What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-23 compared with 2021-03-23 · 18 added, 556 removed, 6 unchanged (99% of the section changed)

MARKET FOR REGISTRANT’S

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

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

market quotations of the bid prices reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not

necessarily represent actual transactions.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

common stock is quoted on The Nasdaq Capital Market (“Nasdaq”) under the symbol “PALT.” Our common stock was

quoted on the OTCQB under the symbol “PALT” during the 2020 fiscal year, the first two fiscal quarters of 2021 and for a

portion of the third quarter of 2021.

We completed an uplist to Nasdaq on August 3, 2021.

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

by Nasdaq or the OTCQB, as applicable.

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

over-the-counter market quotations of the bid prices reflect inter-dealer prices, without

retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

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

1 unchanged sentence

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.

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 21, 2022, there were approximately

53 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.

were no sales of unregistered securities during the year ended December 31, 2021 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, 2021.

SELECTED FINANCIAL

MANAGEMENT’S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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.

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:

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;

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,”

“Extreme,”

“VIP”

and “Prime”

for Paltalk and “Pro,”

“Extreme”

and “Gold”

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

other professional services.

General and administrative expense also includes depreciation of property and equipment and amortization

of intangible assets.

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.

subscribers (as of period end)

cash provided by (used in) operating activities

$ (4,465,363 )

income (loss)

$ (8,380,060 )

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 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

Stock-based compensation expense

Adjusted EBITDA

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

(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

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 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

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:

of Revenue Years Ended

and marketing expense

development expense

and administrative expense

loss on goodwill

costs and expenses

$ (12,308,973 )

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 )

cash provided by investing activities

cash provided by (used in) financing activities

change in cash and cash equivalents

$ (3,128,318 )

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 monthly office rent payments under the lease are currently approximately

$5,900 per month.

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