period

comparisons of the cash operating income generated by our business.

We believe that Adjusted EBITDA is useful to investors and

others to understand and evaluate our operating results, and it allows for a more meaningful comparison between our performance

and that of competitors.

use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation

from or as a substitute for analysis of our results as reported under GAAP.

Some of these limitations are:

EBITDA does not reflect cash capital expenditures for assets underlying depreciation and amortization expense that may need

to be replaced or for new capital expenditures;

Adjusted EBITDA

does not reflect our working capital requirements;

Adjusted EBITDA does not consider the gain from the office lease cancellation;

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

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

Adjusted Adjusted EBITDA does not reflect the gain on the sale of our dating

applications, the gain on sale of Secured Communications Assets, the net loss from discontinued operations or income tax expense

(benefit) from continuing operations;

other companies,

including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative

of Adjusted EBITDA

of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash

flow metrics, net income (loss) and our other GAAP results.

The following table presents a reconciliation of net income (loss),

the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of

the periods indicated:

Reconciliation of Net Income (Loss) to Adjusted

Net income (loss)

Interest income, net

Net loss from discontinued operations

Gain on sale of dating applications

Income tax expense (benefit) from continuing operations

Gain on sale of the Dating Services Business

Income tax expense from continuing operations

Depreciation and amortization expense

Gain on office lease termination

Impairment loss on goodwill

Gain from sale of Secured Communications Assets

Loss on disposal of property and equipment

Other expense

Impairment loss on digital tokens

1 unchanged sentence

Adjusted EBITDA

Results of Operations

In January 2019, we sold substantially all of the assets related

to our dating service business under the domain names FirstMet, 50more and The Grade, which we collectively refer to as the dating

services business.

As a result, during the first quarter of 2019, we began to separately report the results of the dating services

business as a discontinued operation in our consolidated statements of operations and present the related assets and liabilities

as held for sale in our consolidated balance sheets.

These changes have been applied for all periods presented.

Unless otherwise

noted, amounts and percentages for all periods discussed below reflect the results of operations and financial condition from our

continuing operations.

Refer to Note 3 of our Notes to Consolidated Financial Statements for additional information on discontinued

The following table sets forth consolidated

statements of operations data for each of the periods indicated as a percentage of total revenues:

Total revenue

of Operations

following table sets forth consolidated statements of operations data for each of the periods indicated as a percentage of total

and expenses:

and marketing expense

development expense

and administrative expense

loss on goodwill

costs and expenses

Cost of revenue

Sales and marketing expense

Product development expense

General and administrative expense

Impairment loss on goodwill

Total costs and expenses

Income (loss) from operations from continuing operations

Interest income

Impairment loss on digital tokens

(loss) from operations from continuing operations

loss on digital tokens

from sale of Secured Communications Assets

(loss) from continuing operations before provision for income taxes

Provision for income taxes

Net loss from continuing operations

Provision for income taxes resulting from discontinued operations

Gain on sale of discontinued operations

Loss from discontinued operations

Year Ended December 31, 2019 Compared to Year Ended December

In January 2019 we completed the sale

of substantially all of our dating properties.

Consequently, we expect that in future periods our total number of active subscribers,

as well as our subscription revenue and advertising revenue, will be significantly lower than prior periods as the active subscribers,

subscription revenue and advertising revenue derived from our dating properties will no longer be included in our results of operations.

Total revenues decreased to $15,283,617

for the year ended December 31, 2019 from $20,331,800 for the year ended December 31, 2018.

The decrease was driven by a decline

of $2,930,359 in subscription revenue primarily as a result of lower virtual gifts transaction volume and a 4.9% decline in active

subscribers, as well as a decrease of $1,549,365 in technology service revenue generated under the ProximaX Agreement.

The following table sets forth our subscription

revenue, advertising revenue, technology service revenue and total revenues for the year ended December 31, 2019 and the year

ended December 31, 2018, the decrease between those periods, the percentage decrease between those periods, and the percentage

of total revenue that each represented for those periods:

Subscription revenue

$ (2,930,359 )

Advertising revenue

Technology service revenue

Total revenues

tax benefit (expense)

income (loss) from continuing operations

tax expense on discontinued operations

on sale of discontinued operations

from discontinued operations

income from discontinued operations

income (loss)

Ended December 31, 2020 Compared to Year Ended December 31, 2019

revenue decreased to $12,832,672 for the year ended December 31, 2020 from $15,283,617 for the year ended December 31, 2019.

decrease was primarily driven by a decline of $2,898,627 in technology service revenue generated under the ProximaX Agreement,

which was partially offset by an increase in subscription revenue.

following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenue for the

year ended December 31, 2020 and the year ended December 31, 2019, 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:

of Revenue Years Ended

service revenue

$ (2,450,945 )

Subscription Revenue

Our subscription revenue for the year ended December 31, 2019 decreased

by $2,930,359, or 20.4%, as compared to the year ended December 31, 2018.

This decrease in subscription revenue for the year ended

December 31, 2019 was driven primarily by lower virtual gift transaction volume for both Paltalk and Camfrog products, which corresponded

to lower monthly active usage.

In addition, we experienced a decrease in active subscribers of approximately 4.9%, partially as

a result of diminished marketing and advertising spend of approximately $600,000 related to our consumer applications as compared

to the year ended December 31, 2018.

Advertising Revenue

Our advertising revenue for the year ended December

31, 2019 decreased by $568,459, or 56.5%, as compared to the year ended December 31, 2018.

The decrease in advertising revenue

was primarily due to a decline in the volume of advertising impressions, which resulted from a 16.0% decline in active users.

Technology Service Revenue

For the year ended December 31, 2019, we generated $3,439,327

of technology services revenue in exchange for providing certain development and related services to ProximaX to facilitate the

integration of PSP into ProximaX’s proprietary blockchain protocol.

Technology service revenue decreased by $1,549,365, or

31.1%, as compared to the year ended December 31, 2018 due to the termination of the ProximaX contract.

The portion of the upfront

fee associated with the ProximaX Agreement that remained unrecognized as of the termination of the ProximaX Agreement was $1,631,105

and was recognized as revenue upon such termination.

Costs and Expenses

Total costs and expenses for the year ended December 31, 2019

reflect an increase in costs and expenses of $4,018,275 or 20.2%, as compared to the year ended December 31, 2018.

The following

table presents our costs and expenses for the year ended December 31, 2019 and 2018, the increase or decrease between those periods

and the percentage increase or decrease between those periods and the percentage of total revenues that each represented for those

Cost of revenue

Sales and marketing expense

Product development expense

General and administrative expense

Impairment loss on goodwill

Total costs and expenses

Cost of revenue

Our cost of revenue for the year ended

December 31, 2019 decreased by $437,026, or 12.1%, as compared to the year ended December 31, 2018.

The decrease in cost of revenue

for the year ended December 31, 2019 was primarily driven by a decrease in compensation expense due to decreased headcount in

system administration support.

Sales and marketing expense

Our sales and marketing expense for the

year ended December 31, 2019 decreased by $747,350, or 41.4%, as compared to the year ended December 31, 2018.

subscription revenue for the year ended December 31, 2020 increased by $560,710, or 4.9%, as compared to the year ended December

The increase in subscription revenue was primarily driven by increased activity across all products from our existing

users resulting from an approximately 5.0% increase in subscription revenue per active subscriber.

In addition, we experienced

a change in the proportion of revenue generated between revenue from subscriptions and revenue from virtual gifts due to strategic

alignment of discounted price promotion.

advertising revenue for the year ended December 31, 2020 decreased by $113,028, or 25.8%, as compared to the year ended December

The decrease in advertising revenue was primarily due to a decline in the volume of advertising impressions related

to changes in third-party advertising partners.

Service Revenue

technology service revenue decreased by $2,898,627, or 84.3%, as compared to the year ended December 31, 2019.

The decrease in

sales and marketing expense for the year ended December 31, 2019 was primarily due to a decrease in marketing expenditures of

approximately $592,700 related to our video properties along with a decrease of approximately $171,600 in compensation to marketing

Product development expense

Our product development expense for the

year ended December 31, 2019 decreased by $27,494, or 0.4% as compared to the year ended December 31, 2018.

The decrease in product

development expenses for the year ended December 31, 2019 was primarily due to decreases in consulting expense of approximately

$75,300, offset by an increase in software expenses and compensation expenses.

General and administrative expense

Our general and administrative expense for the year ended December

31, 2019 decreased by $1,530,077, or 19.4%, as compared to the year ended December 31, 2018.

The decrease in general and administrative

expense for the year ended December 31, 2019 was primarily driven by the absence of non-recurring charges from 2018, such as approximately

$113,000 of transaction fees relating to cryptocurrency conversion into U.S.

dollars and $95,100 paid in recruiting fees.

Additionally,

there was a decrease in professional fees of approximately $811,200 and a decrease in compensation related expenses of approximately

$422,900 due to headcount reduction.

Impairment loss on goodwill

The Company recorded a $6,760,222 goodwill impairment for the

year ended December 31, 2019 due to the instability and declining market price of the Company’s common stock.

At December 31,

2019, the market price per share of common stock declined to $1.29 and, as such, the Company tested for an impairment and concluded

that the goodwill should be reduced as result of the decline in the market price of the Company’s common stock.

At December 31,

2019, goodwill was $6,326,250 compared to $13,086,472 for the year ended December 31, 2018.

Non-Operating Income (Loss)

The following table presents the components

of non-operating income (loss) for the year ended December 31, 2019 and the year ended December 31, 2018, the increase between

those periods and the percentage increase between those periods and the percentage of total revenues that each represented for

technology service revenue was primarily driven by the termination of the ProximaX Agreement, which was partially offset by $525,748

generated under the YouNow Agreement.

costs and expenses for the year ended December 31, 2020 decreased by $12,308,973, or 51.5%, as compared to the year ended December

The following table presents our costs and expenses for the years ended December 31, 2020 and 2019, the decrease between

those periods and the percentage decrease between those periods and the percentage of total revenue that each represented for

those periods:

Interest income

Impairment loss on digital tokens

Income (loss) from discontinued operations

Total non-operating income (loss)

of Revenue Years Ended

and marketing expense

development expense

and administrative expense

loss on goodwill

costs and expenses

$ (12,308,973 )

Non-operating income (loss) for the year ended December 31, 2019

increased by $4,339,022, or 102.2%, as compared to the year ended December 31, 2018.

For the year ended December 31, 2018, the

Company recorded an impairment loss on digital tokens of approximately $2.5 million.

During December 31, 2019, further decreases

to the carrying value of these tokens compared to the quoted prices caused the Company to take a further impairment charge of $625,368.

Liquidity and Capital Resources

Consolidated Statements of Cash Flows Data:

Net cash provided by (used in) operating activities

cost of revenue for the year ended December 31, 2020 decreased by $601,370, or 18.9%, as compared to the year ended December 31,

The decrease in cost of revenue for the year ended December 31, 2020 was primarily driven by a decrease of approximately

$201,600 in hosting expenses and approximately $354,700 of compensation and software expenses related to the terminated ProximaX

and marketing expense

sales and marketing expense for the year ended December 31, 2020 decreased by $231,898, or 21.9%, as compared to the year ended

December 31, 2019.

The decrease in sales and marketing expense for the year ended December 31, 2020 was primarily due to a decrease

in overall marketing expenditures across all products as we increased our focus in social media.

development expense

product development expense for the year ended December 31, 2020 decreased by $1,537,967, or 23.4%, as compared to the year ended

December 31, 2019.

The decrease in product development expense was primarily driven by reduced headcount in our product and engineering

teams resulting in approximately $1,290,800 of reduced salary and other related expenses.

Additionally, for the year ended December

31, 2020, there was a reduction of approximately $201,600 of compensation expense related to the terminated ProximaX Agreement.

and administrative expense

general and administrative expense for the year ended December 31, 2020 decreased by $3,177,516, or 50.1%, as compared to the

year ended December 31, 2019.

The decrease in general and administrative expense for the year ended December 31, 2020 was primarily

due to headcount reductions resulting in approximately $1,924,600 of reduced salary, stock-based compensation and other related

In addition, the decrease in general and administrative expense was in part due to reduced legal fees of approximately

$505,400, reduced depreciation expense of approximately $184,800 and reduced rent expense of $329,300 resulting from an office

lease termination.

loss on goodwill

was no goodwill impairment for the year ended December 31, 2020.

At December 31, 2019, a $6,760,222 goodwill impairment was recorded

for the year ended December 31, 2019 due to the instability and declining market price of our common stock.

At December 31, 2019,

the market price per share of our common stock declined to $1.29 and, as such, we concluded that the goodwill should be reduced

as result of the decline in the market price of our common stock.

At December 31, 2020 and 2019, goodwill was $6,326,250.

Non-Operating

following table presents the components of non-operating income for the year ended December 31, 2020 and the year ended December

31, 2019, 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:

of Revenue Years Ended

loss on digital tokens

from the sale of Secured Communications Assets

from discontinued operations

non-operating income

Non-operating

income for the year ended December 31, 2020 was $128,954, a net increase of $35,274, or 37.7%, as compared to non-operating income

of $93,680 for the year ended December 31, 2019.

The increase in non-operating income was driven by a $250,000 gain from the sale

of the Secured Communications Assets and by the absence of impairment loss during the year ended December 31, 2020, which was

partially offset by a $72,823 loss recognized upon the sale of 124,752,914 XPX tokens during the year ended December 31, 2020.

and Capital Resources

Statements of Cash Flows Data:

cash provided by (used in) operating activities

$ (4,465,363 )

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

cash provided by investing activities

cash provided by (used in) financing activities

change in cash and cash equivalents

$ (3,128,318 )

Currently, our primary source of liquidity

is cash on hand and cash flows from continuing operations, and we believe that our cash 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 of this report.

of December 31, 2019 and 2018, we had $3,427,058 and $6,555,376 of cash and cash equivalents, respectively, and no

long-term debt.

In the future, it is possible that we

will need additional capital to fund our operations, particularly growth initiatives, which we expect we would raise through a

combination of equity offerings, debt financings, other third-party funding and other collaborations and strategic alliances.

We may also attempt to raise capital through dispositions of our assets, such as our sale of the dating services business in January

2019 and our pending sale of the Secured Communications Assets.

To raise additional funds through dispositions, we may in the

future seek to sell all or a portion of our XPX tokens or Vumber, a small telecommunications services provider that we operate,

or certain of our patents, which we refer to collectively as our non-core properties.

Our need to generate additional capital

will largely depend on future capital requirements, which in turn will depend on many factors including our growth rate, headcount,

sales and marketing activities, research and development efforts and the introduction of new features, products, acquisitions

and continued user engagement.

Operating Activities

Net cash used in operating activities was $4,465,363 for the

year ended December 31, 2019, as compared to net cash provided by operating activities of $2,732,767 for the year ended December

This decrease in net cash provided by operating activities of $7,198,130 was mainly due to a one-time prepayment of the

ProximaX Agreement during the year ended December 31, 2018.

In addition, the decrease was in part a result of the non-recurring

payment of residual liabilities in connection to the sale of the dating services business as well as the payments of related legal

and transaction fees.

Investing Activities

Net cash provided by investing

activities for the year ended December 31, 2019 was $1,339,060 and net cash used by investing activities for the year ended

December 31, 2018 was $342,651.

The increase in cash used in investing activities for the year ended December 31, 2019 was

primarily the result of proceeds from the sale of the dating services business.

Financing Activities

Net cash used by financing activities for the year ended December

31, 2019 was $2,015 as compared to net cash provided by financing activities of $28,210 for the year ended December 31, 2018.

cash provided by financing activities during fiscal 2018 was the result of the exercise of employee stock options.

There were no

employee stock options exercised during fiscal 2019.

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

our primary source of liquidity is cash on hand and cash flows from continuing operations, and we believe that our cash 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 of this report.

As of December 31, 2020, we had $5,585,420 of cash and cash equivalents.

primary use of working capital is related to product development resources in order to maintain and create new services and features

in applications for our clients and users.

In particular, a significant portion of our working capital has been allocated to the

improvement of our products.

In the future, we may also seek to grow our business by expending our capital resources to fund strategic

investments and partnership opportunities.

May 3, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, we entered into a

promissory note under the Small Business Administration (“SBA”) Paycheck Protection Program under the recently enacted

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in favor of in favor of Citibank, N.A., as lender

(the “Lender”) in the aggregate principal amount of $506,500 (the “Note”).

The Note has a two-year term,

matures on May 3, 2022, and bears interest at a stated rate of 1.0% per annum.

Monthly principal and interest payments commenced

in December 2020.

We did not provide any collateral or guarantees for the Note, nor did we pay any facility charge to obtain the

The Note provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy,

breaches of representations and material adverse effects.

On January 13, 2021, the Note was fully forgiven by the SBA and the

Lender in compliance with the provisions of the CARES Act.

We do not expect to incur additional indebtedness under the CARES Act.

May 29, 2020, we completed the sale of the Secured Communications Assets 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.

The Amended and Restated Agreement 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.

the future, it is possible that we will need additional capital to fund our operations, particularly growth initiatives, which

we expect we would raise through a combination of equity offerings, debt financings, other third-party funding and other collaborations

and strategic alliances.

We may also attempt to raise capital through dispositions of our assets, such as our sale of the Dating

Services Business in January 2019 and the sale of the Secured Communications Assets in July 2020.

cash provided by operating activities was $1,435,300 for the year ended December 31, 2020, as compared to net cash used in operating

activities of $4,465,363 for the year ended December 31, 2019.

The increase in net cash provided by operating activities of $5,900,663

was as a direct result of our streamlined plan of operations to reduce expenses.

For the year ended December 31, 2020, operating

expenses were reduced by $12.3 million, or 51.5%, compared to the year ended December 31, 2019.

cash provided by investing activities was $225,406 for the year ended December 31, 2020, as compared to net cash provided by investing

activities of $1,339,060 for the year ended December 31, 2019.

The decrease in net cash provided by investing activities for the

year ended December 31, 2020 was primarily due to the absence of proceeds from the sale of the Dating Services Business, offset

by the proceeds received from the sale of digital tokens and the sale of the Secured Communications Assets.

cash provided by financing activities was $497,656 for the year ended December 31, 2020 as compared to net cash used in financing

activities of $2,015 for the year ended December 31, 2019.

The increase in net cash provided by financing activities for the year

ended December 31, 2020 was primarily due to the Note proceeds received in order to help ensure adequate liquidity in light of

the uncertainties posed by the COVID-19 pandemic.

This increase was offset by the repurchase of common stock pursuant to our stock

repurchase plan.

Obligations and Commitments

discussed above, on May 3, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic,

we entered into the Note in favor of the Lender in the aggregate principal amount of $506,500.

The Note has a two-year term, matures

on May 3, 2022, and bears interest at a stated rate of 1.0% per annum.

Monthly principal and interest payments commenced in December

We did not provide any collateral or guarantees for the Note, nor did we pay any facility charge to obtain the Note.

Note provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy,

breaches of representations and material adverse effects.

On January 13, 2021, the Note was fully forgiven by the SBA and the

Lender in compliance with the provisions of the CARES Act.

We do not expect to incur additional indebtedness under the CARES Act.

May 1, 2019, we entered into a lease agreement for office space located at 122 East 42nd Street in New York, NY and paid a $133,968

security deposit in the form of a letter of credit.

The term of the lease ran until April 26, 2023.

Our monthly office rent payments

under the lease were approximately $33,492 per month.

On June 22, 2020, we entered into an agreement to terminate the lease for

this office space.

Pursuant to the terms of the agreement, we vacated the offices on June 30, 2020 and we agreed to forfeit its

security deposit of $133,968.

May 1, 2019, we entered into a sublease agreement with Telecom Infrastructure Corp.

(“Telecom”) for office space located

at 122 East 42nd Street in New York, NY, pursuant to which Telecom was required to pay us $11,164 per month.

The term of the sublease

ran until April 26, 2023.

On June 18, 2020, we entered into an agreement to terminate the sublease for this office space.

to the terms of the agreement, Telecom vacated the offices on June 30, 2020.

Following the termination of the lease for office

space at 122 East 42nd Street, we moved our principal offices to 30 Jericho Executive Plaza in Jericho, New York.

We entered into

the lease agreement with Jericho Executive Center LLC on June 7, 2016 for office space at 30 Jericho Executive Plaza, which commenced

on September 1, 2016 and runs through November 30, 2021.

Our office rent payments under the lease are currently approximately

Our monthly office rent payments under the lease are currently approximately

$5,900 per month.

On May 1, 2019, the Company entered into

a lease agreement for office space located at 122 East 42nd Street in New York, NY and paid a $133,968 security deposit in the

form of a letter of credit.

The term of the lease runs until April 26, 2023.

The Company’s monthly office rent payments

under the lease are currently approximately $33,492 per month.

On May 1, 2019, the Company entered into

a sublease agreement with Telecom Infrastructure Corp.

for office space located at 122 East 42nd Street in New York, NY, pursuant

to which Telecom Infrastructure Corp.

is required to pay the Company $11,164 per month.

The term of the sublease runs until April

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not have any off-balance sheet

arrangements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Not applicable.

Sheet Arrangements

of December 31, 2020, we did not have any off-balance sheet arrangements.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 5. Market for Registrant’s Common Equity